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Digital Payments in India: Delving into Diwali Festive Season Spending [Q&A]

ACI conducted its second annual digital payments survey during India’s festive season, taking the pulse of consumers’ evolving payment preferences and assessing the impact that the COVID-19 pandemic has had on shoppers’ buying behaviors. The survey also captures some of the areas of concern that consumers have when it comes to digital payments. I spoke to Somya Patnaik, ACI senior product manager for real-time payments, about some of this year’s survey findings, and what they mean for financial institutions and merchants that are part of India’s rapid digital transformation.

Digital payments were the preferred way to pay for 39 percent of consumers in India this festive season, leading debit and credit card payments (26%) and cash (26%).

Chris Taine: While there’s a clear preference for digital payments over cards and cash, what surprises me is how little change there is to when we asked this question a year ago. I’m surprised how much consistency there is considering how unpredictable 2020 has been. Could it be that behaviors – including payments – are simply more entrenched than we often think?

Somya Patnaik: I think that’s certainly the case – it’s a mindset change and we should expect that it will take some time. Bear in mind that Indian consumers have been slowly adopting and getting used to using cards – especially for online purchases – for more than a decade now. The shift to digital payments, such as UPI, will happen faster because of the pace of transformation and disruption we are witnessing, but it still takes time.

Another thing to consider, looking specifically at festive season spending, is that there’s a lot of aspirational shopping including luxury items, electronics and gold. Owing to transaction limits on modes of payment like UPI (INR 100,000), some will opt for cards where they benefit from easy monthly installment (EMI) options, or they can make higher value purchases. And let’s not forget that cardholders are also targeted with significant cashback offers and rewards during the festive season, incentivizing them to opt for this method of payment.

Digital payments, including eWallets and UPI payments, were used by 57 percent of respondents more than twice per week for festive season purchases, up from 43 percent a year ago. There are also a growing number of “power users” with 29 percent using digital payments at least once per day, up from 15 percent last year.

CT: This suggests to me that growth in digital payments transaction volume is not being driven by net new users, but rather by more frequent usage from existing users. The big challenge seems to be converting non-users to first-time users.

SP: Absolutely, the biggest hurdle is always converting non-users to first-time users. Especially during pandemic-related lockdowns, transaction volume on digital payment channels came from existing users who were finding new opportunities to use them. Certain platforms like Google Pay are using tools like gamification to bring about customer stickiness and most of the players are bringing in different flavors of promotional offers to gain those “net new customers.” This does make sense in that our market is heavily driven by incentives and reward schemes. There is then a natural progression towards being frequent users, but this will take some time. But the volumes are primarily driven by existing users who have recognized the value of digital payments.

Eighty-five percent believe that it is easier to use digital payments when making purchases in-store or at merchant locations compared to last festive season.

CT: Important to note that this is measuring perception, not necessarily fact. So, has ease of use increased? Or are consumers simply attuned to the availability of digital payments because of the pandemic and related push from the authorities.

SP: Definitely. Hygiene has become the utmost priority in 2020 and people are definitely looking for contactless modes of payment such as a QR code displayed in the store, or a “tap-and-pay” option. And with digital payment apps like Google and Paytm running offers, cashbacks and rewards this festive season, this has also fuelled consumer adoption. From a practical perspective, it also saves you the trouble of sanitizing your hands and your card every time you shop!

Also, there are developments that make merchants more likely to draw customers’ attention to these payment methods, especially after the waiver of MDR (merchant discount rate) for payment modes like UPI. You see merchants promoting digital payments everywhere – Google Pay, Paytm QR codes and more can be seen at every store from the biggest metros through to smaller towns.

Digital payments are the preferred payment method, but 45 percent consider cash and payment on delivery as the most secure, ahead of digital (24%) and cards (20%).

CT: Why do you think cash is perceived as so secure? That feeling of handing over cash and directly receiving something seems to be deeply ingrained as a “secure” process.

SP: There’s been a huge amount of progress when it comes to the “Digital India” initiative, but it’s still a cash-intensive economy, and there are those who still go to the ATM at the beginning of the month and withdraw a lump sum amount for expenses. In fact, many folks in India call debit cards “ATM cards,” as they use them solely for withdrawing cash. As you say, old habits die hard! But some of this is changing with COVID, which restricted mobility; and with banks restricting ATM withdrawal limits and frequency, we are beginning to see a shift in the mindset.

The most common fraud-related concern is fake apps or websites that are part of a scam, cited by 42 percent. Forty percent also have concerns around fraudulent KYC (Know Your Customer) updates and fake UPI payment links.

CT: The biggest concerns relating to fraud seem not to be with the platforms themselves or with software security, but with “social engineering” scams – hacking the person and not the platform. This obviously highlights the need for consumer education, but why do you think these concerns are the most prevalent?

SP: This is definitely a major concern for consumers today and now more than ever there’s a need for banks and fintechs to educate them on digital payments fraud and scams. In fact, during the pandemic, we have seen fraudsters aggressively targeting consumers and businesses with new scams, and banks facing increasing fraud attempts. It is primarily social engineering scams where the fraudsters hack the person’s security details. So, education is the key here! However, it’s promising that we see industry response with campaigns like HDFC’s #MoohBandRakho advising people to refrain from sharing sensitive information.

Forty-four percent cite failed transactions as a top concern when it comes to digital payments, up from 36 percent last year.

CT: Is there a reason why this is emerging as a concern? Or, is it a product of other aspects of digital payments – for example, merchant acceptance – becoming less of a concern?

SP: There is a reason this is a growing concern, and we’ve seen it emerge in the media recently too. With UPI, for instance, we have been witnessing a rise in technical declines in the past several months and NPCI is regularly keeping a tab of the technical declines of each individual bank. As a user, it leaves a bad taste in the mouth; to avoid this, some online merchants are mentioning that they are witnessing declines on specific channels and encouraging alternative modes of payment.

CT: How can banks, fintechs and merchants prepare themselves so that this doesn’t impact future transaction growth?

SP: Banks are working with their technology providers in future-proofing their solutions, primarily to manage exponential growth in transaction volumes while keeping the technical declines low. Banks’ systems – both internal and external – need to be well equipped to manage the growing volumes and, like I said earlier, the payment architecture needs to be transformed to ensure they put frictionless payments in the hands of their consumers.

Merchants, on the other hand, are promoting digital modes of payment and, to pre-empt a bad experience, they’re informing customers if a certain payment mode isn’t working well. Merchants have to provide more options to pay at check out – they can’t restrict it to a certain app or payment mode and should give the consumers that flexibility to choose their preferred mode of payment.

UPI will almost certainly set new records in November, driven by festive season spending. And it will continue to grow from there. But additional volume spikes are anticipated when WhatsApp Pay rolls out over the next couple months, and the concerns around volumes are dictating how WhatsApp Pay is rolled out to consumers. For tech providers, now more than ever is the time to strengthen what we call non-functional requirements such as scalability, availability and serviceability – banks want to be working with vendors that can support future growth in transaction volume. Another key focus area should be payments architecture modernization, as with increased volumes and the new use cases and innovations expected, banks need a solution that’s future-ready.


Find out more about India’s festive season shopping trends – and changing attitudes towards convenience and security or register for ACI Edge Virtual: South Asia on December 9 to hear from industry experts about the most pressing payments issues facing this dynamic region.

Public Relations Director

Chris joined ACI Worldwide in 2015 by way of the acquisition of PAY.ON, bringing a specific eCommerce and mobile payments focus to ACI's PR activities.