Srinivas Nidugondi, Sr. VP and Head of Mobile Financial Solutions, Mahindra Comviva
The silly season is upon us, once again. It is, essentially, that time when one looks back and reviews the successes and failures of the previous year. It is also when one tries their hand at predicting the trends that are expected to leave the digital payments space spellbound. Or not, of course. Needless to say, if last year is anything to go by, one can safely assume that 2018 is set to witness a fair amount of activity. Now, onto the main feature.
Everything’s Coming up Blockchain
Blockchain continued to excite and evoke curiosity (and no, I am not talking about bitcoin) in 2017 and this year promises to be no different. Here is how-in so far, all deployments to date have focused on the remittances, trade finance, and insurance segment. This year, industry experts are betting on the fact that the scope will widen beyond straightforward banking applications. Simply put, apart from enabling international remittances, insurance management I see newer applications including contracting becoming mainstream. However, I believe that for small value payments there may yet not be any major advances. So (surprise, surprise), blockchain is everywhere data needs to be shared.
In a nutshell, the question to ask this year is – is blockchain the big disruptor for existing systems in the remittance space? We will (hopefully) find out this year!
Robo-advisors are just about finding their feet in the fintech world, despite being around for nearly a decade. Now, let us be objective – what is there not to like in a software-based platform performing the role of a financial advisor? After all, the integration of artificial intelligence (AI) into portfolio management software offers several advantages – both in terms of saved time and gathering data and interpretation of the same. With zero human intervention, financial services are available at any time of the day, all based on the customer’s propensity for risk in new and existing investments. Sounds viable? In any case, this technology is not shifting out of focus anytime soon, what with robo-advisors under full control of AI systems pegged to reach USD987 billion per annum in assets under management (AUM) by 2022, as per Juniper Research. Just a brief side-note, this forecast refers to hybrid robo-advisors, which, as per Juniper, will dominate 66 percent of global robo-advisory AUM in 2022. In other words, the input of a human advisor will play a key role, primarily to mitigate a customer’s fears of leaving financial decisions in the hands (or design, in this case) of an algorithm. Ironic, is not it?
The Lending Story
Now, this is one area which witnessed a lot of activity in the past year. Wait, permit me to rephrase – I mean the small and medium enterprise and business loans side. The consumer side is booming (of course), all fueled by the basic need to bring more customers into the financial fold. In so far, the story seems to have gained traction – what with 52 live mobile money-enabled credit services in 2016, up from seven services in 2011. It does not end there, of course. With AI as the backbone powering the calculation for credit eligibility criteria, rating, etc., expect this segment to make headlines. And why not? Several small players have forayed into this field, both in the consumer and commercial segments, with the sole purpose of addressing the demand for credit services. Needless to say, these services have, more often than not, relied on machine learning and big data to assess credit risk. The result? Better and more streamlined services to customers who need it the most! In fact, on the same note, going forward, we expect to see the demand increase significantly, primarily from enterprise customers. Going a step forward, emerging markets (where mobile money has firmly carved a niche) are set to witness the leveraging of mobile-based information. The bottom-line? To help in decisions related to credit. Having said that, however, players who will focus on overall customer engagement and leverage technologies including machine learning will lead the pack.
AI is, clearly, set to play a very important role in all things mobile credit and loans-related!
Augmented Reality/Virtual Reality: Waiting in the Wings
It would not be an understatement to say that augmented reality (AR) and virtual reality (VR) have transformed our world. In the financial services space, though, it is still waiting in the wings. So, instead of extolling on the virtues of this technology, let us examine what it can do in this space. First and foremost, I firmly believe that players in the payments ecosystem ought to give this technology the leverage it deserves. After all, it provides ample opportunities for these players to anticipate and keep pace with the customer’s ever-changing, ever-evolving requirements. Not just that, it could present a viable channel for these players to differentiate their offerings, thereby catching (and retaining) the interest of millennial and younger customers. After all, is not that the bottom-line?
Just a quick side-note, Goldman Sachs has estimated the AR/VR space to be pegged at USD80 billion by 2025. Clearly, not a flash-in-the-pan technology, this!
Last but certainly not the least, let us talk payments. It is quite straightforward, really. I believe that consolidation of various payment systems will take place in a significant way, encompassing the mobile handset, cards, online payments, in-application payments, and the whole lot. Naturally then, players who offer a consolidated view in this regard will clearly have an edge over the competition.
Now, let us be more specific. In the Indian context, there has been a lot of buzz around using Aadhar for payments at physical point-of-sales. However – and I do not mean to burst this bubble – I do not see it taking place in the near future, at least. On the other hand, the leveraging and deployment of a unified payments interface (UPI) will continue to surge. Here is evidence to support this – as per Morgan Stanley’s Tracking Digital Payments report, UPI’s contribution to digital payments has increased to 5 percent (in the second quarter of 2017–2018) versus 3 percent in the previous quarter and 1 percent in 2016–2017. In fact, on a monthly basis, that number has already reached 13.8 percent, as per data released by the Reserve Bank of India for December. Clearly an up-and-comer, this!
On the same note, QR Codes, I believe, will slowly but surely find themselves in mainstream payments. In so far, China, India, and South East Asia has been a success story in this regard – wherein QR Codes have gained significant traction. Eventually, the ambit is expected to enhance significantly in 2018, with markets like Africa expected to jump onto the bandwagon as well. Signs are already in place, with Safaricom launching QR codes and mVisa and Masterpass QR pushing the use of QR codes in developing countries.
2018 clearly promises to be an eventful year for the digital payments space. A word of caution – while extensive lists of what will be at the forefront this year are doing the rounds, it is still too soon to say for sure. One thing is certain, though – the industry ought to buckle up – interesting times lie ahead!