Instamojo Payment Gateway: It's said that India should learn from China and the US in mobile payments, but maybe an African approach is more appropriate

The Indian economy, which relies heavily on cash transactions, has been forced to embark on a path of changing its payment habits after Prime Minister Modi announced the scrapping of the 86% currency in circulation. This trend was further confirmed at the two-day GMIC conference by Rajan, head of Google India, who pointed out that 2017 is bound to be the year of internet finance dominance in India.

Payments are the lifeblood of internet businesses. E-payments are reshaping the payment habits of Indian consumers after the implementation of the currency demonetisation policy. According to the data released by Flipkart CEO Sachin at the GMIC site, the proportion of e-payment on Flipkart's platform has increased from 40% to 50%, while the proportion of cash-on-delivery transactions has further declined.

Anki, co-founder and CTO of Ola Cabs, analysed that due to the cash shortage, people will not cut down on their necessary travel expenses but will look for new ways of payment as an alternative to cash. Within a week of the new policy, the number of Ola Money users increased by more than 15 times, and this trend was more pronounced in Tier 2 and Tier 3 cities, where the number of Ola Money users in Tier 2 cities increased by more than 30 times.

Paytm seems to be the biggest winner in this painful transformation of payment methods in India. According to its CFO Madhur Deora, Paytm has amassed 155 million users since it ventured into the mobile payments business three years ago. In the week after the old currency was abolished, Paytm registered an average of 500,000 new users per day.

Further, Paytm has summarised three trends in the payments space based on data from the past week. Firstly, the frequency of mobile payments by inactive users on Paytm's platform has increased significantly after the abolition of the old currency. Secondly, users who were previously using only the online payments feature have started using mobile payments in offline scenarios. Thirdly, merchant users of Paytm started using the KYC (Know Your Customer) feature.

Outside of the venue, various Indian internet verticals have also capitalised on this shift in consumer habits. For example, Manish, CEO of Indian beauty e-commerce platform Purplle, told Zhudao that while the platform's GMV fell by 101 TP3T after the abolition of the old currency, the payment structure improved significantly, with the proportion of cash-on-delivery transactions dropping from 701 TP3T to about 151 TP3T.

As cash payments have been a thorny issue for the growth of e-commerce in India, it allows buyers to return as many items as they like. Many Indian buyers will purchase several garments in different sizes, try them on, keep only one and return the rest. This behaviour directly increases logistics costs across all segments of the e-commerce industry and complicates the collection process for sellers, leading to longer accounts receivable cycles. The Modi government's firm policies are forcing Indian consumers to optimise their payment habits.

The abolition of the old currency is the equivalent of a WeChat Red Packet event in India. The Indian mobile payments market has been in need of a "WeChat Red Envelope Event" to ignite the market. 2014, WeChat successfully attracted hundreds of millions of people to bind their bank cards through the Red Envelope feature during the Chinese New Year, which became a phenomenal event in China's mobile payments industry. Red Packet function, but failed to achieve explosive growth. Now, some voices believe that the abolition of the old currency will become India's "WeChat Red Packet event".

The Indian e-payments industry has been facing three pain points: developing payment habits, popularising the card network and smartphone and mobile internet coverage.

Madhur, CTO of Paytm, pointed out that only 600,000 offline merchants in India currently support card payments. After the abolition of the old currency, India's card network has come to a standstill and is extremely limited in its efficiency. The card payment system is more suited to developed countries than India. Developing an e-payment habit among Indian consumers cannot wait for the Indian bank card system to become robust.

Thus, Paytm has grabbed the huge entry point - offline payments. Madhur said Paytm started expanding into offline payments six months ago and the platform is adding an average of 5,000 new offline merchants per day. In the first ten days of November this year, the platform added an average of 10,000 offline merchants per day, and after the currency demonetisation policy was implemented, the number reached 20,000.Madhur predicted that by the end of this month, the total number of offline merchants added by Paytm will reach 500,000. Paytm's advertising and marketing strategy has now shifted towards attracting more offline merchants to use the offline payments feature.

