In November 2016, the Government of India announced the demonetisation of all 500 and 1000-rupee banknotes to kickstart the process of a cashless economy and crack down on counterfeit banknotes. But having less physical cash in circulation produced mixed results and issues including some farming and automotive business owners being unable to pay their employees.
While this audacious decision has not fully purged the use of banknotes, it has, however, influenced Indian consumers into making more microtransactions using mobile payment technology.
According to Worldpay, the eCommerce market in India is predicted to double over the next five years driven by, in particular, digital payment technologies such as eWallets and mobile bank transfers. As a result, India’s eCommerce market is set to become one of the fasted growing economies in the Asia-Pacific region.
Worldpay data also indicates that India’s eCommerce industry is set to be worth $104 billion by 2021 – making it the seventh largest eCommerce market in the world. This growth will be largely driven by sales on mobile devices with mCommerce transactions predicted to quadruple in the next four years.
Mobile payments are booming
With demonetisation still in its infancy, India is still a cash economy. However, it’s been able to chip away at cash-driven spending by rapidly investing in its overall digital infrastructure. This includes broadband speed, mobile internet, mobile devices and, in particular, the mobile payment industry.
According to eMarketer, India is now the world’s fastest-growing “proximity mobile payment” market in the world. Proximity payments refer to either the tapping, scanning, swiping or checking in with a mobile device at the point of sale.
Mobile payment users increased by an astonishing 75% in 2017, from 32 million users in 2016 to over 56 million in 2017. This number is predicted to increase to over 77 million this year – nearly 30% of India’s total number of smartphone users.
Bank transfers also seem to be popular with Indian consumers, representing 27% of overall mobile payments, according to Worldpay, and is set to increase by 34% by 2021.
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This will no doubt have a huge impact on the number of cash on delivery transactions, which has historically been the prefered payment method for Indian consumers. In fact, Worldpay’s report expects Indian cash on delivery transactions to fall from 13.5% in 2018 to just 3% in the next five years.
While there are many digital payment solutions available, Paytm is the leading provider of mobile payments for eCommerce transactions, accounting for 9.9% of all online transactions in 2017, with PayPay following close behind with a 9.8% share of the Indian eCommerce market.
MobiKwik and FreeCharge, both of which offer prepaid debit cards, have also become popular with Indian consumers gaining 2.8% and 2.7% of total eCommerce transaction value respectively.
Digital wallets have seen widespread adoption over the last five years due to their easy onboarding process in a market with over 300 million smartphone users.
It’s thought that one of the biggest reasons for widespread adoption of digital wallets in India is the easy onboarding process. Users only need to download an app, link their credit or debit card and they’re all set to make their first purchase.
Despite the Indian government recently introducing tighter restrictions to eWallet companies, new regulations haven’t hindered adoption when it comes to mobile payment transactions.
In fact, competition in the Indian mobile wallet market seems to be intensifying as payment service providers, traditional banks and mobile network operators aim their sights at eWallet services to increase their customer base. So much so, that even Western tech companies are attempting to inch their way into the Indian market.
Google launched its mobile payment solution, Tez, in September 2017 enabling Indian users to link their smartphones to their bank accounts in order to pay for goods and services online and in-store, as well as peer-to-peer money transfers.
This move for Google comes as no surprise when you consider its Android operating system has over 65% market share in India.
An evolving eCommerce market
A shift from feature phones to smartphones, a drop in data costs and the flow of credit to consumers and micro enterprises, has allowed India’s eCommerce market to thrive during local economic setbacks. It’s a remarkable accomplishment when you consider that the tech industry has been plagued with company devaluations and funding cutbacks in recent years.
In a bid to take advantage of Indian consumers’ new appetite for online spending, mobile payment providers, including MobiKwik and FreeCharge, have generated huge competition in the market by focusing on value-added services.
Mobile top-ups, hotel and airline bookings, utility bill payments, cashback offers and discounts are just a few additional services that are now integrated into the leading local mobile payment providers’ tech offering.
Platforms such as Mobikwik make it easy for users to add money to their mobile wallet, pay bills and even pay for train tickets in one ecosystem.
These value-added services not only increase sales and customer loyalty, it also makes the transition from physical banknotes to digital cash an organic and less cumbersome process. Even mobile payment providers such as Paytm and Airtel have set their sights on other sectors, including banking services, after receiving approval from the Reserve Bank of India
Millennial consumers working in the tech and finance industry have also embraced new commerce channels and payment methods.
In fact, 95% of Indian fintech workers purchase goods or services online according to ACI worldwide. Furthermore, 20% of fintech workers preferred alternative payment methods. This number rises to 33% when shopping on a mobile device.
These young, upwardly mobile and affluent consumers are well versed in India’s evolving digital landscape, and in many cases, are part of the growing workforce that is driving the eCommerce and mobile payments market.
But the adoption of alternative payments doesn’t just benefit the consumer, the cost-effectiveness of payments via mobile wallets also appeals to merchants. The costs attributed to mobile payment services such as transaction fees and setting up a payment gateway can be much lower than traditional card-based payment hardware.
As alternative payments continue to disrupt the customer journey on-and-offline, and the payment value chain becomes progressively digitised, we could see could see widespread adoption of alternative payment methods by SMEs into wider parts of their business, including business software and POS systems.
If you want to target consumers in this growing economy, it would be wise to offer a range of local mobile payment options in order to provide a great customer experience and remain competitive.