Payments in India: A discussion with Pranav Barthwal (Co-Founder of SaveAbhi)
In an upcoming broadcast showcasing FinTech trends in India, Shompa Choudhury (WG ’20) speaks with Pranav Barthwal about the evolving payments landscape in India and its related adjacencies into lending and wealth management.
Pranav Barthwal is the Co-Founder of Save Abhi — a Delhi-based FinTech startup that has re-envisioned savings and wealth management especially for millennials. SaveAbhi enables easy building of savings by rounding transactions to the nearest rupee and saving the change for investment. Previously, Pranav was in the payments space, heading a joint venture between ICICI Bank & First Data — a leading FinTech payments player providing POS terminals to over 400,000 merchants across India. . Pranav studied engineering at the Indian Institute of Technology Delhi and completed his MBA from INSEAD. Overall, Pranav has over 17 years of experience across payments, consumer goods and online learning organizations like First Data, Amex, and Reebok
In this blog post, we recap the key takeaways from our conversation with Pranav:
Payments in India: what was and what will be
The world of payments involves two key stakeholders: cardholders and merchants. Until the early 2000s, India featured 100,000 merchants with barely any individuals with credit cards.
The decade between 2000 and 2010 brought a big push for the digital payments space in India with card-acceptance increasing 10x from 100,000 merchants to 1 million. Why? For the first time, private sector banks (like Axis Bank, ICICI and HDFC) became strong contenders in the consumer lending space in India. The aggressive expansion of private banking coupled with increased discretionary spending and the rise of e-Commerce drove the strong increase in credit card and digital payment penetration throughout this decade.
Post this uptick, the payments space stagnated. Despite multiple players vying for increased credit card transactions, cash payments remained a strong part of the Indian consumer’s behavior. Plus, the lack of governance around cash transactions allowed merchants flexibility on reporting margins whenever they transacted in cash. On 8th November 2016, this stagnation was brought to a screeching halt. The Government of India decided to demonetize the ₹500 and ₹1,000 banknotes to curtail the shadow economy — and as a result, card-acceptance almost doubled overnight.
Critics argue that demonetization resulted only in a one-time correction; however, according to Barthwal this effort had a sustained impact on the payments landscape: “Merchants were vulnerable for the first time and understood the value of plastic.” In other words, merchants had realized that relying only on cash was no longer an option — opening the door to the world of digital transactions. On the other side of the equation, consumers moved withdrawing cash with debit cards to making payments with them.
Expanding beyond payments
A key challenge in the payments space has always been solidifying a sustainable business model. With increasing competition, the business has become increasingly transactional driving margins low. Thus, going forward, pure-play payments providers may find it challenging to make unit economics sustainable.
As such, many payment providers are seeking additional revenue streams. Many are looking to provide additional value added services to customers via payments and the resulting transactions data. Others, are seeking to enter adjacent financial spaces for revenue — the most obvious choices being consumer lending and wealth management.
Despite the promise of opportunity via these adjacencies, the ability to capture that revenue remains uncertain. Payments providers looking to leverage transactions data for small-ticket financing to merchants or consumers on their purchases will have to compete with existing NBFCs and FinTechs amidst an increasingly strict credit environment. Players looking to enter wealth management will face the challenge of monetizing their services and seeking the optimal investment opportunity amidst volatile equity markets in India.
Looking to the future
The future for FinTech in India across all spaces is unquestionably promising — and that applies resoundingly for the payments space as well.
The Knowns:
The Indian consumer has spoken about its preference in terms of payment channels: the future is mobile.
On the consumer side, payment providers that can provide an easily accessible and secure mobile interface for payments will succeed. As such, incumbent players including FinTechs should pay attention to threat of entry from telecom giants as well as players such as Amazon and Facebook that have not yet entered this space officially, but command a lion’s share of consumers’ mobile time.
On the merchant side, the future is expected to bring consolidation and simplification across payment devices into one aggregated device — likely also mobile — which will result in a lowered total cost of ownership.
The Unknowns:
Though the bright future for mobile seems secure, it remains to be decided which mode of interfacing with a mobile device will reign supreme for the Indian consumer. There are three major modes of interaction: (1) tap, (2) transfer, (3) QR codes. The average consumer in China has chosen the QR code as its preferred mode — but which technology emerges as the chosen one for India remains undecided.
Lastly, with the promise of increased penetration in the payments space, there is a looming threat of entry from a range of players. We mentioned telecom giants (notably Reliance Jio) as well as Amazon and Facebook above, but we cannot discount the power that other large industrialist groups in India could have if they decided to enter this space.
Thus, even with its challenges, India’s payments space will remain a prize in the future — but who ends up winning the prize remains to be decided.
