A great example of this leapfrogging trend can be found in India. As the country’s leading payments services provider, we are seeing first-hand that India is fast becoming a hub of payments innovation and disruption at scale. India is home to several of the ingredients necessary to encourage new technology to flourish and old systems to make way for new. Key among these ingredients are the increasing customer demand for digital payments, a supportive regulatory environment and a highly skilled tech market.
India’s intense smartphone growth is fueling the rapid adoption of digital payments. With 220 million users, India is now the second largest smartphone market in the world. Given that India has a population of over 1.25 billon, its appetite for mobile products and services is set to continue to boom.
In more established markets, the fact that electronic payments have been a mainstay for some time is the very reason that innovation is often stifled. With legacy infrastructure and entrenched customer behaviour – such as the USA’s commitment to the cheque – new and innovative payment technologies don’t have an easy path to maturity.
In contrast, smartphone growth in high growth markets such as India enables businesses who are unencumbered by ageing legacy systems to more easily adopt mobile-first, digital solutions. As smartphones become ubiquitous, consumers naturally seek frictionless payments that cater to their expectations. The better the experience on offer, the quicker the uptake will be.
One of the key challenges for innovation in high growth markets is the ability to offer a wide breadth of payment options. Indeed, in high growth markets like India, alternative payments – which refer to payments made using something other than a credit card like cash, coupons, bank transfers, prepaid cards etc. – still represent as many as two-thirds of all payments. This means that, although regulatory and legacy system barriers don’t exist, offering a frictionless customer experience remains operationally challenging and cost intensive.
When it comes to the challenge of how to best support multiple payment types, interoperability and open platforms are critical to help break down the barriers. We’re already seeing European regulators attempting to tackle these issues with the scheduled implementation of the Payment Services Directive 2 (PSD2) in 2018. High growth markets are showing first signs that they will follow suit, looking at their local capabilities and infrastructures and how to make these more open.
Fortunately, both Indian consumers and payment providers are supported in this open platform ambition by a progressive regulator that is open to adopting a legislative framework to promote innovation. This forward-thinking attitude was evident in the RBI’s November announcement of demonetisation, which laid out the mandate for the removal of as much as 86% of bank notes from the market. While the surprise element brought on personal difficulties for many citizens who rely on cash, the impact of this move also almost immediately changed the way people viewed and used digital payments platforms.
At PayU, we saw our daily transaction volume skyrocket by 80% immediately after the announcement was made. It then settled to a 25% increase compared with pre-demonetisation – still a significant number. While the long-term outcome of this demonetisation is still to be seen, the bi-product is large scale payments innovation, made possible by a regulator ready to disrupt the market.
India, like many high growth markets, has moved away from a commoditised, service/call centre-based tech economy to become a hub for technology development in its own right. Silicon Valley is no longer the only home for great startups and here at PayU we are working with entrepreneurs from India to Israel to bring world-leading tech to market.
Local market insight is a powerful thing. We’ve encountered startups and growth companies such as Creditas in South America and Zest Money in India that offer world class solutions to advance access to financial services in high growth markets.
This combination of consumer appetite, supportive regulation and a thriving entrepreneur community has laid the necessary foundation for India to leapfrog over more established markets. The conversation about high growth markets and financial services is no longer just focused on inclusion. With a strong pace of change, more and more payments companies from emerging markets are becoming the global leaders when it comes to worldwide payments innovation.