How Contactless Payment is Redefining Merchant Business in the COVID-19 Pandemic
In the recent past, India has witnessed a tectonic shift in the digital landscape ecosystem, which is instrumental in unlocking the massive potential of a digital economy in the country. Even before the COVID-19 pandemic, the popularity of contactless payments was on the rise, with more and more people realizing the convenience they offer. But more often than not, it was still considered a luxury or choice by many consumers who still used cash or cards for transactions.
The aftermath of the pandemic has given a big shot in the arm to the fast-growing digital payment industry in India. To reduce the spread of the virus through currency notes, people of all ages are now switching to ‘contactless payment’ through digital means. As a result, contactless payments are now an essential facility that customers expect from large retail outlets, smaller stores, and online shopping destinations alike.
A Surge in Adoption of Contactless Payments
The recent FIS PACE PULSE Survey 2020, a leading provider of technology solutions for merchants, banks, and capital markets firms globally, has brought out some interesting insights about significant changes in consumer behaviour, especially in the ways people work, shop, socialize, and, most importantly, pay. The report shows a significant increase in the use of contactless payments, especially mobile payment wallets in India. The survey reveals that more than 93% of respondents have stated they use mobile wallets to make payments, with Young and Senior Gen Y-ers being the heaviest users, having used one more wallet compared to the average mobile payment wallet users.
According to the Reserve Bank of India, the total digital wallet transactions in India nearly doubled to Rs. 253.2 crore in May this year from Rs. 124.3 crore in February 2020. Further, the total value transacted from digital wallets grew even faster to Rs. 11,080 crore in May, from Rs. 2,836 crore in February.
Convenience and the need to avoid high-touch surfaces are the top two reasons respondents are using contactless payments now and will continue to prefer using them in the long-run. As per the survey, the majority (83%) of surveyed respondents have noted that they would use contactless payments instead of cards or cash for in-store shopping in the aftermath of COVID-19 because of hygiene concerns, followed by convenience.
The tremendous growth potential of real-time digital payments in India is further substantiated by the FIS Flavors of Fast 2020 annual report, which shows that India currently has the highest number of real-time payment transactions, with 41 million transactions daily. It has emerged as the global leader in real-time payments, ahead of the UK, Japan and China, with a massive 80% increase in transaction value as well. As consumers are increasingly seeking instant gratification, they are also opting for faster and more secure instant payment methods. This changing consumer expectation is also catalyzing the shift to real-time digital payments.
This is a development that no business can afford to ignore any longer.
Growth Opportunities for Merchants with Contactless Payments
An increase in uptake of contactless payment solutions once again proves that digitizing merchant payments can open a plethora of avenues for small business owners and entrepreneurs who are currently struggling with the economic disruptions triggered by the COVID-19 pandemic and the subsequent lockdowns. With a surge in demand for digitizing SMBs, there is also a critical need for adopting contactless digital payment modes to cater to changing customer behavior in the new normal.
With more and more people relying on websites and shopping apps or preferring contactless payments for safer and faster checkouts, many merchants, even those with brick-and-mortar establishments, have created their own websites/apps or set up shops on online marketplaces such as Swiggy, Zomato, Amazon and so on. These digital assets are equipped with cashless payment gateways to facilitate shopping. Even the humble kirana stores in the neighbourhood have either moved online or adopted contactless payments to serve customers better.
Adoption of digital payments creates significant value for small businesses who, in turn, can offer customers a seamless transaction experience with minimum contact, thereby prioritizing their safety and well-being. In an increasingly competitive market, digital payment is helping small business owners stand out and thrive in the face of new challenges by attracting new customers and retaining old ones, expanding their geographical market, and enhancing customer satisfaction.
A variety of user-friendly digital payment solutions are now available to customers. The report reiterates the popularity of PayTM, which has emerged as the top mobile payment wallet in India, with 78% of surveyed respondents being users. The percentage is significantly higher than the 2nd top player Amazon Pay, which is used by 61% of surveyed respondents. PhonePe, the current 5th most popular mobile payment wallet, is very close to PayPal in terms of the size of user bases. These solutions also include value-added features and services for merchants who can now easily accept or track payments, initiate refunds, transfer money to their bank accounts, and do more. By embracing these popular payment methods, MSMEs can deliver an improved customer experience - a key factor for success.
Reacting to the findings of the FIS PACE PULSE Survey 2020 report, Dr. Animesh Saxena, President of the Federation of Indian Micro and Small & Medium Enterprises (FISME), recently said that in the post COVID world, the SMBs and MSME entrepreneurs need to harness digital technology to deliver world-class product and services and that by adopting contactless payment systems and digital banking solutions they can improve B2B payment efficiency and accelerate recovery.
Government Fillip to Contactless Payments in India
The Government of India can also be credited with giving a massive push to promote India's digital payments. The 2016 demonetization drive was a huge step towards realizing the vision of a cashless economy. IndiaStack/Aadhaar Stack, a part of the path-breaking Digital India initiative, is helping create a robust and secure digital payment infrastructure in collaboration with the Reserve Bank of India, NPCI, and other financial institutions. With fast, secure, and cost-efficient initiatives like video KYC/e-KYC enabled by efficient Aadhaar-based verification, the RBI has helped more and more customers easily sign up for using payment wallets. Through state-of-the-art technology, IndiaStack helps in bringing more small merchants into the folds of the digital economy by facilitating more P2M (peer-to-merchant) contactless transactions. It is encouraging to see the efforts made by governments, financial institutions, especially fintech players, industry bigwigs, and other stakeholders, to create a truly innovative payment ecosystem of the future.
Apprehensions Around Contactless Payments - Merchants & Customers
However, concerns around transaction safety and security are the top reasons that hold many consumers away from using contactless payments for in-store purchases. 17% of surveyed respondents have noted that they would still use cards or cash for in-store shopping in the aftermath of COVID-19 because of concerns of safety and security around digital payment transactions. Small businesses can work closely with fintech players to identify the critical security concerns of their customers and collaborate to provide 100% secure cashless transactions.
Many MSMEs are also apprehensive about leaving behind digital footprints of transactions and a perception of high processing fees of digital payments.
But the benefits far outweigh the cost...
Access to low-cost credit, especially from traditional lenders, has always been a significant challenge, hindering MSME growth in India. Low or no credit history, especially for NTC borrowers, is one of the main reasons for this. Fintech companies and P2P lending platforms are increasingly relying more on information-based collaterals than traditional physical asset-based lending. Digital payment solutions can help create a credit history for small businesses in the informal sector, which in turn helps lenders, especially new-age digital lenders, assess their creditworthiness and approve loans. MSMEs can thus be integrated into the formal economy.
Digital payments, as a part of a larger drive to promote digital transformation among MSMEs, can contribute to creating an ecosystem that benefits both MSME borrowers and lenders. Consequently, the low adoption rate of digital payments is hurting their growth prospects.
In a digital-first economy, contactless payments can help boost MSME efficiency and business growth, and thus their implementation is the right way for consumers, producers, or service providers. MSMEs are the backbone of the Indian economy, and their success is critical to achieving the vision of a self-reliant nation. Government support in the form of policy reforms and lenders, especially fintech players, plays a pivotal role in educating the Indian MSME sector about the various benefits of contactless payments and catalyze their adoption among the sector.