Global payments giant Mastercard has a lot going for it in India — what several of its top executives call the “hotbed for innovation”. First up, Mastercard’s biggest technology hub outside the US is housed in India. Some of its core products and services are being developed in Pune and Vadodara, where its centers are located. A lot of its innovation in the digital payments space is starting in India and being replicated in South Asian markets. In the last few years, Mastercard has invested close to $750 million in India. Demonetization was a shot in the arm and ‘Make in India’ is sustaining the tide.
But there’s a lot more that needs to be done to develop the ecosystem and get more people to transact digitally with ease. There are government regulations to be dealt with, ecosystem infrastructure to be built and commercial partnerships to be struck… because innovation in the payments space “isn’t driven by one individual” as Mastercard reckons. BGR India caught up exclusively with Porush Singh, Country Corporate Officer, India & Division President, South Asia, Mastercard on the sidelines of the Mastercard Innovation Forum 2017 in Bengaluru. Edited excerpts from the interview:
Take us through Mastercard’s journey in India post demonetization when there’s been a surge in the adoption of cashless payments.
Let me talk about the ecosystem first. If you look at it overall, we had 95 percent in cash. Demonetization accelerated the shift towards digitization. Debit cards which are now with everybody, RuPay cards have reached everywhere. There is disruption by the wallet providers in terms of providing a good consumer experience. Then there is Aadhaar and easier e-KYCs and so on. All that is helping drive the entire ecosystem. Demonetization made a tectonic shift rather than a slow, gradual shift that would have otherwise happened.
In 40-odd years, we had only 1.5 million merchants in India. They were all pretty much at the higher-end, larger ticket-sizes, affluent, top 20-25 cities in the country. When you went into the smaller cities, acceptance was low. Wherever acceptance was there, it was left to one or two payment facilitators like SBI and so on… but usage was low. It was not a profitable business. Well-terminalized stores with the required POS [point of sale] machines were not there in the smaller cities. Demonetization changed the acceptance footprint. The highest growth was happening outside the urban metros, and in a stable form. We found that even when cash came back into the system, areas outside the top 20-25 cities continued to grow and at a much higher pace than usual.
But were smaller cities equipped to handle the growth? How was the infrastructure built?
A little bit of terminalization [setting up of POS machines] was already being done. It wasn’t non-existent. Obviously an Indore wouldn’t have been as equipped as a Delhi, but it wasn’t zero. The other thing that happened — and full credit to the government for that — was they removed surcharges on fuel for the first time. Pumps were terminalized immediately. That was a massive spike and is still the highest-growth category. There was a spurt in acceptance… Fuel, pharmacies, groceries, dining out were the fastest-growing categories for digital payments. We saw high growth in NFC-enabled terminals too. Now, there are 2.8 million merchants accepting cashless payments. By the end of the year, you’d expect that to reach 3.5-4 million. That’s not small growth. Yes, in a country which has 60 million merchants, we need a lot more to do. But, there was a lot of action on the ground.
Mastercard developed Bharat QR in partnership with the government. How’s the acceptance been so far?
That was something we developed for the industry. Bharat QR obviously hasn’t scaled to the level it needed to but one primary reason is that there is an ecosystem-enablement required. An infrastructure development has to be done before we can roll out QR on a large scale. When you insert a [debit] card and enter your PIN, the transaction goes through an acquiring bank to Mastercard (or any other network) to the issuing bank, and the entire authorization process happens in a few seconds. You need to have that same thing at a high speed in QR as well. You have to enable issuers and acquirers in the QR space to provide the right consumer experience. Within five seconds, a QR transaction should happen unless connectivity is poor. Which of course, isn’t the case now. But with wider fibre-optic network, that will be solved.
What is the scale at which Bharat QR is operating right now?
There are about 3.5 lakh QR-enabled terminals in the country. Some of them existed before demonetization as well, but they were not inter-operable. Some are Bharat QR-based, i.e. inter-operable, and some are going to become Bharat QR-based. Some banks that are quicker up the curve have deployed it. It’s a matter of time [before others do]. ALSO READ: Bharat QR Code: Here’s everything you need to know about India’s new digital payment system
How are you educating the average Indian consumer and helping them overcome their inertia towards new modes of payments?
