Reimagining value chain of payments in the post COVID era
The shift in digital payments shouldn’t be overlooked and financial institutes should focus on key areas like digital customer onboarding, customer engagement and fraud prevention to drive business.
The digitization of payments is taking the world by storm and no other industry has witnessed such a transformation as the payments industry. Consumers today have a myriad of options to choose from when selecting a payment method to complete a transaction. It is, however, encouraging that non-cash payments, especially those using electronic or digital modes are rapidly increasing.
National digital payment landscape
The Indian digital payment’s industry has seen very fast growth in the last few years, with the volume of transactions increasing at an average compound annual growth rate (CAGR) of 31% in the last 4 years.
This growth momentum is expected to continue, with new payment technologies and use cases across sectors emerging. The Coronavirus pandemic has accelerated the shift to digital platforms. Businesses are now looking to integrate both online and offline channels in order to provide a better experience to their customers.
Growth in digital payments in India has been driven by multiple factors such as the launch of new and innovative payment products such as UPI, increasing smartphone adoption, internet penetration, need for faster payment modes, and the concerted efforts from the government and regulators to encourage the use of digital payments.
Since its launch in 2016, UPI , has seen an exponential CAGR of 393% until FY20–21 and has become the most preferred payment product in terms of volumes. Since the pandemic in March of 2020, the number of transactions and volume has more than doubled.
Increased consumer interest in making bill payments and recharging mobile phones online, as well as purchasing non-essential goods on e-commerce platforms, has resulted in an increase in UPI transactions. There has been a shift in the consumer mindset during the COVID-19 crisis and the resulting lockdown as they have started using digital modes of payment.
2020 has changed the payments industry. There has been a shift in digital transactions from being just ‘an option’ to a ‘preferred option’ and COVID-19 has accelerated a change that was expected to take several years. Restrictions and guidelines put in place to stop the spread of COVID-19, along with the health and safety concerns have led to a surge in digital and contactless payments. Financial institutes should now strive to make the entire process from customer onboarding to making the payments seamless and digital. Three places where companies could improve are flawless customer onboarding, increasing customer engagement and effective fraud prevention methods.
1. Customer onboarding:
Customer onboarding is the most crucial step in the customer journey and a positive experience there will confirm that they have made the right choice. It also, ultimately helps companies retain customers, especially considering the number of players in the payments industry right now and the competition which exists.
Today’s tech-savvy customers are not willing to wait or go physically for opening an account. Therefore, financial institutions must ensure that their digital onboarding experience is seamless to gain a competitive edge. Financial institutions have taken steps towards digital onboarding but none of them are completely digital and do involve elements in which physical presence is required. This could be for various reasons like identity verification, document verification or situations in which signatures on various documents would be needed. Let’s take a look at the solutions to these problems implemented around the world.
In January 2020, The Reserve Bank of India issued a notification amending KYC norms. This amendment permits all banks, Non-Banking Financial Companies (NBFCs), and fintech start-ups to complete the KYC process remotely using video technology. Traveling to a bank branch in order to get their KYC and identity verified is simply either too time consuming or not possible for customers residing in lower-tier cities. Digitizing the onboarding process has allowed customers to obtain these services from the comfort of their homes, and has allowed banks to expand into new markets at a small portion of the costs.
Another part of onboarding is the identity verification and signing agreements which have to be done going to the branch. Belgium has converted this process online without having to go to the branch. Itsme is an identity verification developed by Begium banks and telephone companies. It is a game-changing app that allows all Belgian citizens in possession of a mobile phone and a bank account to securely identify themselves. The identity of Itsme users is derived from their bank account or Belgian National Identity Card, which allows Itsme to provide a reliable electronic identity. Data such as name, date of birth, address, email address, gender, phone number are available. It also allows users to digitally sign on official documents without having to go the branch.
Customers today don’t want to wait for getting their credit card approval and getting their physical credit card. Especially after filling multiple forms and going through multiple checks, the process becomes tiresome. Perfios a financial service provider which helps banks make instant credit decisions and Entrust which provides state of the art instant card issuance, have changed the way industry needs to look at these problems.
Earlier the time taken for the manual credit-decisioning process was a week. Today, by leveraging ML capabilities, Perfios has been able to bring down that time to an hour. The Perfios platform does an end-to-end credit analysis of the customer using reports like Credit Assessment Memo, income statements and bank statements among many others. “Once the documents are uploaded on the Perfio platform, it performs analytics based on the bank’s rule engine and provides information that helps make credit decisions”.
Many customers still want a physical card that they can use immediately. Normally it takes weeks to deliver the actual physical card but using entrust card printers, banks can issue cards instantly. With Entrust’s instant issuance solution, customers can receive a personalized card immediately in the banking center upon opening an account, or to replace lost or stolen cards. The customer has to simply visit a participating branch, go to a kiosk and, after a quick verification process, select the correct card. The personalized card is then printed on the spot. The process is extremely simple and provides a positive experience to the customer.
Many financial companies are implementing some of these technologies but none of them are making the entire process digital and swift. Most payment companies today provide very similar products and financial service offerings. As a result, the true differentiator in the future will be the experience provided during customer acquisition. Creating a lasting first impression with a seamless digital onboarding experience will be the key differentiator in the future.
2. Customer Engagement:
The Indian payments industry is dominated by various players that offer very similar services. To stand out one needs more than just a good UI/UX. Getting members to activate and use your payment service is challenging and companies have come up with innovate ideas to maximize customer engagement. Below we have discussed India’s 3 biggest NBFC payment services — Paytm, Google Pay and PhonePe strategies to increase usage and customer engagement.
