The following is a transcript of the recording.
PaymentsJournal
Welcome to the Payments Journal podcast. I’m your host Ryan Mac. On today’s episode, we’re going to be taking a look at payment trends in India, and to help me with this conversation I have Steve Powell, ACI Marketing SVP. Steve, welcome to the podcast.
Steve Powell, ACI’s Marketing SVP
Hello Ryan. Thanks. It’s good to be here with you.
PaymentsJournal
All right, now. ACI worldwide recently published Transactions 2025, a report that’s covering payments trends in India and how digital capabilities are shaping them. Why did you choose to create this report now, and which findings did you find most surprising?
Steve Powell, ACI’s Marketing SVP
Well, ACI has been doing business in India for over 20 years now, primarily with the banks. We have a tremendous share of the marketplace there. We do card fraud prevention. We do a lot of things with the banks, manage the huge space of ATMs that are there. But since the demonetization move a couple of years ago and now just general trends that we’ve seen in the marketplace, we’ve been aware that there’s been some amazing shifts going on in what’s really one of the fastest-growing economies in the world in many ways. So we decided that it is important get some research and to understand this a little bit better. So we looked around the marketplace and we have a partner there, a very strong partner, AGS Technologies, and we landed on working with the Economic Times as a source to really go after the business research among influencers in the industry of leading players across all different segments. And we decided as we went forward with this report that it would be, when we were starting to see some of the findings come back, something that the industry in general probably would like to see.
So we created the report. We created an event around introducing it. I have launched it, and I’ve had really phenomenal uptake on people referring to it and looking into the data that we found. Now one of the things that’s most surprising to me that I saw here is just the pace of change in adoption of digital payment technologies, person-to-person payments. You know that India is about to pass China as being the most populous country on the planet–1.1 billion people. Cell phone penetration is also very high in this country, but what we didn’t realize–with all the digital wallets that are there and the prevalence of digital technology–is just how comfortable especially the young people in the really tech-savvy society are in making digital payments. And this is happening all the time and at an increasing rate. The surveys pulls that out, and we think that that’s really a bellwether for what we’re going to see cross into the next 5-plus years.
PaymentsJournal
Excellent. Now, keeping with that 5-plus years, how do you see the payments landscape evolving in India over those next few years?
Steve Powell, ACI’s Marketing SVP
Well, you know, on the high end, there are people that have forecasted that this could be a trillion dollar digital transaction economy by 2025, and again the numbers bear that out, that this is a trend that could end up at that level. That’s a phenomenal total, and what’s interesting also is this is a very cash-oriented economy or is coming from one. It is today, but some of the estimates are that in the trillion dollar economy 4 out of 5 payments, 80%, would be digital by then. So think of what that means with respect to the drain of cash out of that economy and the billion plus people buying things and executing commerce at a trillion-dollar level with that all happening digitally. That to me is hyper change. It’s again on par with what we see in China and other economies. And there are a lot of things that are happening there that are driving this, you know, in the area of e-commerce and probably all. Seeing in the news recently the little bit of a battle, though, that took place between Amazon and Walmart in bidding for Flipkart, which is a very large e-commerce marketplace in India where you can buy all sorts of goods, sort of like Amazon in the United States. Walmart ended up coming out on top there by purchasing 71% of Flipkart in what many people have said is Walmart’s most significant e-commerce play that they’ve ever played, even larger than buying Jetpack. So one of the things that’s driving that is the development of their logistics infrastructure. You want to have an online commerce, you have to be able to get products to people, and that’s another important thing that’s developing in India that’s going to allow this to continue to progress. So all around if you hit the ground in India, you see the signs of economic development and the types of things that are going to support what you’ve done to continue to allow you to be a digital payments marketplace.
PaymentsJournal
Excellent. Thank you for that. Do you think that the technology boom in India is forcing the payments industry to resync, consider certain processing factors?
