Digital transformation as core of re-imagined payment ecosystem

Further, as of 2023, the global spending on digital transformation, across industries, is likely to touch 2.3 trillion dollars, signifying the massive requirement for industrial digitization. The optimal utilization of innovative technologies like artificial intelligence, internet of things, big data and analytics, machine learning, robotics, among others, enable businesses to remain competitive and relevant in the quickly changing world order.

Finance is, undoubtedly, the backbone of the global economy and digital payments indicate a future-ready model for transactions. Digital transformation has resulted in significant alterations in the financial and digital payments ecosystem, ranging from enhanced data collection, to better resource management, data-driven customer insights, and increased agility and profits.

Digital transformation encompasses the integration of technology into the different spheres of an industry or business, revolutionizing the way it operates and delivers value to consumers. Considering the digital payments industry in India, while demonetisation had provided a fillip to online transactions post 2016, the real turning point came with the COVID pandemic and people's aversion to physical contact and proximity.

According to a recent report, India registered more than 21 billion digital transactions in the financial year 2020, and the future is set to brighten further. In fact, an Accenture study suggests that over the next two years, 66.6 billion transactions, amounting to 270.7 billion dollars, are expected to move from cash to cards and digital payments.

Technology is aiding this astronomical growth of the payments industry. Harnessing innovative solutions, financial technology providers have the wherewithal to catalyze disruptions in an industry as ancient as humanity. At the forefront of these disruptions are the payment trends that are gaining immense popularity in the new normal -

Payment initiation service providers allow users to complete payments via online banking tools

E-wallets permit customers to park funds in the wallet and make subsequent purchases

Peer to peer transfer mechanisms, like the one offered by the Unified Payments Interface (UPI), enable users to pay for purchases through their preferred payments application

According to a recent report, the global digital payment ecosystem is expected to grow at a CAGR of 20% between 2019 and 2023, touching 8 trillion dollars in 2023 and this growth will be fuelled by the optimal adoption of technology. Ongoing trends suggest that the following innovations are most likely to boost the industry -

 Digital ledger technology - enables financial institutions to decentralize and scale-up for enhanced business continuity and risk management

Cloud - permits institutions to limit infrastructure costs and improve flexibility and service offerings

Application and Programming Interface - boosts operational and cost efficiency and mitigates risk

Data analytics and machine learning - offers deeper customer insights and aids enhanced services and solutions

AI, IoT, and smart devices - enables seamless on-boarding and transactions

Emerging Trends in the Landscape

With an influx of technology-savvy and discerning customers, the digital payments landscape is scaling up to offer individuals the best of services and customized products. In addition, a major ask in digital payments involves safety and transactional security, and service providers are adopting different strategies to ensure optimal customer interface and experience.

Some of the emerging trends in the digital payments ecosystem include biometric authentication for superlative security, mobile wallets, buy now pay later services that offer customers the flexibility of purchasing an item without paying for it upfront, neobanks that offer seamless online services like making payments and holding a savings account, and the consolidation of the digital payments system as per the guidelines of the RBI.

In India, the National Payments Corporation of India (NPCI) along with the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) has played a critical role in enabling an integrated and seamless digital payments ecosystem. Currently, all digital transactions in India are processed by NPCI. The New Umbrella Entity or NUE which is being set up by RBI will help mitigate this risk of concentration.

Digital transformation has been a way of life since the last decade but the pandemic, which made digitization imperative for sustainability, has propelled the pace of advancement on a meteoric scale. We are now migrating to an environment where digital will engender positive change while cash will continue to hold sway.