On the 18th of February, Cashfree hosted a knowledge exchange webinar: Digitising Payments for a New Generation of Customers. Speaking at the webinar was Amartya Singh, Director of Partnerships at Cashfree and Kenils George, AVP – Head Products & Innovations at Sesame. The discussion revolved around how fintech companies are scaling innovations for NBFCs, cooperative banks, and cooperative societies.
Amartya and Kenils set the tone of the discussion by talking about the dynamic changes in the post-pandemic world and what awaits as we open the door of new opportunities and move closer to a digitized society. They also spoke about the future of payments and the many possibilities that organizations like Niddhi companies, NBFCs, and financial organizations could look forward to capitalizing upon, given the disruptions in the payments space..
What has been the impact of pandemic and post-pandemic on the lending & borrowing ecosystem?
Limitations from the government meant that NBFCs, co-operative Banks, and cooperative societies were to function with limited services. With the RBIs moratorium scheme, which allowed the lending institutions a moratorium on payment of interest and blocked fund movement, it was tough for Nidhi companies to squeeze their way out of the situation. Kenils mentioned, “Till October, around 40% of debit requests failed, which could have been contributed by the moratorium of lack of funds”. And thus began the wave of digitization.
Many NBFC companies took the road of developing mobile applications for their end customers. This streamlined the process for the application of loans through an online mode. By leveraging artificial intelligence and analytics, their systems could now recommend loans to the customers based on their repayment history & patterns. This not only enhanced their management capabilities but also the efficiency of the companies.
How does the road ahead pans out for digitisation of payments?
Payment has always been an instrumental aspect of any insurance, NBFCs, Nidhi, or financial co-operatives. With the pandemic setting and social distancing norms, the transfer of cash has taken a turn to digital wallets and digital transfers. Reconciliation, which has been quite a cumbersome process, is now a cakewalk with digitization in the picture. Reconciliation via APIs has been a boon to this fintech ecosystem as it saves on a huge investment and eliminates manual labor hours of documentation.
As we take a peek into our indigenous UPI development, as recently as January 2021, India housed 2.3 billion transactions with a transaction volume of 4.3 lakh crores. These numbers volumes about the digital transition of the payments space in the future as well. UPIs have penetrated every nook and corner of the ecosystem with almost every vendor accepting UPI QR code payments at their store. Tagging along, EMIs and PayLater are the other rising avenues in the payments space. Amartya quoted a statistic which states, “68% of EMI transactions have incidentally come from outside Tier 1 cities”. This shows the acceptance among people to move to alternate modes of payment which is distributed evenly across a fixed period.
What does the payments mystery box unravel for Nidhi companies, NBFCs, co-operative societies & co-operative banks?
Most of these institutions are tying up with private banks or scheduled banks to provide host-to-host services and enabling payouts for loans. For the second instance, most banks have automated the loan disbursal process after loan approvals. This streamlines the process and makes it faster and more efficient. Cashfree has been playing an integral role in integration with such banks thereby smoothening and simplifying the process of payouts.
Another important aspect of online payments is security. Kenils spoke about how the whole API integration process was verified and compliant with the guidelines set by the regulatory authorities. According to RBI’s revised regulatory framework for lending companies, all the NBFCs with 10 or more branches have to implement stringent security policies and be compliant with the framework.
Analyzing the concept of UPI, we see the UPI stack, it is completely dependent on smartphone usage. For instance, UPI Autopay 2.0 is a recurring debit-based UPI payment collection, which pertinently falls into UPI e-mandate & physical mandate. The overall recurring debit for the repayment has migrated from PBC post-dated cheque to ECS then to Physical NACH to API-based e-mandates (working on net banking and debit card) and finally transitioned to UPI Autopay. API e-Mandates and UPI autopay are deemed to be the future of payments, as we await another disruption in the payments space.
You can access the recording of the session here:
(Youtube link – https://youtu.be/VZE2CdzaHtU)