When it comes to financial technology, there’s an elephant in the room that companies in Atlanta’s “Transaction Alley” would do well to watch closely: India.
While the country has its challenges with relatively low Internet penetration (despite nearly 500 million users overall) and a largely unbanked population, India through technology and a bit of timing is already beginning to leapfrog the West’s traditional trajectory on transactions.
Just as the country became an information technology juggernaut, the stars are aligning to make the nation of some 1.2 billion people an important new frontier in digital payments.
“Your fintech people should look at India,” says Arun Singh, former Indian ambassador to the U.S., who spoke with Global Atlanta before a lecture on the future of Indian innovation at Emory University Feb. 14. That was less than a week after more than 700 of Atlanta’s fintech finest gathered at the Technology Association of Georgia’s annual conclave for the industry.
Mr. Singh’s confidence about India is based on the confluence of a few factors, both serendipitous and planned.
Over the past few years, the government headed up by Prime Minister Narendra Modi has made digital transactions a priority as part of an overall raft of reforms to modernize the economy.
State-owned banks have added to their rolls more than 200 million accounts through Mr. Modi’s Jan Dhan Yojana, or People’s Wealth Program, many opened by people have never before been touched by a financial institution.
At the same time, more than a billion people have been registered in the government’s ongoing unique identification scheme, known as Aadhaar, which provides something like a social security number to Indian citizens, except that it’s also tied to biometric data like fingerprints and facial imaging.
And then, of course, the country has rapidly reached more than 1 billion mobile subscriptions, with nearly 400 million tied to smartphones.
“All these three have now been linked, the bank account, the unique identity and the mobile phone, and they are looking at using this for digital transactions,” Mr. Singh said, noting innovations on ATMs and point-of-sale terminals that could allow many Indian consumers to bypass altogether the plastic cards that have become commonplace in American commerce.
Still more than 220 million cards have been added to RuPay, the domestic debit card processing network, since it was introduced in 2012.
All this has been enabled by a more ambitious National Payments Corporation of India, a clearing platform for retail payment transactions launched with 10 of the nation’s biggest banks under the auspices of the Reserve Bank of India, the central bank.
The NPCI recently made available its Unified Payments Interface, or UPI, which enables money transfers between bank accounts using a mobile device. It’s even launched a consumer-facing mobile app, BHIM, which has been downloaded more than 12 million times.
If all that weren’t enough, on Nov. 8 Mr. Modi threw gasoline on this fire when the government announced a surprise move to take all 500- and 1,000-rupee notes out of circulation by Dec. 30.
The objective was to remove so-called “black money” from the economy and strike at terrorist financiers trading in counterfeit bills, as well as corrupt officials and money launderers hoarding cash. It was also positioned as a move to generate more revenue from taxes
More importantly for Indian consumers, though, it had the effect of accelerating the move from cash to digital and from the informal economy to the formal. Indian mobile wallet firm Paytm, for instance, saw its user base skyrocket after 86 percent of bills by value were taken out of circulation.
According to Tech in Asia, the company as reached 5 million transactions a day at one point with deposits into wallets increasing 10-fold the week after Nov. 8. The company seized the opportunity by encourage merchants without card readers to sign up for its platform.
“Through this sheer exercise, whereby all this currency came back into the banking system and through the new emphasis on digital transactions and newer limits on cash transactions, the expectation is that the use of cash in economic activity will come down,” Mr. Singh said.
The rollout of this “demonetization” policy was controversial. Long queues formed at banks across the nation as citizens rushed to deposit their decommissioned notes. Some opponents pointed to an alleged political motivation behind the timing of the announcement. According to business publication Quartz, wedding banquets and other events were postponed due to the cash crunch, and some patients were denied medical treatment because they could only pay with old bills.
But Mr. Singh says it’s still largely viewed positively by a public that sees it as an anti-corruption measure, as greater digitization will lead to greater transparency while making transactions cheaper. And some startups are already gearing up to offer financial services to consumers whose digital payment records will provide a credit history they never had before.
It all amounts to a promising time for innovation on the payments and financial technology side in India.
“The furnace is on, so now we have to see what impact it leads to,” Mr. Singh said.
There was little focus on India at the TAG Fintech event, at least not explicitly in the early sessions. But that doesn’t mean Atlanta’s key players this space have no Indian exposure. Equifax Inc. has long been watching the credit information space in India, while NCR Corp. makes fingerprint-enabled ATMs in India be sold both domestically and around the globe. Acculynk, an Atlanta-based firm, has a security solution that is used in the authentication process for RuPay transactions online.
First Data Corp., the Atlanta-based giant that processes more payments than any other company in the world, has an alliance with Indian bank ICICI enable traditional card payments, but it’s not stopping there.
“We’re paying lots of attention to all the really cool things happening in India, and we’d like to become a bigger part of that,” said Barry McCarthy, an executive vice president, at an India summit in Atlanta last October. “Honestly, it’s stunning.”
Mr. McCarthy, who was speaking in his capacity as chair of the Fintech Atlanta coalition, said First Data also sees India as a springboard for solutions that would work in other developing markets.
“We think that the things that are happening from the commerce perspective will have global application not just in India, and if we can get smart enough and figure out how to participate, … hopefully we can learn and export some of that thinking to other parts of the world and help further fintech on a global basis.”
That’s exactly the kind of thinking Mr. Singh, the former ambassador, recommends Atlanta companies adopt.
“In markets where they have strength, where Indian companies many not have strength, they can see what’s happening in India and take it to those markets,” Mr. Singh said. “There’s a lot of innovation happening in india to enable the not-so-well-off become part of the digital transaction processes, and it has relevance in Africa, Latin America, certain parts of the U.S.”
Mr. Singh’s talk at Emory as a Distinguished Fellow at the Halle Institute of Global Learning came a day after his successor, Ambassador Navtej Sarna, visited Atlanta for a brief visit to the Gandhi statue at the Martin Luther King Jr. Center for Nonviolent Change.
Mr. Sarna also spoke with CNN on the impact of Indian technology companies on the U.S. economy, arguing that a disruption in the H-1B visa system for skilled foreign workers would have a negative affect on the industry, hurting the very workers the policy would be trying to help.