The future is contactless: Transforming India’s multi-million merchant landscape
Merchant acquiring, while often mentioned, has not been in the spotlight quite as some other developments across India’s payments industry. However, it holds a pivotal place in enabling digitization. Its ubiquitous role is evinced in the fact that every time a consumer pays a merchant, it is the acquirer that captures, authorises, processes, and settles that transaction. Every Yin has a Yang and so - acquiring must grow to complement the growth in issuance.
Given the significance and impact of technology in today’s economy, merchant acquisition has evolved from a legacy “processing and hardware business” to a “full-stack software and merchant services solution”. This shift, coupled with the diversification of the merchant payments value chain, is dramatically transforming the long-established economics and business models of merchant acquisition; ostensibly favouring the value-added approach of the new players in this value chain. However, the shift in technology and emergence of new-age players has in fact opened up new partnership opportunities for legacy acquirers. The coming of age of merchant acquiring will see a confluence of new-age software driven service providers and the foundations previously set by legacy acquirers.
India’s merchant landscape in a nutshell
India, once a cash-dominated nation, made a move to invalidate much of its paper bills in late 2016 – setting millions of people and merchants towards exploring digital alternatives for payments. This led to a surge in all forms of digital transactions, as merchants began accepting a wider range of digital payment instruments to offer a seamless shopping experience.
Today, several external stimuli and policy interventions — such as Jan Dhan Yojana, Payment Infrastructure Development Fund (PIDF), Merchant Discount Rate (MDR) regulations, Personal Data Protection Bill, MSME growth — and ‘next-gen’ users are driving merchant digitization growth in India. Accelerated smartphone and internet penetration are also fueling mobile payments. In fact, as contactless payment becomes the preferred payment experience at the point of sale globally, Tap to Phone will enable SMBs to enter the digital economy with the simplicity of an app.
Concurrently, the P2M market (person to merchant)—which currently stands at INR 4 trillion—is also expected to grow at 52 percent CAGR to reach INR 33 trillion by 2025. This growth is anticipated to be driven by higher consumer and merchant satisfaction for mobile payments in P2M, and simplified consumer and merchant journeys as compared to other modes of payment.
A departure from tradition to embrace innovation
In convergence with the evolving merchant landscape, RBIs recently implemented regulatory sandbox has also set the stage for several India-first fintech innovations that are consistently innovating how the nation pays. One of these revolutionaries is Yuva Pay – an AI-driven secured offline mobile payment solution that drives financial inclusion among India’s last mile.
Similar innovative fintech solutions include NFC smart cards and encrypted sound waves for proximity-based transactions – both offline and online. This is an incredible opportunity for Indian merchants to join hands with fintech startups to offer safer, more holistic and seamless shopping experiences; ultimately driving better financial inclusion.
These innovations represent only the tip of India’s fintech innovation iceberg, putting the spotlight on merchant acquisition and its causal role in evolving the country’s thriving payments landscape for years to come.
SMBs shifting to digital = Good news for merchants
Today’s unique combination of physical and remote commerce has underscored the resilience of small and medium-sized businesses (SMBs) globally, as many were forced to quickly adapt to new ways of doing business since the start of the pandemic.
In summer 2020, just 27 percent of SMBs had begun selling online for the first time due to the pandemic. Now, 90 percent are actively engaged in selling products online, and of those, 59% of small businesses plan to shift to using only digital payments within the next two years or are already cashless. according to research from the Visa Back to Business Global Study 2022 Outlook. Similarly, 73% SMBs globally say that new forms of digital payments are fundamental to their growth.
Findings from the Visa Back to Business Study 2022 Outlook reveal one certainty for businesses of all sizes in 2021 and beyond – the future of commerce is digital. And as SMBs continue to make significant changes to meet consumer demands, merchants are presented with an opportunity to help these businesses expand their e-commerce presence and accept new forms of in-store contactless and remote payments.
How Visa is simplifying payments for Indian merchants and customers
As one of the best funded startup verticals in India, fintech truly holds the key to unlocking India’s potential. In fact, the country’s financial landscape and unsolved problems are being addressed by its thriving ecosystem of around 1,000 fintech startups (as per YourStory data).
However, scaling businesses using advanced technology may not be easy for all. To close this gap, Visa launched the Visa Everywhere Initiative (VEI) two years ago, a first-of-its-kind innovation fintech challenge in India to solve the payment challenges of today and tomorrow. The challenges posed to fintechs were tailored around the biggest roadblocks of today, including small merchant acceptance growth to ease the onboarding of merchants; and enhancing the experience of payments at points of sale.
Visa also launched the Visa Accelerator Program in 2021 for startups in the Asia Pacific region that have launched successful solutions in their home markets and are looking for the next stage of growth. The program helps startups expand their business into new markets and identify commercial opportunities to collaborate with Visa and its extensive network of partners. In the first cohort, two out of five final winners across Asia Pacific were from India – Open and DigitSecure.
As another value-added service to fintech partners, Visa Merchant Offers Resource Center (VMORC) offers access to pre-negotiated offers from top merchants around the globe instantly. A central offer repository that gives an easy way to promote merchant offers to cardholders, VMORC is a multilingual application used by various partners worldwide to store offers as they are procured. It provides APIs to users to extract offers and display them on custom applications or pages.
Looking into the future, it is evident that contactless payment is becoming the default payment option for consumers. As the ongoing digital transformation ushers in the “next billion internet users” by 2025, providing merchants with more options of payment acceptance will drive stronger digital and contactless adoption across the next generation of consumers. Fintech innovators will play a pivotal role in digitising more merchants – a phenomenon that is preparing India’s financial landscape and payments ecosystem for a transformative and inclusive future of commerce.