India: Understanding The Emerging Frontiers In Payments Systems

Last Updated: 13 October 2016
Article by Monish Shah

The following Deloitte professionals were involved in preparing the report: Nachiket Limaye, Rachit Mathur, Meenakshi Khurana, Vaibhav Anand, Sidharth Ravishankar, Narendra Verma and Bharat Jakati


Foreseeing the Unseen!

It was the Whatsapp moment for the banking sector when Nandan Nilekani launched the Unified Payments Interface (UPI) on 11 April to the applause of RBI governor Raghuram Rajan and several leading industry captains in the country. Its originator, the National Payments Corporation of India, then said that this was just a modest beginning and a real revolution is yet to happen in the form of Bharat Bill Payment System (BBPS) and several other innovative payments systems that are being designed and developed. In the domain of banking, payments today is one of the most happening areas in terms of innovation, technology and business.

I remember Vijay Shekhar Sharma of Paytm mentioning that we are now passing through one of the most exciting times in the payments business with a lot of action happening around. A true follower of the banking sector cannot afford to miss this transformation. What is exciting is that the regulator is moving away from traditionalism and is becoming highly supportive of the innovations and offering the innovators a chance to prove themselves. In fact, the regulations are being created around these innovations so that the banking system evolves in the right direction free of security scares, operational inadequacies and in a manner that is conforming to global standards. The presence of fintech entrepreneurs, accelerators and incubators in the regulator's office is sign that the business of payments is getting redefined and it is not any longer a conservative business.

There have been maximum frauds in the payments realm. In fact, frauds in the corporate banking scene is ten times more in terms of value than those happening in the retail banking scene. The regulator is constantly evaluating the shortcomings in the security infrastructure and suggesting effective counter measures to contain possible frauds. The regulator is also highly sensitive to customer complaints, especially those that are likely to come up against the new genre of banks. In fact, the day is not far off where there would be a regulator for the fintechs, considering the large number of entrepreneurs who are entering this field.

The click revolutionized the commerce, the tap disrupted it and we are awaiting the next level of transformation. I am sure it will be more transparent, safer and easier for one to make payments in the days to come.

We at Banking Frontiers have been trying to be catalysts for this transformation to happen. It has been our endeavor to create a roadmap for the segment. And we are assisted in this effort by Deloitte India. I am thankful to Monish Shah and his team for consistently working with us in this effort and bringing out periodical reports. I must also recall that we have transformed from Mpay Insights to PayNext Insights to match the flavor of the payments business.

We sincerely hope this can be a good yardstick for each one of you reading this report to plan your future business roadmap for it will surely help in foreseeing the unseen and help you strategize accordingly. We welcome your feedback so that we can make it more effective.


India is at the cusp of transformation in disruptive innovations and the notion and benefits of "unscale" are a significant departure from the rule that bigger is always better.

Indian payments industry is undergoing an ecosystem expansion and transformation at the same time. Entry of new banks, acquiring and processing companies, is likely to bring unique business model nuance to the fore. New Payments players are expected to disrupt the market through dramatic technology delivery, shifts in customer servicing, differentiating value propositions thereby competing aggressively with legacy strategy, infrastructure and paradigms.

Aided by growth in "Omni-Access" channels and availability of new payments utility platforms, Indian payments industry is uniquely positioned to leapfrog the trajectory followed by other countries. Despite the din of uncertainty around their viability, new payments and small finance banks have the potential to be hailed as the challenger banks in India. With limited legacy and strong captive customer base, these banks are likely to offer engagement models which are product agnostic and will include products beyond core payments.

These new entrants will also act as a catalyst to shake-up the incumbent banks to improve value proposition, offer better customer experience and adopt engagement models that will go beyond transactional aspects of payments. Both challenger and incumbent banks have started to develop end to end digital value chains starting from user facing applications and interfaces. However, we believe that digitizing the middle office and back office activities will lead to a highest order of sustainable competitive advantage. We are likely to see new partnerships and alliance models emerge in a bid to create customer value propositions.

Customer experience in payments will go beyond the user experience design. Banks and payment companies need to consider service personalization, issue resolution and grievance redressal as an integral part of customer experience. Moreover, building customer trust in electronic payments remains a primary challenge and strengthening of authentication and verification process will go way in advocating user trust and confidence. With the emergence of biometric authentication as powered by Aadhaar, areas of customer frictions can be further streamlined.

Deloitte Thought Leadership Report for Paynext 2016 captures these emerging themes and focusses on three critical areas:

  1. Legacy Banks versus Challenger Banks: New age of innovations in payments with entry of new banks
  2. Forget the wires, connect the wallets: Putting user experience at the heart of multi-channel payments
  3. Building customer trust in mobile payments through improved authentication and verification process

We hope that the readers find this Report useful and insightful.


