Emerging markets, including India, will drive innovation in payments industry: PwC
The payments landscape in emerging markets, including India, is expected to transform in the wake of accelerating growth in electronic payments with advent of new and disruptive market players and alternative business models, a PwC report said.
"The growth of economic power within the emerging markets and their potential to leapfrog developments in mature markets will aid the creation of a state-of-the-art payments ecosystem,” multinational accounting firm PricewaterhouseCoopers said in its report.
'Emerging Markets - Driving the Payments Transformation' examines the dynamic nature of emerging markets, especially payments, which creates challenges that have never confronted the developed world, but also opens up opportunities for innovation and growth.
"Given the underlying infrastructural issues in emerging markets, there needs to be a focus on developing the infrastructure both for issuing and acceptance of payments products and instruments. Alternate payment instruments and modes like mobile wallets, virtual cards and accounts, social media and contactless payments are gaining traction for specific use cases, especially the unbanked customer base, driven by technology, customer needs and declining margin,” said Vivek Belgavi, FinTech Leader, PwC India.
In India, the new payments banks (who cannot lend but can borrow up to a limit) are expected to start operations in 2016. Since their focus will be solely on transactions, they will look at providing seamless transaction options for payments of utility bills, mobile bills, and school or college fees, either electronically or through the banking touch points they create.
At the core of this change will be technology, which in addition to maintaining current standards of reliability, is expected to also reduce transaction times, improve security, increase acceptance channels (especially physical), and - in the case of merchants - lower transaction costs, it said.
"Given the large unbanked population and the growing regulatory agenda to engage these people into the financial system, emerging markets are in a unique position to drive growth in the payments industry," said Hugh Harley, financial services leader for emerging markets, PwC.
The report said that the payments ecosystem will also be redefined by regulatory interventions, to balance the disruption of alternative payment service providers with the reliability of traditional players.
Noting 85 per cent of the global population resides in emerging markets, it said that customer expectations are driving the change in payments industry in these markets.
"Nearly 90 per cent of people under 30, which account for 75 per cent of the online transactions, reside within the emerging markets. This is favouring the growth of online transactions, which is in turn curtailing the black economy and stimulating economic growth."
It said though literacy rates and urbanisation are on the rise, access to basic financial services poses a major challenge in these emerging markets, and in response, there has been a rapid expansion of new economically viable technologies and innovations like e-banking and mobile money.
With regulators in emerging markets realising the huge costs, risks and inefficiencies associated with cash transactions and recognising importance of electronic payment methods in promoting access to formal credit and savings instruments, drastic measures like introducing differentiated banking licenses, tax benefits on electronic payments, awareness campaigns are being taken to build a sustainable electronic payments ecosystem, it said. Many governments have opened their markets to non-bank players aimed at furthering financial inclusion, it added.
With the proliferation of smartphones and tablets, which are serving as a convenient, cash free and card-free financial transaction medium, emerging markets are driving the growth in e-commerce spending, and there is a rapid development of new payment concepts based on mobile infrastructure initiated by the online retailers.
“Banking on high customer adoption of these models, this has the potential to displace traditional cash with other electronic modes of payments,” it said.
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