Paytm is India’s largest wallet company. Customers use it for its wide acceptance in various ecommerce platforms and traditional brick and mortar stores. Traditionally payment companies have a loyalty program for their customers for using their service but Paytm has introduced a new loyalty program “Paytm Merchant First Points” in addition to their existing customer loyalty program where paytm will reward all merchant partners with reward points for accepting payments through Paytm wallet and UPI based payment apps through the Paytm All-In-One QR code. The collected points can be redeemed for Paytm Cash, Mobile Recharge or for purchasing merchandise from the Paytm for Business app. With the rise in digital payments, using UPI and wallets is inevitable. Giving rewards to merchants and not only customers will incentivize merchants to use Paytm if they haven’t already , and if they are using some of the competitor’s service, this will give Paytm an edge over the others.
Google Pay has developed an in-app engagement and rewards programme to lure more users and merchants to its fold. Google’s rewards are in the form of cashbacks but with tactics that tempt users to try their luck. Users are rewarded with a digital scratch card after completing a transaction, and upon “scratching” the coupon, a cashback is credited to the user’s bank account. The amounts that are given to users are randomized, some scratch cards allow users to earn in hundreds of rupees, while other users are rewarded with a message that says, “better luck next time.
PhonePe launched its own version of WeChat’s mini programs after Sameer Nigam (Founder & CEO of PhonePe) visited WeChat office in China called ‘PhonePe Switch’. “It allows customers to seamlessly switch between PhonePe and their favorite food, grocery, shopping and travel apps from within the PhonePe app itself. Users can login to these apps without downloading them”. PhonePe Switch also helps partners showcase exclusive offers and discounts to users seamlessly. A user just needs to click on any partner logo to see the best offers running at the time. It has over 260 apps live on the platform currently. PhonePe has large market penetration in tier 2 and tier 3 cities where not everyone may have phone with sufficient storage. Switch eliminates this problem with integrating their existing PWAs (progressive web apps) or mobile-sites to the platform. In addition to this when using PhonePe switch you get rewards not only from the app where you are making the transaction let’s say a OLA for instance but also cashback on the PhonePe app for using their payment service.
Looking around the globe, some ideas which could be really helpful for the customers in India would be Apple’s instant credit card activation and China’s Alipay service for tourists.
Credit card activation is usually a hassle with long procedures which include logging in on the card issuer’s website , then generating a pin and then selecting the tab to activate or use the card in a ATM. The activation process for the Apple Card is simple and quick. After unlocking the iPhone, one has to just hold it over the card packaging. Then there will be a prompt to “Activate” the Apple Card, and it can be used right away.
In China, few places accept international credit cards such as Visa or Mastercard, leaving travelers with few alternatives other than cash. In November 2019, Alipay launched a service that would allow foreign travelers in China to avail its service even if they don’t have a bank account in mainland China. Ant Financial also launched a version of Alipay app that can support international debit or credit cards. Users can put money on a prepaid virtual card issued by Bank of Shanghai and begin using Alipay across China. Alipay is also facilitating payment for Chinese travelers, who are the most frequent and active travelers of the world. Alipay collaborated with BBVA in Spain, by integrating an API offered by BBVA to let Chinese users pay for purchases through Alipay.
3. Fraud Prevention
Even with this continuous innovation and rise in use of artificial intelligence, fraud detection and prevention has not been sacrificed. With the introduction of chip and pin, frauds have further been reduced. Cybercriminals have now shifted to online transactions and the payments industry is continuously coming up with technology and methods to reduce frauds of all types.
Malware, Man in the middle attack and keystroke logger are just some of the few ways cybercriminals can steal your information online. Mastercard launched Masterpass, a digital service in which any card could be added , even those from Visa and AMEX to pay online. It lets users pay through their credit cards without the customers having to enter their card information every time when they make a payment. Just by selecting pay through Masterpass and verifying the individual through password and biometrics in the app, the payment is completed. Since the card information isn’t stored in the merchant’s computer system, it’s less vulnerable to data breaches.
Focus should also be to make offline transactions into card not present transactions. This could be accomplished by using mobile phones with apps developed by the card issuer to scan the existing UPI QR Code to facilitate the transaction without having to remember the credit card number or the CVV. Transaction could directly be verified using biometrics on the same application. This will make carrying cards redundant and hence decrease the risk of theft and fraud. This solution also solves the problem of the pandemic where individuals are not comfortable in handing over their cards to strangers with the risk of catching the virus.
Apart from pattern recognition and transaction monitoring, Razorpay also uses velocity of transactions to detect fraudulent transactions. Transaction velocity means the number of transactions conducted over a given period of time. A high volume of transactions in a short period of time is often an indication of fraud, though legitimate customers can be flagged in some cases. Keeping track of the number of uses by different data elements allows for spotting of unusual trends.
Financial frauds have seen an exponential rise in digital payments following the coronavirus pandemic. The reduced cash handling, limited awareness and increase in data sharing has provided malicious actors with a new opportunity. Financial institutions must be proactive with fraud prevention, without compromising on the speed, security and the convenience that the customers demand when it comes to payment experience.
The COVID-19 pandemic acted as another catalyst like demonetization to the digitization of the payments industry in India. The demand for digital payments will continue to expand and accommodate newer players in the market. With India’s smartphone base estimated to reach 820 million by 2022 and the subsequent increase in internet penetration, there is a big void to be filled by financial institutes to make the entire process digital. With the right strategy and focus on key aspects institutes can tap into the potential that the Indian payments industry holds in the near future.
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