FinTech, PSD 2

Future of FinTech (Payments) in India. It’s Interesting and will grow..

  • How is digital payments in India shaping up as?

Digital payments in India has become crowded with lots of me-too products and companies. Thanks to IndiaStack and other payment platforms which offers a plug and play model through API so now everybody aspires to become PayTms and PhonePes of the industry.

Payment is the lowest hanging fruit for the companies to get transaction information and consumer behaviour, and its easiest to get into with least entry barrier due to its availability on API or White label model. Companies intend to do vertical integration by offering a bouquet of services like lending, insurance etc and consider payments as the first step of it. But most of them get stuck in the day to day operations of the payment and by the time want to move to next level the dynamics of the industry change due to new regulation and technology.

Payment has become a commodity business than earlier when it was offered by few and differentiation was on timely settlements and quick transactions. Now due to many tools being offered by NPCI and companies customising these tools as per the company needs, it’s no more a rocket science.

Payments alone cannot go long way, it has to be Payment + service ”  + here is analytics, Invoicing, CRM, reminder service etc all integrated by the same company and within same product.

  • Scope of the industry as compared to other countries

There is a huge scope of the payment industry because there are limited number of card swipe and other payment terminals in India and that too, they are focussed mostly in urban area. There is huge demand of such payment terminals in rural areas too. The payment is moving out from the clutches of contact-based payments like card swipe and is moving to contactless payments like tap and pay, NFC, QR Code, voice based and wearable payments.

The global innovation is yet to come to India and we being mobile first to many people, because, many directly jumped to smartphone with 3G / 4G internet connection before having a laptop and hence they have different expectations than many other advanced countries.

Many international companies like Facebook, Whats App, Amazon Pay, Alibaba, Apple etc are entering into payments and this will be an interesting space to watch. PSD2 (Payment Service Directive 2) in Europe has made the payments more competitive and payment companies will eat into the share of incumbent banks. I am sure something similar is not too far in India with Open API banking being promoted by many banks. I can hear the initial hustling too, may be its round the corner.

  • Lot of FinTech startups mushrooming in India. What future do they have?

As explained earlier there are many me-too companies which will die half way because payments has now become a very thin margin game after NPCI decided to get into the game of payments and even VISA and Master Card are struggling to retain their market share. This has become a volume game and companies offering Payment+ services will remain in the game for longer. However, few will stand on their own due to foreign or deep funding but most of them will get acquired by banks or other financial institutions in the longer run.

Something like PSD2 in Europe will make this place hotter for few years and then the industry will go for the consolidation with few big players remaining in the market.

What challenges digital payments sector is facing?

Few challenges which digital payment sector is facing in India are;

1.      Increase in cost of compliance – Recent RBI regulation on KYC for wallets, restrictions on wallets, GST compliances due to which a startups must engage with a skilled professional accountant to file returns has resulted in squeezing the margin

2.      Data security – RBI has issued directions to store and process payment related information in India, this will be an issue for companies who have been taking payment services from global players and have been processing transactions in other country. With recent data leak issue of Facebook the right to own the data has increased and companies will have to ensure this is part of the product design

3.      Lots of foreign fund – With increase in inflow of foreign funds in Indian payment industry many Indian companies are struggling and will extinguish because the best game played by foreign investor is price and discount game

4.      Dynamic regulation and technology – With technology and regulations changing so fast its tough for many companies to catch up and understand the space, which in turn leads to closure of many businesses

5.      Increase in number of platform companies – With technology being easy to copy, plug and play many companies have got into the payment platform business. They offer this platform to many companies who do not understand the business but are starry-eyed with the rise of PayTms and the like and wants to get into the business, but after understanding the nuances they leave the field too early

6.      High TAT for chargebacks – The chargeback rules and policies are non-supportive and in order to instil more trust in customers for digital payments, a prompt chargeback rule will paly a good role. Maybe change to “Refund First, Investigate Later”, than “Investigate First, and Refund Later”, which is prevalent with nearly all the compnies.

7.      As the industry is still involving with many new age innovations like Bharat QR, UPI and UPI2.0, AePS at the front, many challenges are yet to come. I think challenges are always good for innovation and price rationalisation for the market, so it’s a healthy thing to have in any industry.

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