Digital transformation in Indian business25/08/2022 0 By indiafreenotes
Over the past three decades, India has experienced immense change in just about every aspect of life. GDP per capita has soared, literacy is up, life expectancy is higher than ever, and the country’s digital economy is booming.
It is expected that consumer spending will double by 2025 and eCommerce penetration will increase by a factor of five, creating an ideal environment for exponential growth. Reports show FinTech Investments in India almost doubled to US$3.7 billion in 2019, up from US$1.9 billion the previous year. This pegs the country as the world’s third largest FinTech hub, behind the US and the UK.
Accessing the growth opportunity that India represents requires deep understanding of a diverse, dynamic economy and a culture that is both ancient and cutting-edge, as well as the latest regulatory and payments environment.
The Government of India launched the National Strategy for Artificial Intelligence (NSAI) in 2018. Also, it launched its flagship project, namely Digital India. The objective of these moves was to transform the landscape of digital technology in a way that it could be integrated with businesses.
Following the outbreak of the Covid-19 pandemic, India started advancing towards achieving its digital transformation goals faster. This has been possible due to an improvement in the country’s digital infrastructure amid a series of subsequent lockdowns to curb the pandemic.
Acknowledging the significance of AI and digital technology, many technology and business leaders have embraced them. This trend is likely to gain traction in the coming years.
Whether one thinks of the Internet or digital technology, both have improved speed and connectivity due to innovation. At present, they are indispensable for business organizations as well as consumers. They are likely to remain valuable assets to business organizations in the future.
India’s rapid digital transformation
India’s digital transformation was jumpstarted by ‘Digital India’, a campaign launched by the Indian government in 2015 aimed at ensuring the country’s citizens are connected through high-speed networks and can access a robust digital ecosystem. The economic rationale behind this campaign is clear; research from McKinsey states that digitisation can create 65 million new jobs by 2025 and add US$1 trillion to the economy. This is a very positive indicator for global companies who are looking to build digital businesses in India.
Digital payments and FinTech are now a big part of life for many of the country’s 1.35 billion people, with 52% of the country adopting some form of FinTech. 99% of the adult population is part of the Aadhaar digital identity system and 60% of that population is under the age of 40. With an estimated 750 million smartphone users you can see how far India has travelled in its rapid digital transformation, providing a strong environment for many digital businesses.
Despite these impressive numbers, digital payments can still increase on a massive scale as a large part of the population has not fully adopted digital payments yet. If you look at eCommerce, it accounted for 3% of consumer spending in 2020, compared to 21% in the US. It is clear that despite India being a huge market and growing fast, it is still early days and entering now can lay the foundation for future growth.
High Barriers to entry
The opportunities India has to offer are huge but changing regulation and rapid developments in the digital and payments landscape can be challenging, making India a difficult market to enter. Every online business hoping to make a successful entry to the Indian marketplace should be aware of these.
Even global multinationals have tried to crack India’s unique market with mixed fortunes. Some, like Amazon, eBay, Uber, McDonalds and Tata group have successfully identified and adapted to the trends and requirements of a hugely multi-faceted country and populace. Others however have struggled to make headways on entry, or even withdrawn altogether as they did not adapt their strategy to the local culture.
To succeed in India, it takes a deep appreciation of hundreds of sub-cultures and demographics. From a payments perspective, it also means understanding that local payment methods are the norm, not the exception. Therefore, offering the full range of payment modes that consumers are accustomed to alongside what are traditional payment methods in other parts of the world will be essential.
India’s unique payments ecosystem
Traditionally India has been a high-cash economy. However, in 2008, the Reserve Bank of India and Indian Banks’ Association set up the National Payments Corporation of India with the goal of migrating to a less-cash economy. The obvious replacement for cash was debit cards and since mobile phone use is so widespread, phone-based payments and eWallets.
Amongst NPCI’s many payments innovations, is the widely used Unified Payment Interface (UPI), which allows instant payments through a variety of services, including PayTM, PhonePe, Amazon Pay, Google Pay and WhatsApp pay. The impact of UPI has been immense and in February 2021, India’s UPI system crossed 2.7 billion transactions with over 100 million users, merely three years after its launch. UPI now fulfils more than half of all digital transactions in the country. The Indian government is exploring launching the UPI app internationally.
Similarly, NetBanking is a local Indian Real-time Bank Transfer product. With this solution, consumers with an account at one of several banks are able to pay for their online purchases via an online bank transfer.
RuPay, another NPCI initiative, essentially functions as an alternative to Visa and Mastercard, providing credit and debit cards, contactless payments, QR code payments and is used in nine other countries.
Equally, another great ‘must have’ for online businesses is the ability to swiftly, securely and seamlessly repatriate revenues, enabling the cross-border settlement of funds in the referred currency such as EUR, USD or GBP.