E - Business

EMERGING PAYMENT SYSTEMS

 Agenda

1. Introduction to e-Commerce & e-Payments

1. Types of emerging payment systems in India

2. Criteria for selecting a payment system

3. Uniform Interface Payment (UPI)

4. How will UPI change the payment landscape in India

5. Challenges faced by UPI in rural and urban India

6. The Future of e-payments

 Basic requirements for digital payment

1. Acceptability: payment infrastructure should not only be robust but also

available and accessible to wide range of consumers and sellers.
2. Convertibility: interoperable and exchangeable with other forms of
electronic cash, paper currency
3. Flexibility: system should accept several forms of payments
4. Reliability: users should be completely shielded from systemic or single-
point failure
5. Efficiency: cost overheads in operation should be ideally close to zero.
Important for micro-payments
6. Security: digital currency should be resistant to replication, double
spending and tampering
7. Usability: user should be able to use it as easily as a real currency
8. Scalability: system to offer scalable solutions that is same performance
and cost per transaction overheads with growth in number of customers
and transactions
 Classification for digital payment

1. Micro-payments: very low in value. Typically transactions with five or

less currency units. System must ensure near zero overhead in order to
make it viable
2. Consumer payments: typically involving values of 5 to 500 currency
units. This is the dominant form of payment transactions
3. Business payments: transaction values are higher

There are three distinct types of payment systems and these are
1. Prepaid
2. Instant paid
3. Postpaid
 Requirements metrics of a payment system

Transaction in the context of payment system refers to actual exchange of

currency with goods (documents) being transferred. Every transaction must
exhibit following four characteristics
1. Atomicity : systems ability to ensure that no partial transactions or
exchanges can take place. If system fails during transaction then the
transaction should be fully erased. Either the transaction should occur
completely or should not occur at all
2. Transfer of funds: no loss of currency in the transaction
3. Complete transfer: if digital goods delivery is linked to its payment, then
either both should happen or none at all.
4. Consistency: no ambiguity in the transaction, that is all parties to agree
on amount and reason for transfer
5. Isolation: all transactions must be independent of each other
6. Durability: even after system crashes, the system should recover to a
state where transactions and status information is consistent
 Security features of the payment system of a payment system

1. Fraud protection: payment systems must be tamper-resistant and

prevent illegal use of digital cash
2. No double spending: payment system should safeguard against reuse of
currency
3. No counterfeiting: system should detect fake currency. Distinguish
between legal money tokens and unauthorised illegal money
4. No overspending: system should ensure that user is unable to spend
beyond the money represented by a token or money in a purse/wallet
5. Non-respectability: parties should be able to verify the payment
transaction, amount and purpose of transaction.
6. Hardware tamper resistance: tamper resistant smartcards
7. Unauthorised use: tokens stored in soft format/digital data are easy to
steal.
8. Privacy control: spending habits to be kept private
9. Confidentiality: similar to cash payments in a shop.
 Introduction
Drivers of E-commerce in India Porter’s Analysis of E-commerce Industry

Increasing broadband Rising standards of Lower prices offered

internet and 3G living and burgeoning and recent experience Bargaining power of
Suppliers (Medium)
penetration mobile middle class stores
Large number of
suppliers to choose
from; low switching
Availability of a wider
Disintermediation, costs; homogenous
product range as Busy lifestyles and products
reducing costs
compared to brick and urban traffic congestion
significantly
mortar stores
Threat of New Threat of Substitute
Entrants (High) Competitive products (Low)
Drivers of Emerging Payment Systems Low barriers to entry;
Rivalry (High)
Deal aggregators;
moderate investment Limited scope for
differentiation niche players

Bargaining power of
Customers (High)
Various options
available; low loyalty;
low switching costs
 Types of Emerging Payment Systems for E-commerce
Credit Cards Debit Cards Smart Cards E-cash E-cheque Digital Wallets

Actual
Paid Later Prepaid Prepaid Prepaid Paid Later Prepaid
Payment Time
Anyone with a
Anyone with a
Any legitimate bank Anyone with a
Users credit card users or credit card
bank or credit card Anyone
bank account
account
account
Bank Credit card
Account makes the Account makes the Account makes the
Account account makes the
payment payment
No involvement
payment
payment
Involvement

Mobility Yes Yes Yes No No

Limit on Depends on the

limit of the credit
Depends on how
much money is
Depends on how
much money is
Depends on how
much money is No limit
Depends on how
much money is
Transfer card saved saved prepaid prepaid

Small Not Suitable:; high Suitable; low Suitable; low Suitable; low Suitable; low Suitable; low
Payments transaction cost transaction cost transaction cost transaction cost transaction cost transaction cost
 How to select a payment system in India
Looking for a payment gateway? Payment Gateways in India

SELECTION CRITERIA STATUS Merchant account through a

Third Party Vendors
Security & Risk Mitigation major bank

Branding & Customization One time set up fee

Transaction Feature Major factors for
Comprehensive Merchant interface Transaction costs( Credit / comparisons of
debit/ net banking) payment
Technical capabilities &Supported gateways
Platforms
Annual maintenance
Hidden costs

