Professional Documents
Culture Documents
BCG-Google Digital Payments 2020-July 2016 - tcm21-39245 PDF
BCG-Google Digital Payments 2020-July 2016 - tcm21-39245 PDF
BCG-Google Digital Payments 2020-July 2016 - tcm21-39245 PDF
2020
THE MAKING OF A $500 BILLION ECOSYSTEM
IN INDIA
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s
leading advisor on business strategy. We partner with clients from the private, public, and not-for-
profit sectors in all regions to identify their highest-value opportunities, address their most critical
challenges, and transform their enterprises. Our customized approach combines deep insight into
the dynamics of companies and markets with close collaboration at all levels of the client
organization. This ensures that our clients achieve sustainable competitive advantage, build more
capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with
85 offices in 48 countries. For more information, please visit bcg.com.
DIGITAL PAYMENTS 2020
THE MAKING OF A $500 BILLION ECOSYSTEM IN INDIA
CHILMAN JAIN
3 EXECUTIVE SUMMARY
While different markets have seen different types of players and solu-
tions becoming successful, some elements of winning models stay
common. These include having a compelling value proposition, access
to a large customer base, conducive infrastructure, supportive regula-
tions and leveraging next-gen technology.
•• Cash to non-cash ratio will invert over the next ten years:
Digitisation of cash will accelerate over the next few years. Non-
cash payment transactions, which today constitute 22 percent of
all consumer payments, will overtake cash transactions by 2023.
Digital payments instruments will drive the growth in non-cash
payments.
EXHIBIT 1.1 | Number of FinTechs Tripled and Funding Grew 7x Over Last 10 Years
2005 2010 2015
Total companies: ~649 1167 2x ~1855
Total funding: $3 bn $5 bn 4x $20 bn
Emergence of Emergence of
lending platforms cryptocurrency
like peer to peer
Early players in
credit/debit cards, Emergence of
payments and new cluster in
Strong growth in real estate
security payments: funding
transfers,
processing, etc.
50 45
29
5 4 2
0
Ant Financial First Data Stripe One97 Mozido
Services Group
Sources: Quid, BCG analysis, CB Insights, Finovate March 2016. Quid, BCG / Expand / BCG Digital Venture / B Capital analysis.
Note: 980 companies related to retail banking were discovered with Quid and allowed to cluster based on similar products, technology, customers
etc. Quid database includes companies who have received equity investment since 2011. Publically available information on product, business,
funding etc. is then collected for the company lifetime.
1Unicorns are startups with valuations >$1 billion.
In emerging markets, where cash still domi- Digital payments nearly 20 percent of
nates, governments have been promoting retail transaction value by 2020
electronic payments. United Arab Emirates The total value of global retail payments
has implemented a program aimed at achiev- transactions was estimated at USD 16 trillion
ing a cashless economy which includes the in 2015. This is estimated to increase to USD
mandatory use of payroll cards for wages, the 21 trillion by 2020. The estimation com-
establishment of an electronic payment gate- prised consumer to merchant transactions
way for government payments etc. In China, across retail verticals such as food and gro-
the Central Bank and the China Banking Reg- cery, apparel, consumer durables etc. Digital
ulatory Authority are encouraging the devel- payments contributed to 8 percent of the
opment of digital payment platforms while overall global retail payments market in
strengthening regulations, anti-money laun- 2015 and the same is projected to increase to
dering initiatives and payment account cate- 18-24 percent by 2020.
gory management practices.
In-app payments and proximity transactions
are expected to be key catalysts driving
Rapid Evolution of Digital growth in the days ahead. Assuming a mo-
Consumer Payments mentum scenario, where digitisation contin-
We are poised at the beginning of a new era in ues at projected pace, a growth of 18 percent
payments that is set to welcome innovative is likely, with market size scaling USD 3.7 tril-
solutions such as third-party wallets, token that lion. However, in a breakout scenario, given a
will replace traditional credentials, and the use possible disruption by convenience, security
of biometrics as an authentication and authori- and Internet of Things, the growth rate is ex-
sation tool. Ubiquitous connectivity, biometrics, pected to be 24 percent, prizing the market
tokenisation, cloud computing, and the Inter- opportunity at USD 5.1 trillion.
net of Things are just a few of the digital trends
that will affect the way consumers transact and
interact with their payment partners. One Size Does Not Fit All
Different markets have seen different types
Digital consumer payments are evolving rap- of players and solutions becoming successful.
idly—from the traditional cash / card / While there appears to be no singular success
cheque model at the turn of the century to model seen so far, some common elements of
“online single channel closed models” in the a winning model can be identified, including:
Multi-devices,
Broad social
Connected
appliances
Internet of
things
Multi-channel, open, Beacons
fragmented in-store
3rd party wallets Connected
Ecosystem scope
•• Compelling value proposition (rather tance, has enabled PayPal to gain significant
than just a cool technology)—for traction. Launched by eBay, PayPal has aided
example, Starbucks in-app payment peer to peer payments online, processing
around USD 280 billion payments with reve-
•• Access to a large captive customer nues of USD 9.3 billion in 2015. However, the
base—for example, eBay for PayPal, solution is largely restricted to online pay-
Alibaba for Alipay ments rather than proximity payment, leav-
ing the POS field vacant for other players to
•• Conducive infrastructure—for example, come in.
