India's four-way payment platform conviction: tapping emerging markets - how India's payment gateway industry is poised to change the world

Some small office corners offered to Falguni Nayar out of goodwill in early 2012 witnessed Nykaa's humble beginnings, and the company started with just three employees. By the time the 2020 epidemic hit, it became one of the 11 Indian unicorn companies of that year.

Shared success: the digital shopping ecosystem

However, it is incorrect to attribute the success of e-commerce, such as Nykaa, to blockades alone. It all goes back to the digitisation of currency, which has ensured that digital payment systems have penetrated a smaller part of India. It also highlights the concurrent growth of digital payments infrastructure in India.

Take a look at this data. Growing from Rs. 10,004 crore in 2016-17 to Rs. 5,554 crore in 2020-21, digital payments have grown five-fold. The digital ecosystem including e-commerce and digital payments has been growing, making India a potential market for the payment gateway industry.

Payment gateway services in India: a slice of history

Till 2018-19, the payment gateway industry grew globally and in India, but the domestic market lagged. It all started with the emergence of Billdesk in 2000. However, this was just a superficial starting point and a lot more was yet to be seen. With the gradual growth of e-commerce, consumers are looking for more than just the convenience of home delivery, they also want security as data privacy issues have been increasing over the past few years (thanks Mark).

But now, the Indian payment gateway industry is expected to grow at a CAGR of 15% from 2020 to 2025.

Let's take a look at the key factors that are driving this growth in addition to e-commerce and online shopping becoming a mass habit.

Digitising money: the invisible blessing

Paytm is the biggest success story of this initiative, with its customer base increasing from 800,000 to 5 million in a year. From food stalls in the hills to supermarkets and shopping malls, everyone started accepting wallet payments and the digital payments ecosystem started taking shape. Wallet apps, UPI apps, payment gateways, online credit organisations and others have come on board to solve new problems and create new experiences.

Closure and opening

While the embargo has pushed the world economy to the edge of a cliff, many trends are becoming the "new normal". In order to avoid brick-and-mortar shops and compensate for the shutdown, the digital payment market is even expanding to the elderly population, who will make their first online purchases in 2020.

Consumers in different regions are starting to show similar buying patterns. The demand for convenient cross-border payments has skyrocketed. Payment gateways promise not only convenience, but also security and speed. post 2019 consumers seek one-click/one-touch payments, easy tracking, multiple updates, simple returns process, data privacy and many other benefits.

This is the reason why e-commerce and payment gateway services are growing in parallel in the Indian economy.

Government effect: RBI support to payment gateway providers

Since the digitisation of currency, the Government of India and the Central Bank have been promoting digital payments. Here are some of the key decisions/steps.

RBI launched RBI-DPI (Digital Payments Index) in January 2021 to show the extent of payments digitisation in India. The parameters include (weightage in per cent):

Payment Facilitator: 25%

Demand-Side Payment Infrastructure Factors: 10%

Supply Side Payment Infrastructure Factors: 10%

Payment Performance: 45%

Consumer Centricity: 5%

Govt announces MDR (Merchant Discount Rate) fee waiver for UPI transactions.

RBI's Guidelines on Payment Aggregators and Payment Gateways issued in March 2020 protects customer funds and recognises aggregators as authorised entities, giving them flexibility and control over operations and funds management.

NPCI (National Payments Corporation of India) plans to launch UPI Tax Payments in collaboration with the Income Tax Department.

NHAI (National Highway Authority of India) has introduced FASTag for motorists for digital and contactless toll payments on national highways.

RBI is reviewing the 'interoperability' guidelines for the use of UPI QR codes in ATMs in India.The FDI policy for B2B e-commerce businesses was revised and clarified in 2019. B2B e-commerce businesses adopting marketplace model are allowed to carry out FDI of 100% through automated routes.

With key steps announced in Budget 2022 such as connecting postal offices to the core banking system, setting up of new digital banking units, the much talked about 'crypto rupee' etc., digital inclusion is about to get a huge boost. The digital payments ecosystem will only get a further boost as the customer base grows.

The bigger picture

Budget 2022 highlights the fintech ecosystem and digital economy. Through initiatives such as tax incentives for startups and MSMEs, more e-commerce ventures are likely to emerge, thereby driving demand for payment gateway services in India.

Words like "vibrant", "robust" and "huge" are being bandied about to describe India's digital economy. As one of the largest Internet consumers in the world, we are destined to reach that level.

What's next?

We now need to keep a close eye on how digital payment gateway providers are seizing the opportunity to create, develop, curate, convert and promote world-class solutions for India's Millennials, Gen Z, Baby Boomers and Seniors. This is certainly a huge challenge in the face of our diverse demographics, socio-cultural classes and psychographics.

With the additional favourable environment, continuous innovation in fintech and growing acceptance of new products by the masses, we can confidently foresee a revolution in the digital payments ecosystem and with it, the payment gateway market.