Digital Payments & their Revolution

Shivangi Sharma

Shivangi Sharma

Das Tor Writer

The world has revolutionized the way money is exchanged over the years. From Electronic Fund Transfer (EFTs) started by Western Union to the use of electronic banking systems at all bank branches to making the transfer by simply using the phone. The way payments are made changed across the globe over the years. From using cash to transforming into cashless systems, the banking sector in both advanced and emerging economies has evolved. It is also different in emerging and advanced countries. While advanced countries introduce new technology like mobile wallets, they are customized to be used in emerging markets. This article discusses how they are customized and how the strategy should be framed for the success of technologies in different countries. 

The need for a cashless economy is higher in emerging countries where the inflation rate is high and the currency’s value is declining. Furthermore, in the post-pandemic world, we are way ahead in time for digital payments than ever. Different prompt payment methods in various countries grew rapidly during the pandemic because of social distancing.

Two incredible seamless payment systems in the world

  1. UPI in India: Unified Payment Interface (UPI) is a payment method that links a bank account with a unique number that can facilitate transactions between two parties. It is a system that integrates with apps such as Google Pay, Phone Pe, PayTM, and others. UPI was launched in 2016 and now it has reached a benchmark that makes India a country that has the most online transactions across the world. As almost every household in India has a bank account, money transfer during covid was easier than ever. UPI allows real-time payments at zero cost in India.
    • This system can be integrated into mobile wallets allowing transactions to happen between two different applications. This also allows several bank accounts to be linked to a mobile number which makes it easier for people to transfer money from whichever account they want to pay from. It also allows payments between two different applications (mobile wallets). Therefore, it has simplified banking in India.
    • After its success in India, UPI has also launched in France, UAE, Malaysia, Bhutan, Nepal, and Singapore in collaboration with some local suppliers. In these countries, UPI is used by Indians who travel to these countries for tourism, work, or education. For their implementation in these countries, they partnered with local vendors and governments for allowing payment acceptance through UPI. In Singapore, UPI has partnered with PayNow for seamless payments between the two countries which thereby will enable easy trade, remittances, and travel.

  1. M-Pesa in Africa: M-Pesa is a system that allows people in Africa to deposit and withdraw money through a network of agents and mobile wallets. These agents can be small retail owners or small businesses such as barbers etc. They are even trying to make transactions simpler and easier between two countries by collaborating with companies such as Western Union, PayPal, and many others. These collaborations are the reason why M-Pesa is so big in countries such as the UK, UAE. They have also introduced the M-Pesa VISA international debit card.
    • In my conversation with Raymond Mwangi, Thunderbird Alum from Kenya, I came to know how he uses M-Pesa to transfer money from the US to Kenya and how it is a useful service for him. M-Pesa is a mobile wallet created by Safaricom, which is a mobile network in Kenya and is supported by AT&T in the US, which allows easy transfer of money. 
    • When a customer deposits money, M-Pesa doesn’t charge. However, money is charged when a customer withdraws or transfers money to another account. Also, M-Pesa creates value for the network Safaricom by creating an additional service for them.

M-Pesa tried to enter the Indian Market in 2013. Vodafone launched M-Pesa in India, but it wasn’t successful. The reason behind its failure in the Indian Market was that it was too soon to enter a market that wasn’t ready to transform into a cashless economy. However, 3 years later, UPI was launched in India by National Payments Corporation in India. And today, this has led to the greatest number of online transactions in India. This has happened only after every household held a bank account which is beneficial for the financial services industry as more people will be able to use other services they provide. Moreover, M-Pesa was introduced by Vodafone, which is a mobile network carrier only with 23% of the market size. The remaining number of customers without Vodafone as a carrier weren’t able to use M-Pesa. With mobile wallets such as PayTM in the picture, which was used by youth irrespective of the carrier, M-Pesa was not able to attract many consumers.

Factors to be considered while entering a new market with these systems are the availability of banks in the region, number of people with bank accounts, number of people using mobile phones, already existing technologies, whom we can partner with, and market growth in the upcoming years. This covers market presence, value creation, competitors, sustainable growth, and collaboration. M-Pesa considered sustainable growth and first mover advantage as a factor but couldn’t leverage it because, at the time, they could not tap the right market. Also, there were competitors in the market. That being said, where do you think the financial services industry is headed regarding digital payments? Will the incredible payment systems discussed above exist, or will digital currencies change the way payments are made?

References

https://digital.hbs.edu/platform-rctom/submission/m-pesa-a-mobile-money-success-story-from-kenya/#:~:text=Business%20Model,into%20mobile%20wallet%20is%20free).

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