NFC-enabled phones in USA for Apple
Pay or a consortium of banks as is the Apple Pay, from device manufacturer behe-
case for iDeal in Netherlands moth Apple, has made POS payments conve-
nient and quick for consumers. As a multipur-
•• Supportive regulations—for example, pose wallet, it offers a convenient digital
M-PESA in Kenya interface for existing cards and potential links
for coupon use. Apple Pay is based on NFC
•• Leveraging NextGen technology—for technology and depends on customers having
example, tokenisation for security, biomet- NFC-enabled smart phones.
rics for authentication by Apple Pay
One of the most successful in-app payment
•• Bundling payments and loyalty—for wallet centered on loyalty, is currently offered
example, Starbucks rewards loyal custom- by Starbucks. Customers earn rewards for cof-
ers through its payment app fee consumption and avail of promotional of-
fers on making mobile payments. Starbucks
USA has been able to process 6 million transac-
The issues faced by small e-merchants acquir- tions per month, offering high value to cus-
ing accounts that permitted credit card accep- tomers and having little need for payments
Highlighted below are few of the key •• Aadhar making KYC easier: The advent
regulatory steps that are currently enabling of Aadhar as a national identity instru-
digital payments in India. ment has made the KYC process extreme-
•• KYC relaxation for small transactions: ly easy. By linking a customer’s mobile
As per current RBI guidelines, there is no number electronically to his / her Aadhar
requirement for customers to undergo a account, the process is now much simpler
KYC process for transactions up to INR and hassle free. The Jan Dhan Initiative
10,000 per month on prepaid instruments. has seen over 270 million accounts being
This guideline makes it convenient for opened. This has brought millions under
customers to just download the wallet of the ambit of financial inclusion and has
choice and use the same for transactions made biometric authentication a reality.
without the need for documentation,
photographs etc. that are usually required •• Unified Payments Interface (UPI): The
to avail traditional banking services. Unified Payments Interface launched by
#2 in #2 in #2 in
#2 in the
the the the
world
world world world
15
+12%
13.69
1%
2%
12.22 6%
1% 3%
4% 8% Growth Growth
10.89
3% 6% 2% (FY 14 over (FY 15 over
4% 1% 9%
10 1% 3% FY 13) FY 14)
10% Mobile
12%
20% ECS3 Digital
50% 52%
25% Channels
26% POS
Internet
5 Branch
NEFT (in Branch) 5% -7%
Based
51% Cheque
51% 50%
Cash ATM 10% 15%
ATM
0
FY 13 FY 14 FY 15
Sources: FIBAC Productivity Survey 2015; RBI; IBA; BCG analysis.
1ATM/CDM includes withdrawals transactions at ATM and deposit transactions at CDMs. ATM and Mobile transactions included are financial
transactions only.
2Traditional channels include Cash and Cheque. Cash transactions refer to counter cash transactions within branch.
3ECS transactions can be initiated offline or through online channels but once set up.
4E-commerce transactions to include electronic transactions using debit and credit cards
NPCI is an integrated open architecture •• Bharat Bill Payment System (BBPS): Bill
set-up that could fundamentally change payments form a major component of
the way customers manage payments. retail payment transactions. Cash and
The UPI set-up proposes to stitch all cheque payments continue to be predomi-
services from Immediate Payment nant; particularly at the billers’ own
Service (IMPS), Automated Clearing collection points. Existing systems do not
House (ACH) to RuPay into one common fully address the needs of the consumers
platform. This would allow for seamless due to the lack of interoperability as well
interoperability and the potential as the lack of access to electronic pay-
unlocking of multiple solutions. The ments. Owned and operated by NPCI,
inherent open architecture will provide BBPS is envisioned as an ‘Integrated Bill
access to all payment service providers Payment System’ that is interoperable,
(PSPs), be it banks, FinTechs, payment accessible; cost effective and allowing
banks etc. It is also expected to provide multiple payment modes.
users with the flexibility of accessing
bank accounts through any PSP that is Emergence of nextgen payment ser-
connected to the UPI set-up. Moreover, vice providers
customers will be able to choose a virtual India has witnessed significant payments ac-
address in any format (mobile number, tivity in the last 3-4 years. The competitive
Aadhar ID, email ids etc.). This is expect- digital payment landscape in India now spans
ed to improve user experience and telcos, banks, wallet companies, e-commerce /
enable PSPs to provide easy and simple tech firms and, in the near future, payment
payment solutions. It is also expected to banks (Refer Exhibit 2.3).