On the other hand, according to Paytm, the frequency of P2P payments on the platform is also increasing, shifting from transfers between family and friends to consumer payments. Many offline merchants are asking customers to make payments directly to the merchant's personal Paytm account when they don't have cash.Paytm sees this as a great opportunity to build payment habits. Consumers will first experience the convenience of P2P payments and develop an e-payment habit, while merchants will join Paytm's offline merchant network after getting a taste of e-payments.

For example, at a community festival event near the old Bangalore airport, each stall was labelled with the merchant's Paytm account and QR code. Tens of thousands of offline sellers are now enabling Paytm payments every day, instantly expanding the offline payment scenario for mobile payments.

It's not just payment giants like Paytm. Sampad, CEO of local Indian payments company Instamojo, also told Zhudao that the number of registered merchants on its platform has increased by 3,001 TP3T after the new policy was implemented.

Creating diverse offline payment scenarios can directly bring consumers who have never experienced online payments into the e-payment user base and develop e-payment habits among Indian consumers, ahead of infrastructure improvements.

Speaking at GMIC, Amit Gupta, co-founder of InMobi, said that India needs the experience of the West and China now more than ever, but that China's experience is better suited to India than the US'. However, according to Madhur, India needs to learn all the innovative approaches from global payments players, but should never blindly imitate them.

Amit Gupta (left), co-founder of InMobi, and Madhur Deora (centre), CFO of Paytm, shared numerous valuable insights at GMIC.

Paytm has learnt its most practical lesson from Alipay - introducing QR codes in India. However, Madhur said that in the Chinese market, it is usually the consumer who provides a personal QR code, which is scanned by offline merchants using a scanning gun in order to complete the collection. In the Indian market, purchasing a scanning gun will incur additional costs for merchants and prevent offline merchants from adopting e-payments.

For this purpose, Paytm is providing QR code stickers to offline merchants, allowing customers to scan and pay using their smartphones at no additional cost to both parties. The Indian payments industry is a huge market, but only players who can reduce transaction costs to zero for both parties will succeed in this market, otherwise competition in the payments space will be very limited.

In May this year, Pew reported that India's current smartphone penetration is only 171 TP3T and is expected to reach 201 TP3T by 2020 (as per Stitasta data analytics website's projections), which, coupled with poor mobile network coverage, pose a major challenge in developing e-payment habits among non-smartphone users.

Facebook India head Umang shared at GMIC that India will still have over 500 million smartphone users in the coming years, but feature phones will dominate the Indian mobile market for a long time, creating a coexistence of smartphones and feature phones. Such a large non-smartphone market cannot wait for a wave of smartphone upgrades to develop e-payment habits. Africa may be a good example.

In 2007, Safaricom, one of Kenya's largest telecoms service providers, launched an e-wallet, M-Pesa, which allows users to complete all electronic transactions via SMS without the need to have a bank account or a smartphone in advance, and supports offline top-ups, which can be done at small, offline shops with the M-Pesa logo. M-Pesa also supports ATM withdrawals, where users can withdraw money from ATMs without a bank card by sending an SMS with a code marked on the ATM.

Smartphone penetration on the continent is less than 20%, but service providers such as M-Pesa and Airtel Money have fostered the e-payment habits of people in less developed areas by bundling personal information and mobile phone numbers, and using text messages for transfers and transactions.

According to the Central Bank of Kenya, as of April 2015, the number of mobile payment agents in Kenya reached 130,000, and more than 25.4 million people use mobile wallets, which is about 60% of the total population.Even the Maasai, who have yet to fully enter the modern world, and residents of Kibera, one of the largest slums in East Africa, transfer money, make payments, collect money, and even take out microloans via text messaging .

Based on the 50 million feature phone users in the Indian market, Indian e-payment players and giants like Paytm can take a cue from the African model and bypass the shortcomings of poor mobile network coverage, an imperfect card system and a limited bank account population, and develop the payment habits of this group through SMS money transfers and transactions to bring them onto the mobile payment network before the infrastructure improves.

After cultivating and establishing users' payment habits, the coverage and popularity of other Internet financial products will have a sufficient user base and eventually leverage the wave of Internet finance. For more exciting content, please follow the WeChat account (ID: taimeiti) or download the Taimeiti App.