Steve Powell, ACI’s Marketing SVP
Sure, absolutely. Again, one of the factors that I mentioned already is the role of smartphones because they are, you know, are there a payment instrument of choice, actually EDP LX. You can walk down to a street corner and buy your lunch, lemonade, and biscuit from a peer-to-peer or a person-to-person payment on your phone; the vendor will accept that payment now. Again, one of the things that will occur with the amount of adoption will be a very large increase in the number of merchants that sign up or signed up to accept digital payments because they saw that the currency was sort of being sucked out of the economy. Because of that–people were having digital accounts set up by the government–there were limits on how much you could withdraw from an ATM that were put into place, all really very well meaning. I think that a nice orchestration between the government’s role in helping to advance this as well as the fintechs’ and the commercial companies’ participation. It’s really a very harmonious relationship that exists there, I believe. But yeah, mobile phones are, again, the payment instrument of choice, but one of the other issues that’s really important is the consideration around fraud. Now one of the reasons that demonetization was implemented was to try to withdraw black money from the Indian market, sort of all over the counterfeit currencies, money that people were holding onto, and cash-only transactions where they [the Indian government] weren’t really able to account for all the taxes, and when you put all of that into a digital world it’s much easier to track. But of course we all know that historically the bad guys have all perpetrated crime on all the new payment methods that come up and there’s a lot that needs to be done to protect people to be able to–you know, just as we see everywhere else–not do foolish things in making digital payments, to educate them and build in safeguards. And a lot of that is going to happen around both POS transactions and terminals as to how people can use two-factor identification and biometrics on their phones before they’re making transactions.
PaymentsJournal
Great. And I’m glad that you brought up fraud, and we’re going to circle back to that point in a second here, but first: So we’ve seen quite an amount of growth in global e-commerce over the last few years. Now how is this affecting payments from a global standpoint and in India?
Steve Powell, ACI’s Marketing SVP
So, what we’re seeing in this area of e-commerce transactions in the world from a global standpoint is being driven, as I mentioned earlier, by e-commerce within India, but also cross-border transactions are really growing as well. You know India as a country is trying to become a larger player in the global economic scale. They’re obviously great at technology and services, but at manufacturing and producing products their markets want to see customers from outside of India and the global marketplace. So cross-border payments and transactions–the ability for people to come in and have seamless purchases within the India commerce place and even in the B2C markets and B2B markets–is going to be really important. So there’s going to be a range of payment solutions they’re developing to meet these needs of businesses and consumers, and ACI is participating in that right now with our partner and through the existing customer relationships that we have.
PaymentsJournal
Great. Now circling back to the fraud point there: Now although new technology is enabling more citizens in India to bank digitally, are you seeing that there is more of a concern for fraud?
Steve Powell, ACI’s Marketing SVP
Oh definitely. Cyberattacks in India cost the country, they estimate, $4 billion annually in lost revenues and fraudulent transactions. And, again, if the new technologies are exploited by criminals and certain safeguards aren’t put into place, estimates say that this could actually rise to $20 billion by 2025–in the next, you know, six to eight years. So along those lines, digitalization of payments really presents challenges and opportunities. Stronger need for authentication–I mentioned that earlier. Biometrics and two-factor authentication that’s got to go beyond just basic card and PIN technology that we have today, that really “know your customer,” confirm that the person who is trying to authorize a digital transaction is actually the owner or possessor of that account. Again, some of this technology is going to be enabled by smartphones manufacturers; others will be by the players.
We had an event in March, the Insights, where we introduced our Transaction 2025 report. The panel discussion of really top leaders and influencers in the Indian economy on this topic of fraud was the number one topic they were all discussing because I think realistically they see great opportunity. They see great potential, but fraud is one of those factors that can really hold things back and water things down. You know, if the public becomes reluctant in spite of the fact there’s exciting new technology and capabilities, the adoption will be slowed if not significantly impacted. So there’s no doubt that getting out ahead of some of the potential concerns again that could manifest itself in $20 billion worth of fraud–we don’t want to see that happen by 2025. We want to manage that, and so again ACI and others that specialize in being able to use artificial intelligence and sophisticated processing algorithms to detect fraud and share the information across legitimate merchants, we’re working hard to make sure the technology adoption is not slowed down by this nefarious activity.
PaymentsJournal
Excellent. Well, Steve, thank you very much for taking the time today for speaking to us about payment trends in India and we hope to have you back on the podcast real soon.
Steve Powell, ACI’s Marketing SVP
Great, Ryan. Thank you very much for your time. I appreciate it.