enable multiple use cases on the UPI
platform—including peer to peer pay- Bank-led: In the past, banks have largely of-
ments, person to merchant payments and fered mobile banking apps with integrated
business to business payments. bill payment solutions. However, customer
Payzapp by HDFC
Pockets by ICICI
Movida by Pockets
Bank Kaypay SBIBuddy by SBI
HDFC Bank by ICICI Bank
led by Kotak Lime by Axis
Axis PingPay IDFC Ziggit
Aircel ICICI Bank Mobile Money
Airtel Money
Telco
led TATA Vodafone m-Pesa
Idea MyCash
mRUPEE
by Axis Bank
Money on Mobile Paytm Simpel Quikwallet Mowa
Oxicash
Prepaid / PayMate
Wallet
MobiKwik YPayCash Payumoney Chillr
ITZ cash
Oxigen American Express® ezeClick QwikCilver Freecharge Wallet
In order to reach unbanked or under-banked However, the economic model for payment
customers, wallet companies have now en- banks is challenging, given that they cannot
abled cash funding of wallets through inno- earn lending revenues or high rates of
vative solutions such as MobiKwik’s cash interest on floats due to requirement of
pickup service and Paytm’s tie-up with ICICI investing customer deposits in government
for cash loading at ICICI branches. securities. A few of the licensees such as
Cholamandalam, Uninor and Mahindra
•• Prepaid cards: Companies such as Finance have already returned their in-
Oxigen, Itz Cash, Suvidhaa and GI Tech principle approval to RBI.
offer solutions with an agent-assisted
offering to consumers who are not
digitally savvy. Primary usage in such
cases have been remittances and railway
Payment banks are well
ticket booking. placed to capitalise on the
Some of the PPI’s were acquired by tech
payments opportunity.
firms (e-commerce, radio cabs, entertain-
ment booking) to offer in-house wallet solu-
tions. For example, Snapdeal acquired Enhanced customer experience
Freecharge, Flipkart acquired FxMart to of- Indian customers are now used to a superior
fer Flipkart money and Amazon acquired experience owing to the popularity of e-com-
Emvantage. While Ola offers Ola Money, merce, and are demanding a similar experi-
Bookmyshow too has its own wallet app to ence from their financial services providers
service customers. With growing popularity as well. This includes seamless access to
of such wallets, several other companies bank accounts and payments, coupled with
have now applied for such licenses with the rewards, loyalty and offers.
total number of PPI licenses growing to 46
licenses in 2016. •• Superior & seamless customer experi-
ence: In the recent past, we saw India
•• Payment banks: Keeping with RBI’s being swept by the online shopping wave
stated objective of driving financial given the arrival of e-commerce entrants
inclusion and enabling high-volume such as Flipkart, Amazon, Snapdeal, etc.
low-value transactions thereby reducing The convenience and ease of buying
the dependence on cash, RBI provided almost anything and everything online
in-principal approval to eleven entities to while sitting at home proved to be too
set-up payment banks in 2015. These good to resist. It is expected that the
entities include telecom players (Airtel, popularity of online payments will soon
Vodafone, Uninor, Idea, Reliance Jio), mirror the popularity of shopping online.
tech-centric payment players (Paytm), This has been corroborated by the trends
next-billion focused players (NSDL, Fino, wherein the youth now prefer to use Ola /
India Post) and NBFCs (Mahindra Uber rides instead of conventional cabs to
Finance, Cholamandalam). The scope of avoid hassles of paying the exact amount
activities of a payments bank includes by cash. Paytm’s association with Uber
acceptance of demand deposits up to INR and Ola Money by Ola have perpetrated
one lac per customer, issuance of ATM / the “get in-get out” phenomenon in the
debit cards, offering payment and taxi industry. Thus, payments are now a
remittance services, acting as a Business background activity while the focus stays
600 600
+124%
400 38 7 400
+94% 314
0 0
2012-13 2013-14 2014-15 2015-16 2012-13 2013-14 2014-15 2015-16
Value
60 224 1,035 4,018 60 57 187 462
INR billion
INR /
1,124 2,367 6,022 10,394 897 431 596 618
transaction
80
66
62
60 57
51 50
48 48
43
40 38
32 31
21
20
0
One Click Offers Pay anytime Easy to track Convenience of No hassle
Payments anywhere small expenses not carrying cash of change
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%), Sample–Trialists.
Question: On the card are some reasons why people started using digital payments. Please select all those that apply to you.