New Age of Payment

The last three years have seen a lot of activity in the Indian Banking space. Some notable developments have been:

  • Liberalization of the issuance of the coveted banking license, allowing several new players – 2 Universal Banks, 8 Payments Banks (of the 11 licenses granted by RBI, 3 have surrendered it) and 10 Small Finance Banks - to enter the banking space in India and challenge the existing paradigms1
  • Foreign banks having an option to enjoy on par treatment with other banks in India, if they opt for the Wholly Owned Subsidiary route2
  • Public Sector Banks grappling with the issue of rising Non Performing Assets and eroding capital3
  • Announcement on the merger of the larger state run banks with the smaller and inefficient players, to salvage their poor performance4
  • FinTech emerging as strong contenders to banks, globally, and in India
  • National Payments Corporation of India's (NPCI's) Unified Payment Interface (UPI), launched with the aim of achieving electronic payments, reducing cash in the payments system, and financial inclusion5

The next phase of banking and payments will be challenging, and with competition inching up, a host of new players will enter and new business models may emerge. These new players will be the 'Challenger Banks' who will attempt to disrupt the existing paradigms of traditional banking.

All products that a bank offers, are ready for digital disruption and the 'Challenger Banks' are expected to spearhead this change. The business model of these 'Challenger Banks' rests on the requirement that they facilitate a large volume customers or transactions, if they are to be viable, while overcoming the challenges of earning the trust of the customers as a financial partner.

The focus of the 'Challenger Banks' would be rapid technology adoption, better customer orientation, and favorable cost-income ratios. At the same time 'Legacy Banks' may be tempted to or even forced to revamp their efforts and refine or change their existing strategies to withstand the new competition. This will lead to players focusing on areas such as product innovation, pricing strategies, usage of digital channels, extensive use of technology, data analytics, new-gen marketing and branding, etc.

'Challenger Banks' are expected to have a near clean slate and a nimble organization with limited legacy issues. They are likely to bring in their learning, expertise & experience from diverse sectors and come up with unique business & operating models, which may prove to be successful, not only in providing last mile connectivity to the rural hinterlands, but also in creating a sustainable and profitable business model across geographies & customer segments.

'Challenger Banks' will have to make the transition from cash to digital and inculcate a behavioral change in the customer. This will need efforts from all players in the ecosystem.

'Challenger Banks' would need an integrated product platform that goes beyond 'banking'. This will be mandatory to create customer engagement. A modular system architecture should be considered to enhance the convenience of partnering with other companies to provide financial and non-financial services, to meet all the customer needs. As these banks would need to cater to a diverse set of customers with varying needs, the platform needs to be flexible enough to be customized; an in-depth understanding of what's desirable from the perspective of each customer segment is critical.

Key strategic choices which will shape the future of the Banks

With the RBI mandating a certain minimum capital requirement, the 'Challenger Banks' have to necessarily inject this capital in their ventures. To combat the new competition, many of the 'Legacy Banks' may also need more capital as a part of their business reorganization or technological up-gradation activities or for chasing new growth avenues. This will put pressure on both the entities, to create a business model in a capital efficient manner that adds value to its shareholders.

Banking industry of the future will look very different from today. It is critical that 'Challenger Banks' have a clear picture of their end state and work backwards, in order to avoid pitfalls later. A few license winners have withdrawn their interest7 and this shows that players are grappling with the issues of viability and scale up. At the same time, these players have created a sense of urgency among the 'Legacy Banks', who are trying to determine their approach, which could be reactive or proactive, and range from ignore, partner or compete. All players, new and old, need to reconsider their aspirations, assess the market and their own strengths to define their plan. A key thing to keep in mind would be that customers' underlying financial and payments needs haven't changed dramatically, but the way in which they want to fulfil those needs has. Customers now demand products with high convenience, ease of use and innovative features.

To read this Report in full, please click here.


1. RBI Website, Newspaper articles

2. RBI Website

3. 20 PSU banks' loss stand at Rs 16,272 cr in Q4, should you invest in them? ; Financial Express, May 23, 2016

4. Banks Board Bureau chief says it's time for public sector bank mergers, livemint, 15th June, 2016

5. NPCI Website

6. Payments Bank: Telenor, IDFC, Dilip Shanghvi's Sun Pharma to withdraw their licence, DNA, 20 May 2016, Tech Mahindra becomes the 3rd player to nix payments bank plans, Business Standard, May 24, 2016, Cholamandalam drops payments bank plans, Business Standard, March 24, 2016

7. Company Website

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions