Blockchain — a protocol for exchanging value over the internet without an intermediary — has the potential to transform multiple industries and make processes more transparent, secure and efficient. Financial players are the first movers to capitalise on this technology infrastructure. Several industries and governments are waking up to the disruptive potential of this technology.
As India moves towards a less-cash economy after the remonetising of high-value currency notes in November 2016, digital payments are estimated to grow 10 times: from $50 billion last year to $500 billion by 2020. Official figures show that prepaid payment instruments registered a spectacular volume growth of over 162% in 2016-17.
mobile wallet market is forecast to reach $4.4 billion by 2022 with a compound annual growth rate of more than 148%. As India’s migration to digital platforms gathers pace, cutting-edge solutions will enable consumers to do much beyond payments for daily-use items like groceries, milk, fuel and medical supplies, and access top-end services like loans, investments, savings and crossborder remittances.
The uptake can be largely credited to GoI’s Aadhaar digital identification programme using biometrics like fingerprint and iris scans to record data of 1.3 billion Indians. Through the open data platform, private technology developers are building a range of personalised services on top of Aadhaar data, like stacks.
RBI has been promoting the Unified Payments Interface (UPI), which has well-designed applications and offers instant settlements. It has outpaced other forms of digital payments in terms of growth. While most UPI transactions are peer-to-peer, UPI allows tech companies to build innovative products on top of it while it acts as a settlement railroad.
In December 2016, Prime Minister Narendra Modi launched the Bharat Interface for Money (BHIM) app. Global internet giant Google has launched Tez, another UPI app through which money can be sent or received directly into a bank account. After banks, e-commerce companies and cab aggregators, wallet companies are providing a global payments experience to Indian consumers.
India has also been quick to realise the potential of blockchain in good governance. The Andhra Pradesh government is setting up a Blockchain Centre of Excellence and inviting startups and experts to set up the country’s first blockchain state. Other states like Maharashtra, Karnataka, Kerala and Rajasthan are following the lead. Blockchain has the potential to streamline land records, asset registries, auto records, voting records, national identity, financial transaction records and traceability. All these can eliminate corruption on a large scale and bring the large informal sector into the formal economy.
The NITI Aayog-led IndiaChain plans to implement a full-fledged blockchain infrastructure to compliment IndiaStack and leverage ‘electronic Know Your Customer’ (eKYC) using Aadhaar. This is expected to positively affect subsidy distribution, regulating land records, small and medium enterprise (SME) financing, court cases and other big challenges being faced now.
GoI has allowed interoperability among prepaid payment instruments. This means that users will soon be able to transfer funds from one mobile wallet to another. This collaboration and ‘co-competition’ will widen the reach and provide a homogeneous environment to drive digital payments industry into the next phase.
More significantly, these measures will ensure that payments are safe, secure, authorised, efficient and accessible as the propensity for highspeed mobile internet with affordable data plans accelerates migration to digital.
Interoperability will undoubtedly improve the credibility of a wallet, making it a virtual bank through which one can transfer money anywhere. It will bring more liquidity into the system and boost consumer confidence in the fast-growing economy.
Collaboration between banks and fintech startups coupled with blockchain technology are creating new financial segments globally. An increasing tech-savvy millennial population, the need for superior customer experience, ease of payment, and cheaper and faster alternative being offered by ubiquitous fintech players are driving the adoption of digital payments.
In fact, global payment revenues in 2018 are expected to total $2.3 trillion( about the size of Indian economy), representing 43% of banking revenues. The payment landscape is undergoing unprecedented transformation and companies are altering their archive systems with a strong focus on data analytics.
Payments have witnessed increased use of consumer data to provide value-added services. In insurance, too, there is increased usage of advanced data techniques and analytics to identify and quantify risks. Fintech startups are using artificial intelligence (AI) to improve and expand credit offerings, insurance options and personal finance services.
Internet of Things (IoT) is being applied through telematics that allow for monitoring of, say, driver behaviour for car insurance. Similarly, home insurance customers with connected technologies can be provided potential threats in real time.
In India, too, we need to ensure that benefits of digital services value chain percolate down to the underbanked and unbanked. It should be mandatory for government departments to transact digitally, and emphasis should be on spreading digital finance literacy.
GoI has proposed a two-percentage-point discount in GST for consumers who make digital payments. This is a good move that will automate workflows, encourage good accounting practices, ensure tax compliance and spark a new approach towards digital inclusion.
With these trends, India should transform into a knowledge-driven economy through a digitally empowered society. Much sooner than the world expects.