Prepaid mobile recharge and bill pay- •• E-commerce and travel booking:
ments remain the most popular Cash-on-Delivery is a necessary evil and has
use-cases dominated Indian e-commerce payments, in
The digital payments landscape in India start- face of insufficient consumer trust and
ed almost solely on the single use case of pre- inadequate penetration of credit cards or
paid mobile recharges and this is echoed in our digitally active banking services. Most
research as well. Consumers are also using digi- e-commerce players accept payments in
tal payments for bill payments (mobile and cash, despite delayed payment receipts,
utility bills), e-commerce payments and travel logistical problems, higher supply chain
booking (Refer Exhibit 3.2). costs, less control and high pilferage in cash
handling. Of late, e-commerce websites have
•• Bill pay shows large potential of tectonic integrated with wallet players for seamless
shifts to digital payments: Bill payments payments, and are beginning to see traction.
remain the most inconvenient of use-cases Even online travel booking sites have
to fall under the scope of digital payments. started offering digital payments. However,
Around 30 billion bills worth USD 103 20 percent of online purchase transactions
billion are generated every year, of which, fail at checkout owing to customer aban-
70 percent are paid in cash. Bill payment is donment, patchy networks and glitches in
currently not interoperable and digital digital payment. Improved products that
payments players have had to sign up with ease final conversion display a high poten-
individual utility providers to facilitate tial in targeting online merchants.
payments. The top 10 electricity companies
have just 2,000 cash collections centers in •• Remittance / fund transfer: Peer to peer
India. However, with launch of the Bharat transfers or remittances will continue to be
Bill Pay System, a large inflection is expect- an important use-case for digital payment
ed as massive amounts of bill payments instruments. Digital payment instruments
will get digitised. like wallets and assisted payment service
40 36
31 31
29 28 29
22 20 22
20 18 16
14
0
Prepaid Mobile bill Other Ecommerce Travel Fund In store Other
mobile payment utility bills booking transfer (POS) services
recharge
Use cases
Metro Users Non metro users
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%). Sample–Trialists.
Question: For what all purposes have you ever used a digital payment instrument?
providers (Itz Cash, Oxigen, Suvidhaa etc.) According to the study on potential use-cases,
help urban migrants send money home consumers have shown high willingness to
without the need for queues etc. as com- adopt digital payment instruments for offline /
pared to banks. Thus, the adoption of physical payments, with food and entertain-
digital payment instruments for fund ment and organised retail forming the top 2 po-
transfers is expected to grow exponentially. tential use-cases (Refer Exhibit 3.3). Profession-
al services, transport and unorgainsed retail are
Currently there is limited usage of digital pay- other potential use-cases for digital payments.
ment instruments when it comes to physical
point of sale payments. This is because of limit-
ed reach and acceptance of such instruments
at merchant outlets. However, this is likely to
Consumers would like to use
gain traction and become an important use- digital payments for physical
case for digital payments in the days ahead.
point of sale purchases in
Point of sale to form the largest use- future
case for digital payments in future
The digital payments landscape in India has
long been in search of a “killer” use-case in As use-cases expand, the focus needs to be on
its chase for ubiquity of acceptance. Until being universal and providing services across
now, digital payment instruments and wallets multiple use-cases in order to earn maximum
have been popular for online transactions. revenue per customer.
However, the real growth in the usage of digi-
tal payments is expected to come from usage High frequency use cases driving us-
at physical points of sale. Point of sale P2M age of digital payments
payments will form one of the largest use-cas- Consumers have hitherto been used to pay-
es for digital payments. ing in cash. For digital payment instruments
Organized retail 71
E-commerce 66
Utility bills 61
Professional services1 52
Unorganized retail 48
0 20 40 60 80
%
Large format POS use cases
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%). Sample–Total.
Question: Mentioned list of regular payments that we make during the month, please tell us which ones are you most likely to use digital
payment instrument.
1Professional Services include school and tuition fees, milk vendor, LPG cylinder booking etc.
EXHIBIT 3.4 | Digital Payments: 3 Use Cases Per User; Used 8 Times Per Month
10 10
8 .2
8 8 7.7 7.5
6 6
4 4
3.2
2.7
2.2
2 2
0 0
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%). Sample–Trialists.
Question: Please tell us approximately how many times have you used digital payment instrument to pay for the following products / services.
Inertia of Non-
cash methods
Lack of compelling (33%)
value proposition Incentives / offers
(48%) from other
methods
(29%)
Complexity of using
(55%) Fraud / hidden
charges
(27%)
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%). Sample–Non Users.
Question: On the card are some reasons why people do not use digital payments. Please select all those that apply to you.
•• A Perceived lack of compelling value Security, identity theft and fraud are
proposition: About half of the users who not big barriers in India
had never tried a digital payment instru- Primary research data indicates that fraud and
ment, said that the reason they haven’t hidden fees do not emerge as top reasons hin-
used it is because they could not fully dering digital payment instruments. In fact, 2
comprehend the benefits or value. It is in 3 consumers who have never used any digi-
evidenced in the fact that they have not tal payments instrument, have no fear of fraud
heard a lot of people use or talk about / hidden charges (Refer Exhibit 3.5). Even for
digital payments. This does not give them a those customers who tried and quit, the likeli-
very strong motivation to alter behavior or hood of fraud, identity theft and hidden
adopt digital payments. charges did not feature as prominent pain
points (Refer Exhibit 3.6).