Transaction Process during Online Payment

Encrypted form
Order placed on (SSL) Info to merchants Details to Info to the
to merchant
website acquiring bank payment gateway issuing bank
server

Response encrypted and sent Response forwarded to Request Approved or 2

to customer merchant server Declined
 Opportunities for e payments
Digital Wallets
Intuitive
• Google Wallet
• Apple’s Passbook
Security • Lemon Wallet
Versatile
ready • Square Wallet
• Isis
NFC • Geode by iCache
• PayPal

Inherently Technology
secured enabling Growth Drivers of Mobile Payments

• Large Population
NFC : A wireless communication technology that allows data to be • Large Smartphone market
exchanged between devices that are few centimeters apart. • Rising literacy rate
This technology is used to make cashless transaction – payments, • Internet penetration
access and ticketing • Launch of payment banks
• Improving technology for secured
payments
 Major Challenges for e-payments

• Competition from Non Banks, pushing

innovation and complex partnerships

• Need for interoperability in the complex

ecosystem

• Segment based strategy

• Integrate data with loyalty and reward

oriented scheme

• Privacy and security

 How UPI will change the payment landscape in India
E-Wallet Usage
• UPI to make payments using
the mobile phone as the
primary device, thus
reduced need for e-wallets
• Use multiple e-wallets
seamlessly as they will
become inter-operable with
UPI
Enhanced Security
• UPI to use Aadhaar
biometric as the second
factor authentication
• This means that in future
someone can download the
app, use Aadhaar for KYC
and start transacting
without using paper or cash
Payment Mechanism Common Standards
• Shopkeeper/merchant will
• “Interoperability” between
send a `request' for the
every banking and wallet
billed amount without
applications
asking for the bank
• One bank's application to
details/card details
draw money from another
account using the pin of the
• Merely accepting the
second account
‘request’ by entering the pin
• Equivalent of a closed user
and the money is zapped to
group network
the retailers account
How will UPI help Retail /Restaurant Businesses
Save on the extra cost which these merchants have to pay to the banks when they use a
card machine
Small food outlets which were away from the usage luxury of card payments can now have
the facility just by downloading the app
Saves the hassle of keeping exact change for the balance when the customers pay at their
homes and thus reduces the delivery time
People who do not have cash at home can pay through this app, giving the customers a
convenience while delivering foods at home
5
 Challenges faced by UPI in the rural/urban markets
Share of mobile phone users Smartphone and Internet Mobile Internet Users in India
that use a smartphone 400 (Figures in Millions)
Penetration: 220 Mn users, second-
30% biggest smartphone market in terms 300 109

of active unique smartphone users

20% 200 68
surpassing the US market, however the 32
10% smartphone penetration of the total 100
262
21 153 171
0% potential population is still below 30 4
44 70
2010 2011 2012 2013 2014 2015 2016 per cent 0
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16
Source : eMarketer Urban Rural Source : IAMAI

Consumer adoption takes time and consistent efforts, thus a Cost of using UPI will be probably be the same as an
multi-year journey IMPS transfer which is costly for large value transactions

IMPS – NPCI initiative which focused on interoperability and Refunds are currently not part of UPI and the authority
mobile first but never picked up steam for all arbitrations lies with NPCI

Consumers still prefer wallets for their simplified UI,

RUPAY- Another NPCI initiative which kept no focus on Indian frictionless experience, reliability, affiliation to banks (or
challenges when it comes to payments brands) followed by cash backs

40% population is living below poverty line with illiteracy

NPCI hasn’t mentioned the economics behind it’s acceptance as to rate more than 25-30% and digital literacy almost no-
how the pie will be shared among the stakeholders existent among more than 90% of India's population
 The future of Payment

Biometric Payment Bitcoin

• Biometric payments involves authentication using body • Bitcoins are digital currency which works without an
markers that are hard to cheat on, such as finger print. intermediate authority
• Some financial organizations working on voice recognition • Cryptography is used to record and control transactions in
and retina scan as an authentication mechanism Bitcoin

Smarter Credit Cards Apple Pay and Android Pay

• Permits all credit cards to be loaded on to one smartcard,
doing away with the need to carry a wallet full of plastic.
• In future it could easily enable parents to block mobile app
purchases by their kids, while permitting other purchases.
NFC
• NFC (Near Field Communication) is high frequency and
short range wireless communication technology
• Users can merely accepting the request by entering the pin
and the money is zapped to the retailers account
• Mobile payment and digital wallet service by apple and android
• The service lets devices wirelessly communicate with point of
sale systems using an NFC antenna.
Others
• Issue an instruction to Google glass or tap wristband or watch to
make a payment
• French bank group BPCE is working with twitter to allow tweet
payments.
• Incentives offered by businesses for Twitter follows and
Facebook likes