DIGITAL PAYMENTS

GROUP B-6
Ankita Tirkey MBA19090 Gowdaperu Prasanth MBA19104
Mayank Jain MBA19118 Ramneek Singhal MBA19133
Siddhant Jain MBA19147 Vysakh R Malayil MBA19161
 DEMAND SHIFTERS

 INCOME:
With increase in income, the demand for digital
payment solutions is expected to increase.
 PRICE OF RELATED GOODS:
Substitutes: Cash payments, debit/credit cards are
possible substitutes of digital payment solutions.
Complements: Mobile data has proved to be
complement for this industry. The arrival of Jio
showed an increase in digital payments. This can be
seen in the increase in number of UPI transactions
from the financial year 2015-16 to 2016-17.
DEMAND SHIFTERS

 CONSUMER EXPECTATION: A Nielsen survey showed that 66% of consumers

started using digital payments due to ease of usage. This is in agreement with the
data from the survey we conducted.
 EFFECTS OF TECHNOLOGY

 Rise in smartphone penetration in the country

in last 5 years
 Rise in internet connectivity across the
country
 Introduction of UPI by National Payments
Corporation of India (NPCI), with the support
of the Reserve Bank of India and Indian Banks
Association (IBA).
 Growth of E-commerce industry.

Digital Payment Transactions FY13 -FY17

 EFFECTS OF GOVT. REGULATIONS

 Acute cash crunch triggered by Demonetization accelerated the penetration of E-wallets and other digital
transactions in the country.
• From an estimated ₹154 crore in 2015-16 the e-wallet industry is expected to grow to ₹30,000 crore by end of 2021-
22.
 Digital India Movement
 Net-worth requirement for digital wallet companies hiked to ₹5 crore from ₹2 crore, with a minimum positive net
worth of ₹15 crore in three financial years.
• Entry barrier became tougher
• Serious players are staying back (more than 20 players opted out in a year)
• Struggling to comply with RBI rules for user-data verification of KYC and around 80% of transacting users are yet to
comply with KYC.
 Mobile wallet companies can now issue cards in partnership with payment networks like Mastercard, Visa, or RuPay,
which results some players from loyalty industry to enter the market even as the smaller ones exit.
 ELASTICITY OF DEMAND
 Own Price elasticity of these services is expected to be very
high. The players in the industry are not charging anything
for their services currently, and there are plenty of
substitutes with little to no cost, people will switch to
alternate solutions such as credit/debit cards in case of any
charges levied by these players.
 The own price elasticity of a firm is expected to be even
higher than the elasticity of the total market (as there are
multiple firms in the market providing similar payment
solutions). Therefore the Rothschild Index should tend to
zero.
 This gives us an indication that any firm which levies a
charge for the service will lose its customers to other
players. That is why there has been no efforts to even
recover the operating costs even after a boom in the digital
payments industry.
ECONOMIES OF SCOPE

 Since the service is priced at zero for all these players, the firms aren’t making
financial or accounting profits
 Hence economically this business isn’t viable and these firms should exit the
market
 These firms provide other services to exploit economies of scope. This means they
expect the digital payments venture to reduce the costs incurred in their other
ventures (for e.g. cost of acquiring customers)
 This is why all these firms have a related venture. PayTM has PayTM mall. Many
apps like PhonePe or FreeCharge offer options to directly invest in mutual funds.
PayTM and Google Pay have options to invest in gold etc.
FOUR FIRM CONCENTRATION RATIOS

 The industry is highly concentrated in India as well as in Kashipur. The four firm
concentration ratio for India according to NPCI data came out to be 0.91 while for
Kashipur we estimated it to be 0.97 using the data from our survey.
STRUCTURE OF MARKET

 There are few firms in market serving many customers

 The payment services provided are mostly identical
 The firms have already reached a point where prices can’t be further reduced due
to price competition
 Consumers have perfect information
 Net-worth requirement for digital wallet companies hiked to ₹5 crore from ₹2
crore, with a minimum positive net worth of ₹15 crore in three financial years.
 Entry barrier became tougher
 Serious players are staying back (more than 20 players opted out in a year)
All these factors imply that the market is close to BERTRAND OLIGOPOLY.
GAME THEORY AND PRICING WAR

 Suppose we have two players in the market A and B

 At the start of the game each player has a small positive payoff and we assume
equal number of customers
 Each player continues to undercut the other till there is zero economic profit
 In this case, as the market share is necessary for the firm to exploit economies of
scope, the firms have an incentive to keep on dropping prices even below the
operating costs
 Thus we have the current situation in the market, where prices are non existent
 If a payer doesn’t have deep pockets, they will still have to be a part of price war,
since, otherwise they would lose all their market share and lose all the costs
incurred till now
REFERENCES
 https://
economictimes.indiatimes.com/industry/banking/finance/banking/indias-digital-p
ayments-set-for-exponential-rise-google-bcg/articleshow/53380590.cms
 https://
economictimes.indiatimes.com/industry/banking/finance/upi-entities-may-face-c
ap-on-market-share/articleshow/70986116.cms
 http://
timesofindia.indiatimes.com/articleshow/67733084.cms?utm_source=contentofin
terest&utm_medium=text&utm_campaign=cpp
 https://
scroll.in/article/902689/after-an-incredible-boom-e-wallets-are-dwindling-in-india
 https://productcoalition.com/mobile-wallets-adoption-in-india-576e836f5327
 https://
economictimes.indiatimes.com/industry/banking/finance/banking/not-charging-e
Thank You