For non-users, the chief barriers to trial are
habit of using cash, complexity, and lack of a
compelling value proposition offered by a digi-
tal payment method. In order to acquire cus-
Unlike global markets, se-
tomers onto a digital payment instrument, cer- curity, privacy and fraud are
tain key points need to be addressed by the
payment service providers. The offering can be
not top of mind concerns
made more appealing through incentives and
offers to enable adoption. In addition, the user
interface needs to be intuitive and simple to 3 out of 4 merchants believe digital
ensure a seamless customer experience. To will grow big, accelerating future
drive mass adoption by consumers, expanding sales
merchant acceptance is critical. Providers can According to 84 percent merchants partici-
also look to educate customers and communi- pating in the survey, the most important
cate the benefits clearly. driver for digital payment usage amongst
% of respondents
50 47
44 43 42
40
30 29
20
10
10
0
Need to remember Not everyone Possibility for Not enough Likelihood Hidden charges
multiple passwords accepts this technical / balance of fraud
& usernames payment human mistake
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%). Sample–Lapsers.
Question: Please tell us what are some problems you have faced with this type of payment? Please answer basis your personal experience only.
merchants, who are aware of digital pay- No clear benefits, proclivity towards
ments, is convenience over cash. The re- cash and complexity are key barriers
search also highlights the fact that most mer- for merchant trials
chants struggle with small change, with 87 percent merchants who have never tried
some literally paying money to obtain the digital payments state that digital payment
requisite change to manage their day. Mer- instruments do not offer significant advan-
chants value the avoidance of this struggle tages / value benefits over existing methods
for change, the convenience of not having to such as cards. They are used to dealing in
store and manage cash, and the added bene- cards and believe that other methods pro-
fit of being able to account for and track vide better incentives and given many other
transactions. options, there does not exist a catalyst to
drive adoption of digital payments (Refer
Exhibit 3.8).
75 percent of merchants Transactional speed is critical while compet-
believe that using digital ing with cash. Even though time saved in
managing large bills in cash, finding change,
payments would accelerate or engaging in daily cash counts and bank
future sales. trips is acknowledged, the loss of time in
peak hours due to time consuming transac-
tions and falling quality of customer experi-
The possibility of additional sales is another ence given delays in accepting digital pay-
primary motivation that draws merchants to ments are perceived to be serious challenges.
digital payments. 75 percent of merchants be- 78 percent merchants prefer cash.
lieve that the acceptance of digital payment
instruments would accelerate future sales The complexity of use presents a problem
(Refer Exhibit 3.7). for merchants—some merchants who don’t
Sources: Google–BCG market study based on Nielsen consumer survey of 1,516 consumers, 2016.
Note: Figures in (%), Sample–Trialists.
Question: On the card are some reasons why sellers / businessmen started accepting digital payments. Please select all that apply to you.
No clear benefits
over other payment
methods (87%)
Proclivity
Technical issues
towards Cash
(48%)
(78%)
Digital payments:
Barriers of usage
Sources: Google–BCG market study based on Nielsen consumer survey of 917 merchants, 2016.
Note: Figures in (%). Sample–Non Users.
Question: What are the reasons for not accepting digital payment instruments. Please select all that apply to you.
Disruptive
potential
Incremental
• Generate consumer demand
Increase awareness and
• Service: Physical call-centre, toll
Linear presence and better
free number, agent visits, easier
services
refunds
Sources: BCG analysis, Google–BCG market study based on Nielsen consumer survey of 917 merchants, 2016.
Fungibility and • Completely • Limited cash-in and cash- • Interoperability amongst digital
Access fungible out points instruments and bank accounts
• Shared infrastructure for fungibility and
access
Speed • Cash is fast • Time consuming, • Use of technology like tap and go (NFC,
especially at point of sale QR codes)
• Improving infrastructure connectivity
Ease of trial and • No onboarding • Merchant onboarding for • Easy documentation, quick and hassle-
onboarding required education and free KYC processes will incentivize
documentation onboarding
Tax • Tax management • Systemic / policy change • Systemic / policy change required
opportunity required
Convenience • Managing cash • Primary usage driver for • Integrating user interaction, consumption,
and ensuring ready both consumers (66%) payment
change is a hassle and merchants (84%) • Use of geo-tracking, consumer analytics
already • Link with merchant platforms to provide
pre-order type facilities to ease buying
and payments
Customization • Not Applicable • Communication and offer • Technology addresses personal needs
based • Enhanced financial products basis
consumer data
Security and • Risky to carry • Trust not a barrier • Improve technology to increase trust
risk • Call center, agents for grievance redressal
• Consumer education
1. Technology will make digital payments Some payment innovations that could be rel-
simpler evant in the Indian context are:
40
30
20
33.2
26.9
10 21.4 20.3
14.8 13.1 12.5
7.2 6.1 2.0
0
Australia Turkey France United Brazil United China Germany Russia India2
Kingdom States
ing able to merge offline and online be- ments by 2020. This will be a key factor in
haviour. An offline strategy should involve driving the penetration of digital payments in
analysis of customer lifecycles for use-cases the country. This 10 million is expected to
to identify points of value addition for cus- come from the current 15 million universe,
tomers and merchants. We believe that of- plus the potential use with “mobile mer-
fline should, and will be a priority, for all pay- chants”, for example, newspaper vendors,
ment service providers. milkmen, cable TV providers, insurance
agents etc.
