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Digital Lending Landscape

India’s Digital Payments Landscape

Introduction
Adoption of Digital payments in India is increasing so are the products on offer to multiple customer segments. Popularity of NPCI products like Rupay, UPI and BBPS are extending the reach of these products in India. Digital transactions in India have grown close to 90% in last 3 years.
This growth has been accelerated by the COVID-19 outbreak and the social distancing norms that it has brought with it. With people switching to contactless payment methods, the number of digital transactions in the country has skyrocketed. And this trend is likely here to stay.
Apart from the pandemic aspect, the Indian government has also been a big contributor to this digital push. In the Union Budget of 2021-22, the Indian Government has announced a sum of 1,500 Cr to be allotted to boost the digital payments sector in the country.

The Digital Payments Ecosystem
Keeping the amount of activity this sector has seen, in mind, The Digital Fifth is proud to launch its representation of The Digital Payment Ecosystem of India.
A few of the criteria that have helped us choose the players are:
● Size, Market share, and popularity of the company
● The prominence of players in the segment
● Innovation in Business Model
● Type of Clients served

The bottom layer consists of banks, which are the backbone of the payment ecosystem. These entities are highly regulated by the RBI and are guided by stringent rules that dictate the payment systems they can provide to their customers, the fees they can charge, etc.
They are present on both the payer’s side and the payees, and also play the roles of issuer and acquirer banks. They play a central role in the RBI/NPCI Payments framework and Networks and also facilitate collaboration with FinTechs through Open APIs for payments

Enablers

a. KYC/ AML/ FRAUD MANAGEMENT

These companies provide solutions to businesses that enable them to perform KYC and AML checks on their customers. They also offer digital Onboarding Services for customers and vendors. These tools also use AI/ML algorithms to track the anomaly or change in the data pattern and issue a warning to the businesses about the potential risk.

Enablers

b. RECONCILIATION

Reconciliation has been one of the major pain points across the industry. These companies help reduce this pain by automating the payments reconciliation process. In addition, these companies are trying to address significant gaps in the reconciliation process like a high volume of unstructured data, high manpower utilization, lack of transparency and traceability of transactions, and the high costs and time consumption in traditional reconciliation processes.

Enablers

c. PAYMENT PLATFORM

These companies provide APIs for the various use cases in the Payments Ecosystem. In addition, they offer Plug and Play API tools so that companies can go-to-the market in a shorter time duration. The APIs for different use cases are- Wallet and Cards, Cross Border Payments, UPI Payments, Reconciliation, and Collecting bill payments. We expect to see further growth in this segment in the coming years.

NETWORKS

These companies provide railroads for payments and enable cross-border transactions. These companies support the innovation in the Cards segment by coming up with Tap to Pay Cards and Tokenization process. Their next focus is on BNPL, IoT and blockchain-enabled payment solutions.

NPCI

National Payments Corporation of India (NPCI), an umbrella organization for operating retail payments and settlement systems in India, is an initiative of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India. They have been credited with revolutionizing the country’s payment ecosystem through market-leading innovations like UPI, BBPS,
AEPS etc.

PAYMENT SWITCH

These are the companies providing Payment Switches to the different Banks in India. These switches would enable integrations of the bank’s core platforms with Networks for ATM,POS, UPI, AEPS, APB etc. For example, ATM SWITCH is software connected to the ATM Machines of banks and enables the flow of information between the Core Banking Platform and ATM Machine. In addition, the ATM Switch of these companies is connected to the National Financial Switch (NFS) and is connected to the network of different Banks.

CROSSBORDER PAYMENTS

Cross-border payments are those payments where the payer and the payee are located in 2 different countries. This transaction may or may not involve converting one currency to another. The remittances received by Indian Citizens was around $76 Billion in 2020. According to RBI’s data, India gets the highest amount of inbound cross-border remittances globally. The companies are providing solutions for global payments and remittances.

FULL-STACK PLAYERS

This is a category created by The Digital Fifth to include those players who provide a complete suite of payments to customers. They focus on cross-selling financial services and products by driving customer experience.

BILL AGGREGATORS

They are players that integrate with customers or with billers to facilitate the payment of utility bills through a single platform. They are RBI authorized entities that enable billers (e.g., electricity board of a state) to connect with customers. Bill Aggregators receive payments from customers, pool them, and transfer them to the corresponding billers. Bill desk has the highest market share in this category. We expect to see
further growth in this segment as more players are expected to turn into a one-stop platform for all customer needs.

