Challenges and opportunities in the Indian payments market

Abstract

The Indian payments market, traditionally dominated by cash and other paper-based instruments, is undergoing rapid change, presenting both challenges and opportunities for banks and other players in the payments industry. Part of the momentum is being provided by the Reserve Bank of India (RBI), which has established a board to oversee the development and regulation of the national payments industry, and has stated its vision to implement realtime gross settlement systems, launch cheque truncation capabilities, and create new networks aimed at increasing the role of electronic payments. Broader trends, such as the increasing emergence of private-sector banks, are also having a significant impact. Unlike public-sector banks, these institutions are not encumbered by the legacy of large branch networks with completely manual operations, and they have steadily deepened their presence in many parts of the payments business since India's banking industry was liberalised in the mid-1990s.In consumer (retail) payments, three initiatives are most attractive for payments players: increasing penetration and use of debit and credit cards; shifting use of cash and cheques to electronic payment methods; and leveraging the growth of mobile telephony. In corporate (wholesale) payments, there are two principal areas of opportunity: upgrading cash management products (including insourcing payments functions from corporate customers) and developing targeted offerings for small to medium-size enterprises (SMEs).Among the main overall challenges for banks are: finding new sources of revenue to make up for the stagnation or even loss of income from traditional payment products that thrived on inefficiencies; developing new products that can leverage the new payments infrastructure — including that related to mobile telephony — and aligning technology and processes to deliver the new products; and, particularly in wholesale payments, ensuring that IT systems can seamlessly interface with those of customers in order to provide straight-through processing.