In late 2016, India’s government surprised the world with a decision to push the race for payment digitization from a marathon to a sprint, by deciding to scrap nearly 85 percent of the nation’s physical currency reserves almost overnight.
The move was highly controversial – and widely criticized. And, especially at first, it caused a lot of chaos. India, pre-demonetization, was a nearly wholly cash-based society, and the early pushback was strongly felt as lines formed at banks and ATMs, and businesses felt the pinch of suddenly less liquid consumers.
But demonetization, for all the difficulties it presented, also created a massive opportunity for the wide swath of digital wallet players circling the market within India.
A month after demonetization, daily transaction volume from digital wallets – such as Oxigen, Paytm and MobiKwik – reportedly went up by 271 percent, from 1.7 million to 6.3 million. And while those adoption figures have fluctuated up and down a bit over the last 18 months, the trend has been toward growth.
As of December 2017, transactions worth Rs12,568 crore ($1.93 billion) were carried out on e-wallets, according to the Reserve Bank of India – a nearly fourfold increase from the Rs3,385 crore in October 2016, before demonetization kicked off. If that growth remains consistent, estimates put the total value of India’s digital payments at $500 billion USD in just two years – or roughly 15 percent of India’s GDP.
The move toward demonetization has also created a massive surge in digital players attempting to break into the marketplace. Alibaba-backed Paytm leads the field, reporting 100 million downloads from the Google Play store in December 2017 alone.
There are, however, many players competing for a piece of the Indian digital payments pie. MobiKwik, FreeCharge, Ola Money and Amazon Pay have all claimed massive gains since India really put the pedal to the metal in late 2016. Though Paytm is in the lead, it’s still early in the race.
But there’s a roadblock up ahead on that journey – one that some are afraid will shrink the population of Indian e-wallet users by as much as 80 percent.
The KYC Conflagration
Up until March 1, 2018, Indian e-wallet customers only needed a mobile number to register and a payment account (often, but not always, a bank account) in order to create a digital wallet account with any and all of India’s major players. Once those mobile wallet accounts were created, users were free to send and receive cash, as well as add funds and make use of a variety of digital service benefits.
Now, customers must also complete a more detailed authentication process, consistent with new KYC regulations that went into effect countrywide. Customers that did not complete the verification process lost the ability to add new funds to their mobile wallet accounts or to move any of the funds they had stored within.
The move has elicited some rather emotional reactions.
“The new norms by RBI (Reserve Bank of India) are disastrous … It is now like opening a bank account. So why will anyone want to go through the hassle? This will result in de-digitization,” an industry expert and member of the Payment Council of India (PCI) told Quartz, before noting that “the number of customers who would have completed the mandated KYC process before March 1 would be in single-digit percentage.”
Others, like one e-wallet executive, noted that the new regulations were largely out of step with the migrant population, which represents one of the larger user groups of digital wallets in the nation – workers who often lack the permanent addresses required by the new KYC regulations. Others, he noted, will simply object to having their identification details – including their biometric information – being a necessary component of using digital cash. Odds are, he said, the vast majority will simply be pulled back into the warm – and anonymous – embrace of cash.
Fighting Outflow with Incentives
While many in the ecosystem have bemoaned the KYC standards as counterproductive to the grander goal of igniting digital payments in India, Bipin Preet Singh, founder and CEO of MobiKwik, takes a different line. He he noted that KYC requirements are necessary as the entire Indian payment ecosystem is evolving to be more stable, secure and transparent.
“Moreover, KYC is a necessary step to pave the way for interoperability between PPIs, bank accounts and cards in a phased manner,” he explained.
MobiKwik’s ultimate goal is to move its million or so users through the process, “and take the idea out of their minds that this is something overwhelming or terribly invasive,” added Singh. “This is a relatively small hurdle that they can clear from their phone in under a minute – and the reward is they can then use all of the wonderful service mobile payments put at their fingertips.”
And, just in case all of those wonderful opportunities are not incentive enough, a cashback reward also has a rather motivational power over consumers, which is why the mobile wallet firm is offering one: a “SuperCash” offer of Rs.300. To access that offer, members use the code KYC300.
The Bumps In The Road
As of late 2017, a year into demonetization, digital payments methods had made massive strides. And while the progress is impressive, there is still a long way to go, because one fact remains indisputable in the Indian economy.
And a quick look at the PYMNTS Global Cash Index will tell the story of why: Cash is reliable, cash is convenient (particularly in a population where two thirds of the people don’t have access to the internet yet) and cash is accepted by everyone, everywhere.
As of right now, for the millions of Indian consumers who haven’t finished those additional KYC requirements, digital payments aren’t working.
That’s a big roadblock.
But from the innovative investments made by the likes of Visa and Mastercard in developing the Bharat QR code – and the staggering sums of money that have already been invested by the world’s biggest players in payments and commerce to create incentives for Indian consumers to use their phones, and not cash, to do business – it’s a roadblock that a lot of players are working hard to find a way to clear in the near future.