CREDIT CARD PAYMENTS

The companies operating in this segment rewards individuals for their timely credit card bill payments. They allow credit card users to manage multiple cards along with an analysis of their credit score. Only customers with a credit score above a certain
number are allowed entry on these platforms. This enables the companies to create a cohort of customers with high credit scores who can then be used to cross-sell other products. They also provide exclusive offers and access to premium experiences on the platform. Currently, players like Cred, Paytm are the only prominent players in this category. In 2021, record $ 5.5 billion transactions were made through this platform.

PREPAID CARDS

Prepaid Cards are preloaded payment cards that are not linked to a bank account specific to the customer. Prepaid cards being used for various use cases- Tracking of employee expenses, blue-collar job salary payments, customer loyalty schemes and
reward programs. Prepaid Cards have less stringent regulations as compared to credit and debit cards. We are expecting to see further growth in this segment.

COMMERCIAL CARDS

These companies provide credit cards to Startup, SME, and MSME segments. A commercial card is a credit card issued by employers for their employees to use to make purchases on behalf of their company. It helps businesses manage their expenses by collecting all charges made by employees into a single place and providing better credit access through the card. This fintech offers banks access to a customer base of SMEs and MSMEs that were previously too risky to engage with. This partnership may be facilitated through an FLDG model. The Fintechs in this segment may also provide value-added services like working capital loans around the capital and cash flow management.

RETAIL CREDIT CARDS

A credit card is a financial instrument issued by banks with a pre-set credit limit, helping you make cashless transactions. But traditional players provide these cards to only selected customers with pre-defined criteria. Players like Uni and One Card provides Credit Cards with a mobile app-driven customer journey for improving financial inclusion and re-imagining the experience of using credit cards
in India.

POS SOLUTIONS

These companies provide solutions like POS- POS Terminals, mPOS, and SoftPOS. A POS system designed to help retail stores sell in-store and online seamlessly, with built-in tools for advanced inventory management and sales management, sales reporting and analytics insights for business. Soft-POS is the new solution under the POS umbrella. It is mobile-centric and NFC-technology-based. This solution’s adoption rate has increased tremendously as it provides a cost-effective card acceptance solution for all micro-merchants and SMEs in India.

CONTACTLESS PAYMENTS

Contactless payment allows consumers to pay for goods and services using their debit or credit cards with RFID technology— also known as chip cards—or other payment devices without the need to swipe, enter a personal identification number (PIN), and/or sign for a transaction. The players in this segment use technology like Near Field Communication (NFC), Radio Frequency Identification (RFID), and Sound Waves to enable payments. NFC based payments have seen massive traction.

B2B SOLUTIONS

These companies provide payment gateways and payment solutions for B2B transactions. By using the solutions of these companies, businesses can track working capital, payables, and receivables through reports and dashboards.

PAYMENT GATEWAYS

Payment Gateway is a software application used to authenticate payments on a merchant’s website, primarily for Card-not-present (CNP) transactions. It plays a vital role in the online transaction process and authorizes transactions between merchants and customers. Payment Gateway Solutions are for both B2B and B2C. It is a critical component in creating seamless experiences for customer journeys

WALLET

Mobile Wallet is a type of payment service through which individuals can receive and send money by mobile devices. A mobile wallet or a digital wallet uses a bank account or credit/debit card to make payments seamlessly while securing the data of the user. These wallets, as provided by the likes of Paytm, Free charge, PhonePe and MobiKwik will have to enable interoperability of wallet balances via the unified
payment interface (UPI), said the Reserve Bank of India (RBI) in a notification in Aug. This can be a game-changer for these wallet providers.

CRYPTO EXCHANGE

A crypto exchange is a platform on which you can buy and sell cryptocurrency. You can use exchanges to trade one crypto for another — converting Bitcoin to Litecoin, for example — or to buy crypto using regular currency, as the U.S. Dollar. Exchanges reflect the current market prices of the cryptocurrencies they offer. Platforms like CoinSwitch and CoinDCX are democratizing cryptocurrency investment and improving financial inclusion – that wealth, investment, and financial knowledge are for everyone.

OFFLINE PAYMENTS

Offline payments are transactions processed asynchronously. The transaction is usually done offline and reconciled manually or automatically to the console. According to the RBI, an offline payment means a transaction not requiring internet or
telecommunication (telecom) connectivity to take effect. Players like PaySe, provide offline digital cash products to digitize the SHG ecosystem and Rural areas. RBI is also promoting such payment products through its regulatory sandbox.

REWARDS

These players are revolutionizing the gifting landscape with their future-ready technology solutions. They are helping companies to share value with customers in proportion to the value the customers’ loyalty creates for the companies through a customer loyalty program or reward program.

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