Take the example of China. Both Alipay and
Tencent are leveraging offline, albeit in dif-
ferent manners, basis their strengths. Alipay
is using its massive scale to challenge Union
Merchant acceptance net-
Pay (credit and debit cards) by signing up work likely to grow 10X over
more Points of Sale (POS), partnering with
large retailers (7-Eleven, In Time Retail), us-
next 5 years
ing strong promotional schemes (offering
discounts offline of up to 50 percent at
restaurants and supermarkets) and offering Payments will drive consumption—
international shopping offers to high-end and not the other way round
customers. WeChat (Tencent’s instant mes- Digital payments will enable payment service
saging service) on the other hand, is using its providers to get access to customer transac-
chat platform to deeply integrate with user tion data, and will soon become a ubiquitous
behaviour. Peer-to-Peer (P2P) transfers are ecosystem comprising marketing, transactions
encouraged through WeChat messenger, and payments. Customer will be offered digi-
adding value to merchants with WeChat ser- tised valuables such as offers, coupons, loyal-
vice accounts. Merchants can also engage ty points, rewards, etc. from multiple brands
with customers on WeChat, for food orders, while enabling payment transactions through
store location services, reservations, custom- the use of data and analytics. It will work par-
er service etc. allel to merchants’ apps complementing them
and engaging with users, thereby providing a
In light of all of the above point, we estimate seamless shopping experience and giving
that 10 million plus merchant establishments merchants a presence on customer’s mobile
will accept digital and mobile based pay- device. Digital payments will pivot into an ex-
Primary research indicates that customers Despite these challenges, UPI holds the prom-
prefer ubiquitous solutions to using different ise of being a game changer for the digital
payment instruments for different use-cases. payments world. If suitably modified to over-
Smartphones shipped to India are often come challenges, it can drive large scale
stripped down versions, and have less memo- adoption of digital payments in the country,
ry, limiting the number of apps that can be in times to come.
downloaded and stored therein. Given all
this, customers would prefer to have fewer Digital identity will accelerate
wallets / apps with multiple uses than several customer acquisition
single-use apps. Using Aadhar, for online authentication and
confirmation of KYC data, will boost growth
This will drive consolidation in the payments of digital payment systems. Payment service
industry. Niche or single use case solutions / providers will be able to acquire customers
apps will get acquired by larger players, in digitally, significantly bringing down custom-
the quest to develop universal and ubiquitous er acquisition costs and improving economics
solutions. This is also likely to increase of the digital payments business. This will
throughput or velocity of transactions hap- also transform customer experience as cus-
pening through digital payment instruments. tomers will be seamlessly on-boarded on to
the digital payments platforms.
Modified unified payments interface
(upi) will be a game changer Cash to non-cash ratio will invert
NPCI’s Unified Payments Interface is aimed over the next ten years
at enabling interoperability between finan- Traditionally, India has been a cash economy.
cial instruments using a mobile interface. As Cash lends itself to certain characteristics of
outlined earlier, UPI is an open architecture universal acceptance, with no language barrier,
system, wherein any payment service provid- simplicity of use and speed of payment due to
er connected to UPI will be able to provide which Indian customers have largely preferred
payment and payment management solu- dealing in cash. Currency in circulation in India
tions to users registered on UPI. This would accounts for 18 percent of the GDP versus 3.5-
enable multiple use-cases on the UPI plat- 8.0 percent in mature markets such as UK,
form—including peer to peer payments, per- USA etc. India lags behind mature markets as
son-to-merchant payments and busi- well as key emerging markets such as Brazil
ness-to-business payments. Furthermore, and China in the move towards a cashless
users will not have to remember cumber- economy. In 2015, cash contributed to just 20-
some details like MMID numbers, branch 25 percent of overall consumer payments in
IFSC codes etc. to make payments with only developed nations, for example, US, UK,
the UPI ID sufficing to carry out transac- France and Germany as compared to 78 per-
tions. UPI will also have a two-factor authen- cent in India. Of the remaining 22 percent, 13
tication process to ensure security of finan- percent comprises digital (including NEFT,
cial transactions. RTGS, internet banking and mobile banking), 7
100
7%
18 %
25% 25% 28 % 13%
80 42% 39% 2%
53% 49%
59% 5% 3%
10%
60 27%
57% 13%
21% 4% 2%
15%
40 78 %
14% 69%
37% 16% 13% 60%
1% 2%
44% 47%
20
1% 22% 24% 24% 25%
9%
0
Australia France US Germany UK Brazil China Turkey Russia India
Developed Emerging
markets markets
Sources: BCG Global Payments Model 2015, Reserve Bank of Australia Annual Report 2014, Euromonitor Passport, 2015
1Digital includes electronic payments direct/ACH, mobile based payments etc.
