In India’s mobile payment boom, even beggars are getting QR codes
Raju Prasad started accepting donations through mobile payment apps a few months ago. The 42-year-old said his income had almost doubled to around 300 rupees a day, about $4 and more than the average daily wage for a farm laborer in Bihar, the poorest state in the country. India. Many travelers now zap more than 5 or 10 rupees with a few clicks on their smartphone instead of pulling out their wallet.
“People were chasing me saying they had no money,” said Mr Prasad, who makes much of his money from passengers arriving at Bettiah station from major cities like New Delhi and mumbai. “Now they scan my QR codes and happily donate whatever small amount they want.”
The fact that beggars and their donors are all part of India’s digital finance revolution helps explain the explosive growth of mobile payments, as well as the challenge faced by companies such as Alphabet Inc.’s Google LLC, Flipkart of Walmart Inc. and its local rival Paytm. make the business profitable.
Indians have been migrating to digital financial services for some time. This is partly due to rising wealth, better internet and more affordable technology, and because Prime Minister Narendra Modi has placed digital transformation at the center of government policy.
Launched in 2015, “Digital India” aims for faster and more inclusive economic growth by pushing government and banking services online and bringing the masses of the country’s poor, especially in rural areas, into the formal economy through investments in technology.
But it was the pandemic that accelerated the change. The shutdowns forced millions of people to buy groceries and medicine through mobile apps because they couldn’t leave their homes. ATMs were running out of cash – which, in any case, many people avoided for fear of catching the virus by handling physical cash.
By the second quarter of 2020, mobile payments had eclipsed ATM withdrawals to account for 30% of India’s private consumption, according to S&P Global Market Intelligence. Mobile payments more than doubled to almost $1 trillion in 2021 from the previous year.
“The only positive side of the pandemic is that everyone has started using digital payments a lot more,” said Karthik Raghupathy, head of strategy and investor relations for PhonePe, Flipkart’s payment unit. When Covid-19 hit India, registered PhonePe users jumped 50%. , he said.
Bangalore-based PhonePe now has around 165 million monthly active users and 48% of India’s mobile payments by value, according to S&P Global. Google’s share is 40% and Paytm’s share is almost 9%.
India’s 48.6 billion digital payments last year were more than double that of second-largest China, according to an April report by payment systems firm ACI Worldwide, which said the volumes could exceed 200 billion by 2026. But with the average Indian user earning $80 in payments per year, compared to $2,300 in China and nearly $8,000 in the United States, as well as a government cap on transaction costs, India’s allure is more the potential to secure a slice of its market of nearly 1.4 billion people than short-term profit.
For now, digital payment providers in India are likely to be losing money, and a lot, analysts say.
This is partly due to the way India’s payment system has evolved.
Countries like China and the United States, the two largest digital payments markets by value, have relied on private companies to develop the technological backbone to support telephone transactions. In India, this task has been given to the National Payments Corporation of India, a non-profit organization that governs retail payments in the country. Its mandate was to “facilitate an affordable payment mechanism for the benefit of the common man across the country and to promote financial inclusion”.
The Indian government sees digital payment systems as a public good, similar to the power grid, said Dilip Asbe, Managing Director and Managing Director of NPCI.
“The efficiency of the payment system is at the heart of the economy,” he said, as it improves transparency, tax collection and the flow of money in the formal economy.
NPCI launched its unified payment interface in 2016. Businesses were then encouraged to develop applications on top of the platform, better known as UPI.
India also had three ingredients UPI needed to succeed, Asbe said: ID cards, bank accounts and smartphones. Mr Modi’s government has pushed people to get biometric ID cards and for every household to have at least one bank account.
About 80% of adults had bank accounts in 2017, up from 35% six years earlier, according to the latest data released by the central bank. The number of smartphone users, meanwhile, rose to 750 million, Deloitte said in a February report.
UPI’s platform is also interoperable. Transactions are made by scanning a QR code linked to a person or business, or by searching for someone’s phone number or virtual address. All QR codes work on all UPI hosted apps. That’s a contrast to the US, where someone shopping at Walmart, for example, can’t scan the payment QR code using PayPal’s Venmo app.
Fueled by the pandemic, UPI users soared 85% to 250 million in the two years to March, with more than 300 banks and two dozen payment apps now on the platform.
However, the interoperability that has driven the adoption of mobile payments also makes it easier to switch between applications, forcing businesses to provide cash rebates and other incentives to retain customers. They have also spent heavily on marketing and educating merchants and consumers on how mobile payments work.
“It’s a chicken and egg problem,” said Madhur Deora, CFO of Paytm: If there aren’t enough merchants signing up, customers will have little incentive to do so.
Nearly 90% of India’s nearly $900 billion a year retail market is controlled by small, family-owned stores that rarely accept credit cards due to the 3-4% fee they charge. A 2020 government ban on transaction fees for UPI-based payments prompted many small merchants to sign up, as well as their customers.
Prohibition is also one of the biggest impediments to profitability for payment companies. In January, a group of them urged the government to scrap the rule, which they said had caused an industry-wide loss of more than $700 million.
Analysts have said that it will take at least a few years before a mobile payment company makes a profit in India. Meanwhile, local startups are competing with giants like Google and Walmart who can afford to spend money growing their market share.
In the long term, digital payment companies are looking to sell financial services and other products, said Sampath Sharma Nariyanuri, analyst at S&P Global Market Intelligence.
PhonePe advertises insurance products on television. Google Pay recently allowed merchants to open digital storefronts in its app. Paytm, meanwhile, plans to seek regulatory approval to sell insurance.
In the village of Bakharia in Bihar state, with a population of around 1,500, almost all of the roughly two dozen shops and stalls straddling the main road display signs or stickers with codes QR.
Ranjan Patel, who runs a small shop selling betel nut, said he subscribed to several apps after customers started demanding to pay with their smartphones. Today, nearly 80% of them do.
“They like to display their smartphones and scan QR codes to pay,” he said.