Look, people don’t wake up in the morning and say ‘I need to do a payment.’ Therefore, how do we make transactions happen in a seamless, safe and secure manner? I don’t think that QR will be the only solution. It will exist parallel with several other products. What QR does is it removes the cost of the terminal on the merchant side. So, for someone who has low or infrequent transactions, QR helps him get on with it. I agree that digital payments is a more smartphone-and-millennial trend. But it isn’t that those who aren’t millennials are not doing it. We’re just scratching the surface of acceptance. To scale it, it’s going to take a lot of time. You’ll find many disruptions happening. You got to think how you can innovate to give consumers the right experience. Look at the [mobile] wallets…
But mobile wallets are your competition right now…
I wouldn’t call it competition. Take the largest one, Paytm, for instance. They are doing a payments bank. The fact is when you get into that, your whole thing from a closed loop changes. The reason why it happened is because consumers were getting a good experience using Paytm. Of course, a part of it was driven by the offers, but they did a fantastic job in terms of driving acceptance. That was the starting point — acceptance. A regular consumer wants to use electronic payments. It’s convenient. The reason they carry cash is because many cities don’t have an acceptance terminal. And they might have to drive 2-3 km to buy even groceries [if they don’t have cash]. The moment the neighborhood stores start having an acceptance terminal, it will be huge.
Do you have a target on acceptance? Where do you want to reach in 2-3 years?
We do have a target which we cannot share unfortunately. But the recently retired Deputy Governor of RBI stated that to get to a reasonable level of acceptance and drive digitization as some of the other BRICS countries, we need to get at least 20 million POS locations in India. These are learnings from other markets. You take a market like China… a cash economy not too long ago. Today you look at it, AliPay and WeChat alone do about $10 trillion in transactions. You look at a market like UK, roughly about $7 trillion in transactions are done by Vocalink — a company we acquired. All that will eventually happen here too.
The other thing that we need to look at in the ecosystem is the safety-security. You got to have the right balance between consumer experience and safety. And that is never going to be easy. We are seeing it now. Every few weeks, there is news of some data compromise or the other. Let’s talk about the Target [data breach that affected 41 million consumers] compromise. It wasn’t that their core systems got compromised, it was the connections to some of the smaller merchants and suppliers from where the hack happened. That’s what we have to ensure is avoided. ALSO READ: Centre finalizing cyber security standards for mobile phones: Ravi Shankar Prasad
Mastercard has invested in data analytics. What does data say about Indian consumers? Are they fundamentally different from those in South Asian markets or even the world?
There are minor differences, not major ones. When people move from cash to POS, there are the standard steps they follow. First, they use [cards/wallets] in the case of emergency, say medical or something, then they move to one or two categories, and then they use it across multiple categories. That is a consistent model we have seen in 50 countries in the world. What triggers a purchase could have minor variations [across countries]. Because that depends a lot on the ecosystem. For example, if there was a surcharge on fuel — in other markets there is — people wouldn’t use non-cash. So, it really isn’t the consumer but the ecosystem that makes it different.
Tell us about Mastercard’s collaboration with Indian startups working in the payments space? What are you gaining from them and what are they gaining from you?
There is a Start Path program we have. Some of the partnerships in India are with Razorpay which quickly onboards merchants. There’s FluidAI which does artificial intelligence using big data. There’s ToneTag which does ultrasonic sound-based acceptance. No single entity can build all capabilities by itself. So, you have to start looking at everybody who will create that right consumer experience. And that’s why sometimes you build, sometimes you partner, sometimes you buy. Innovation isn’t driven by one individual.
Startups benefit from us on two things: scale (global reach) and access to safety-security. If you’re a startup in India and have a great idea, you want to go and replicate that in other markets. Bharat QR is in Singapore, it will be in Thailand, Indonesia, and more places. We’ve gone to EMV [Europay, Mastercard and Visa] talking about this as the inter-operable standard. FluidAI has gone to multiple markets, and we have several contracts in place. The ability to scale and pilot is what we provide.