Digital Drive. Are digital payments gaining traction?

TR Ramachandran, Group Country Manager - India and South Asia at payments network giant Visa Inc, shares his views on the digital payments industry and the growth of Visa in the country.

Post-demonetisation, how has the industry grown?

There has been a significant increase in penetration of digital payments. In the overall context, we look at what is known as personal consumption expenditure (PCE) — expenses we incur out of the monthly salary, such as electricity and bill payments. Now, the penetration of digital payments out of this expenditure is in single digit — may be 7-9 per cent. So, this is not a one- or two-year, but a multi-year opportunity, to convert cash into digital.

We are seeing a shift to digital payments, quite dramatically, particularly in non-discretionary categories such as fuel and groceries, not only from metros and urban areas but also from Tier-II and Tier-III markets. Consumers are slowly but steadily embracing digital payments. It’s fair to say that, post-demonetisation, India has perhaps leapfrogged in three to four years and achieved what could have otherwise happened only in 2020.

Among which profile of users in India is the usage of digital transactions more?

Let me divide the answer into two parts. Firstly, when you think about card usage, there are two methodologies by which you can use it. One is face to face, which is walk to a merchant, give your card and pin. The other is e-commerce transaction. Because of the proliferation of mobile phones in the country, more than a billion mobile phones are already in the market place, about a quarter of which are smartphones. The mobile first generation will power a lot of e-commerce and m-commerce transactions. Since nearly 65 per cent of India is less than 35 years old, in terms of demographics, that will be the one to take it forward. However, I do think that it’s not particularly age-specific in terms of other usage. It is not restricted to any age group or particular demographic.

What are the growth projections for the industry over the next 5-10 years?

Our mission is to help digital payments replace cash as a mechanism for payment. Countries such as Sweden have already reached over 90 per cent digital payment penetration while we are still at 7-8 per cent. This is the opportunity gap that has to be bridged.

What are the technological improvements that Visa has made?

Nearly 20-25 billion devices across the planet, by 2020, will be connected and will be smart ones. Let me talk about two specific things. One is contactless technology and the other is tokenisation.

About a year-and-a-half ago, the Reserve Bank of India allowed payments up to ₹2,000, where you merely tap your card on the terminal and payment is done in a contactless fashion. Basically, instead of dipping your card in the terminal and entering a pin, you just tap it.

More than 60 per cent of transactions the world over happens face-to-face in a contactless manner. This has the ability to significantly reduce the wait time to increase customer convenience.

Secondly, we are very excited about the ability of tokenisation as a technology to enable more and more transactions. For example, Samsung Pay rides on tokenisation.

Customers using cards are apprehensive about the card falling into the wrong hands. With Visa Tokenisation System (VTS), we encrypt the 16-digit card number into a digital token — a new alpha numeric assigned to the card. When that travels over the network, the data will appear gibberish to the hacker and will not have any commercial value. Encryption, decryption and authorisation — all this happens in real-time in 3-4 seconds.

We think tokenisation is the foundation layer as commerce moves to the Internet of Things.

How is Visa ahead of peers?

We are the world’s largest payments company and technology is at the core of everything we do. Especially when everything is going digital, we think investing on threat intelligence, cyber security and keeping network safe is one of the key assurances we give customers. We invest every year in making sure that our systems are in excess of 99.5 per cent uptime and offer complete protection in terms of cyber security.

What are the issues Visa has faced so far?

Never say never in these things, but we have not had a major security outage or incidents so far. This is because of our advanced technology and the proactive approach to cyber security and data protection; maintaining the integrity of the process is central to us.

On the other hand, frauds are often ascribed to card networks, a significant number of which are on account of human errors or on systems beyond the purview of the card network. In truth, these networks are much more secureWe ensure all the banks we deal with have robust security protocols and systems to handle that.

What are the opportunities for Visa?

Our global CEO has said that, here the opportunity is as large as the amount of cash floating around on the planet. We think our biggest competitor is cash, not anybody else.

In India, I think the opportunity is greater because electronic payment penetration is less than 7-8 per cent. That means India represents one of the largest cash displacement opportunities in the planet. We are very excited about the next few decades in India.

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