0
2005 2010 2015 2020e 2025e
Cash: 5 year
0.8% 2.5% 5.0% 7.5%
CAGR
value instruments like mobile wallets (Paytm, from bank accounts or even by debit or credit
MobiKwik, Freecharge), store credits, prepaid cards. The prepaid amount can then be used
and gift cards etc. have made payments as per customer requirement.
through internet devices convenient and easy.
These instruments can be recharged with Digital payment instruments can also store
required value through cash, money transfers information such as the credentials of an ex-
EXHIBIT 4.4 | Digital Growth Journey from 13% in 2015 to 37% in 2025
100 2% 1% 3% 7%
5% 5% 12%
3% 21%
13%
2%
26%
1% 37%
50
92% 8 9%
1%
78 %
60%
41%
0
2005 2010 2015 2020 2025
EXHIBIT 4.6 | USD 500 Billion will Flow Through Digital Payments in India by 2020
Payment destination
Merchant /
Government
Person (P/C) Business
USD billion (G)
(M/B)
• Remittances
Person – Domestic—migrant labor
Digital payment instrument for • Road toll
(P/C) • Online merchant payments • Tax
remittances
– E-comm, Utility bills, etc. • Payments for applications
– International
• Seamless P2P56transfers • Proximity payments
224 • Payments to12semi
– In-store payments government organizations
– Friends, family, etc.
– Cash on delivery such as educational
• Digital micro payments
• Travel and transport institutions
Payment Initiation
% contribution
100 34
100
80
20
60
12
40 11
7
20 5
5
4
2
0
P2M Bill and Rent and Transportation Financial
market utility professional services
payments services and
Unorganized Modern Restaurants Ecommerce insurance Organized
retail trade and healthcare
entertainment
Use cases
Source: BCG analysis.
P2M payments by 2020. A critical criterion for to distributor payments, dealer and vendor
digital payments’ success is for them to trans- payments etc.
late into customer habits. Frequency of using
the instrument, therefore, assumes great sig- The digitisation of supply chain payments
nificance. Constraints of memory space in could also play a key role in supporting the
smartphones shipped to India cause any app digitisation of P2M payments as retailers
that is not frequently used to be deleted. would be more comfortable accepting pay-
Therefore, much like cash, a wallet needs to ments from consumers in digital currency.
be usable in multiple, high-frequency, every- This would also enable them, in turn, to be
day transactions to have relevance and conse- able to pay their suppliers or distributors in a
quence as these transactions by nature are similar currency. We thus, expect B2B pay-
small in amount. While there is large propen- ments to become the second largest use-case
sity for micro transactions to move to digital for digital payments by 2020.
payments, a non-prohibitive fee structure will
be important to render this into reality. Digital Peer to Peer (P2P) payments to
double by 2020
Business to Business (B2B) payments Remittances or Peer to Peer (P2P) payments
will gain traction through digital payment instruments have
Another potential use-case of digital pay- seen good adoption and growth over the past
ments is the exchange of payments between few years. We expect this trend to continue
small businesses and SMEs. Currently, these and estimate the penetration of digital pay-
payments are largely made in cash or through ments instruments for P2P payments to grow
bank cheques. As digital payment instruments from 15 percent currently to 30 percent by
gain prominence, we expect payment service 2020. However, primary research indicates
providers to create customised solutions that that there are certain challenges to overcome
cater to small businesses specifically. These in order to make the digital remittance value
could include supply chain payments, retailer proposition stronger.
% of respondents
40 38
30
25
20
17 16
10
2 2
0
Bank Money order Cash Digital payments Private Agent
companies
Modes of
remittance
+ 24/7 access
Lack of
+ Convenient to use
Time and effort safety, Expensive and
– Extra charges
intensive restricted lack of credibility
– Limited transaction
usage
amount
Sources: BCG analysis; Google–BCG market study based on Nielsen consumer survey of 1,008 consumers, 2016.
Note: Figures in (%). Sample—Total base of remittance consumers surveyed.
Question: Which of the below-mentioned payment methods have you ever used to send money to your family/friends?
In the short to medium term, an extensive net- While these enumerate some partnership ex-
work of cash-in and cash-out points will be im- amples, several options exist. The challenge
perative for digital payments to be absolutely and the opportunity lie in creating a viable
fungible. This network has to be created in a operating model that successfully creates val-
cost effective way, with no conflict of interest ue for both parties.
and clear retailer incentives and benefits.
