British fintech firm Revolut is coming to India. It intends to invest USD 25 million in the country and aims to launch its app by 2022.1 That Revolut has set its sights on the Indian market is understandable. With a population of more than 1.3 billion people, India presents an incredible opportunity for growth. But the question is, is this the right time to enter this market or is the company too late to cash in on the growing digital payment opportunity in India?
India has traditionally been a cash driven market, especially across its rural populations. But we have reason to believe that this is changing. Two factors contributed to this transformation. The first was the unprecedented demonetization announcement in 2016. Overnight, Rs. 500 and Rs. 1000 banknotes were banned, leading to a nationwide cash crunch and an uptick in the adoption of digital payments. Images of roadside vendors with signs indicating they accepted digital payments went viral, indicating that people from all walks of life were open to digital transactions, even for smaller amounts. This proved to be an inflection point for fintech players in the country. Reports indicate that digital wallet transactions increased by a whopping 700 percent in the days immediately after the demonetization announcement.2 The government introduced UPI apps which saw high adoption as well. The Reserve Bank of India data shows a 134 percent increase in debit card usage at POS terminals, and 163 percent increase in m-wallet usage between October and December 2016.3 By October 2019, that is, in just about three years since its launch, UPI transactions hit the 1 billion mark. But, while there was an uptick in digital payments, the cash in circulation quickly reverted to pre demonetization levels, defeating the country’s objective of becoming a cashless economy.
Writing this now in 2021, I can say with certainty that the ongoing COVID-19 pandemic has proved to be a bigger driver of digital payments than the demonetization drive. Amidst fear of contracting COVID-19, people became increasingly reluctant to use cash, debit / credit cards or even visit physical bank branches. As a result, digital payments touched record highs last year. There were 221 crore UPI transactions worth INR 3.9 lakh crore in November 2020.4 By September there were 20,919 crores mobile app based payments worth INR 7,04,109 crores and 28.22 crores net-banking transactions worth INR 34,36,124 crores. Reports indicate that 6,660 crores transactions valued at USD 270.7 billion are expected to transition from cash to digital and card payments. This number is likely to grow to $856.6 billion by 2030.
Clearly this is a market with tremendous potential for growth and Revolut’s decision to expand operations here is understandable. The question is, are they too late? India is the fastest growing fintech market in Asia, beating China to the top spot. Over the last year, there has been a 60 percent increase in fintech investments – USD $1467 mn in H12020 compared to the $919 mn during same period the previous year.5 India also has the second highest number of new fintech start-ups over the last three years, coming second only to the USA. And a whopping one third of the country’s unicorns are Fintechs. Competition for share of wallet is fierce, and first movers like PayTM have already established customer trust and loyalty. New entrants to the field like Revolut will have their work cut out for them as they try to establish a foothold in this market and grow their business.
With its skilled workforce, emphasis on digital transformation and a cashless, inclusive economy, and increasing customer demand for digital payment options, India is a fintech’s dream market. It is no surprise to see global fintech players making a beeline for the country. But as the sector matures and grows, fintechs will need fine-tuned strategies to meet the unique demands of this geographically and socio economically diverse market. And traditional banks must relook at their operational models, technology roadmaps and strategic vision to retain customers and grow their business in this increasingly complex and competitive market. I am excited to see how this space will continue to evolve in the years to come.