Over the years, India has seen a gradual transformation of the payment ecosystem. The current pandemic has led to a great surge in digital payments and pushed India ahead of many cash-lite economies around the world. The surging acceptance of digital payments is seen across all cities and towns – Tier I to Tier 4. The impact of Covid-19 pandemic has resulted in disrupting the entire ecosystem.
Contactless payments took center-stage with growing social distancing norms and have been the go-to option for many users. India being primarily a cash-intensive economy has undergone a sea change when it comes to purchase habits and modes of payments. While digital payments have been around the corner, the pandemic push has resulted in a significant section of the population to move towards contactless payments. Mobile wallets and UPI-based transactions became the most preferred payment option for many almost immediately. The National Payments Corporation of India data states that UPI registered 2.53 billion transactions worth Rs 4,90,638 crores in May 2021. Similarly, the Immediate Payment Service (IMPS) processed 27.98 crore transactions worth Rs. 2.66 lakh crore in May.
With the onset of global technologies like Near-Field Communication and RFID, contactless payments have taken the industry by a storm. For instance, customers prefer to just tap their card at the PoS terminal as it is extremely convenient and swift. Technologies such as tokenisation have equipped customers with unparalleled security to carry out contactless transactions using their virtual cards. Tokenization mitigates the risk of credit card frauds as it replaces the 16-digit e-card number with a unique token.
Retailers, even small ones, have opted for a digital infrastructure as it puts them ahead of the curve and customers prefer retailers that offer such choices. Another industry report reveals that digital wallets at PoS in Asia Pacific region accounted for about 40% in-store transactions in 2020. This is largely due to the intense efforts made by Fintech players to bridge the digital gap and the growing importance of contactless payment options during these trying times.
When it comes to commute by Metros, many cities have implemented Automated Fare Collection systems that enable a customer to zip through the flap gates by simply scanning a QR Code or tapping their pre-loaded card; for instance Kochi Metro. Kochi Metro also plans to implement QR based ticketing on water-Jetty system.
RFID-based payments by means of FASTag across national highways are also a great example of contactless payments. FASTag transactions reached 11.64 crore in May 2021. FASTag to a large extent has managed to eliminate human intervention thereby making toll payments smarter and swifter.
To further fast-track the adoption of digital payments, RBI has increased the limits for contactless card transactions from Rs 2,000 to Rs 5,000. ‘Buy Now Pay Later (BNPL)’ facility is seen as an emerging trend in the Indian market. A Fintech report states that BNPL facility has recorded a growth of 569% in the last 12 months in India. Cost-effectiveness of PoS and the growing demand for convenient payment options have led to this phenomenal increase.
QR code interoperability has been crucial in the penetration of contactless payments. As demand for cash remains high, QR-based cash withdrawal on ATMs has been introduced by leading payment solution companies like AGS Transact Technologies. Such card-less transactions make cash withdrawal a contactless process and mitigate the risk of spreading the virus whilst facilitating convenient and secure transactions.
Since the onset of the pandemic, many customers have opted for digital payments to purchase their daily essentials such as groceries, fuel, medicines, etc. Apart from day-to-transactions, contactless payments have spread their wings to many other utility payments such as bill payments, mobile phone recharges, and even renewal of motor insurance. Ongo, a leading digital payment brand, has enabled two-wheeler motor insurance renewal in a completely digital manner.
Clearly, contactless payments are everywhere.
Contactless payments have seen a rapid surge in the past year. However, it is important to regulate these transactions. Moreover, voice-enabled payments may soon gain momentum since it has the potential to take contactless payment experience to an untapped level.
To facilitate such transactions on a much larger scale, a cost-efficient infrastructure is required so that more merchants come under the umbrella of digital payments. The RBI has created a ₹500-crore Payments Infrastructure Development Fund to encourage deployment of PoS infrastructure in tier-3 to tier-6 cities and the North-Eastern States. It also asked all payment operators to migrate to interoperable QR codes by 2022.
As we navigate through the changing consumer behaviour patterns, it’s imperative to note that contactless or frictionless payments are here to stay. A strong, robust infrastructure, digital literacy coupled with increased avenues for contactless payment acceptance will go a long way in making India a cash-lite and less-friction economy.