Reduce entry barriers for customers:
Partner, partner, partner charge merchants and not customers
Payments business economics will be tight. The transaction charge for payment transac-
Combined with the fact that PSPs will need to tions, especially for Person-to-Merchant
offer a wide range of services, it is obvious that (P2M) transactions should be levied on the
one cannot do it all. Partnerships will also be merchant and not on consumers. Currently,
critical for the success of payment banks. merchants are generally used to paying Mer-
chant Discount Rates (MDR) on card transac-
Partnerships may help payments service pro- tions. Moreover, 75 percent of the merchants
viders with one or more of the following: covered in the primary research, believe that
acceptance of digital payment instruments
•• Lowering customer acquisition costs by like wallets will increase sales. Hence, it is
leveraging partner customer base: likely that a marginal transaction charge for
Partnerships can enable payment service use of a digital payment instrument may be
providers to acquire a large base of acceptable.
1 Other Investments
Payments at the
core–access to financial
customers services
Opportunity to target Other
Healthcare Travel
a large base of under banking
served customers services
(aspirers, next billion)
as well as by offering
convenience to the Social
served
Existing customer
base of life insurance Financial needs and potentials
clients
Life insurance Lending needs Investments
health status credit status risk appetite
Big data used for
precise marketing
Insurance Bank Investment
Sources: BCG China's Digital Generations 3.0: The Online Empire; BCG research.
Farm Crop /
equipment Irrigation weather Mandis2
Dealers Farmers Co-operatives
companies units insurance (rates)
Fertilizers
company Artiyas1
Pesticide
company Banks / Payment banks / Payments service providers Traders
Corporate
Seed buyers /
companies Technical exporter
Electricity Producer Weather services– Milk Co-
Distributors
company organization information seed operatives
testing
Looking ahead, it is clear that all payment Access “new to bank” customers
service providers, including payment banks, Banks that take leadership position in
will need to identity and adopt sustainable offering digital / alternate payments, will be
models of monetising customers acquired by able to attract new customers—who are
them, by offering innovative and differentiat- either unbanked or banking with other
ed payment solutions. Providers will need to financial institutions. With new payment
take a broader view of the opportunity and service providers / challengers acquiring the
think holistically to ensure economic viabili- existing payment services customer bases,
ty of their businesses. traditionally the bastion for banks, this
could pose a threat and potential loss of
customer relationships and possibly affect
Call to Action for Banks the CASA balance.
In order to maintain or defend their position
as key payment providers and related value In the new world of payments, it is challeng-
added services, banks need to take proactive ing for incumbent banks to create a compel-
action spanning several dimensions. ling proposition for digital consumers. Banks
The Boston Consulting Group FinTechs May Be Corporate FIBAC 2015—Inclusive growth
publishes other reports and articles Banks’ Best “Frenemies” with Disruptive Innovations
on related topics that may be of An article by the Boston Consulting A report by The Boston Consulting
interest to senior executives. Recent Group, July 2016 Group in association with The
examples include: Federation of Indian Chambers of
Global Retail Banking 2016: Commerce and Industry (FICCI) and
Banking on Digital Simplicity Indian Bank’s Association (IBA),
A report by the Boston Consulting September 2015
Group, May 2016
The Changing Connected
Customers Steer Digital Consumer in India
Trends Driving Retail Bank An article by the Boston Consulting
Transformation Group, April 2015
A report by the Boston Consulting
Group, May 2016 India@Digital Bharat: Creating a
$200 Billion Internet Economy
Charting a Course to an A report by the Boston Consulting
Optimised Payment Platform Group in association with Internet and
An article by the Boston Consulting Mobile Association of India (IAMAI),
Group, April 2016 January 2015
Ruchin Goyal
Partner and Director
BCG Mumbai
+91 22 6749 7147
goyal.ruchin@bcg.com
This document has been prepared in good faith on the basis of information available at the date of publication without any
independent verification. Neither party guarantees or warrants the accuracy, reliability, completeness or currency of the
information in this publication nor its usefulness in achieving any purpose. Readers are responsible for assessing the relevance
and accuracy of the content of this publication. While this report talks of various companies and industries, neither BCG, Neilson
or Google will be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on
information in this publication. This report is based on a primary qualitative and quantitative research executed by Nielsen.
Insights from the primary research have then been combined with BCG’s proprietary sizing model as well as Google search
trends and BCG’s industry intelligence. Global trends are a result of BCGs industry knowledge. Unless otherwise specified,
neither party takes any responsibility of the data cited in the report. This report does not purport to represent the views of the
companies mentioned in the report. Reference herein to any specific commercial product, process, or service by trade name,
trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring
by the BCG, Google or any agency thereof or its contractors or subcontractors.
Apart from any use as permitted under the Copyright Act 1957, no part may be reproduced in any form without written
permission from BCG and Google.
The subject matter in this report may have been revisited or may have been wholly or partially superseded in subsequent work
funded by either parties.
To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcgperspectives.com.
7/16