Digital payments will become the preferred method of payment
We can already see the rise in traffic on various ecommerce platforms due to social distancing
Lenders who are well funded and have the most information about their consumers will thrive
Times like these are hard on every industry and many businesses will struggle to survive and operate smoothly even after lockdown is lifted. The dip in productivity across industries is taking a toll on the economy in ways that people are scarcely able to decode and react to. All these trends are creating a strain on the global economy as well. The lockdown is also expected to impact the financial services sector in many ways.
Here are some thoughts about how the situation could emerge post-lockdown. These trends will provide opportunities for some businesses to continue to grow and flourish once the lockdown is lifted.
Growth Of Digital Payments
Digital payments will become the preferred method of payment, given the emphasis on social distancing. While there will be a dip in digital payments due to the overall slowing of the economy and reduction in discretionary expenditure in the short-term, digital payments will outstrip all physical modes of payments sooner than we had anticipated.
It can be expected that digital payments, constituting less than 10% of overall payments in India today, will rise to over 25% of personal consumption expenditure in the next 12 months and then quickly grow to 50% levels in the next 3-4 years as more and more consumers get comfortable with digital payments.
Therefore, banks and fintech offering best-in-class digital payment solutions to consumers will win big. The best payment solution will need to combine great UX, support omnichannel payments, give the user the ability to control transactions and be the most secure.
An allied trend will be that Banks will encourage digital banking by partnering with Fintechs even more aggressively than they do today and the ecosystem will evolve to support Open Banking sooner than later.
Role Of Government To Boost And Sustain Growth
In this critical time of crisis, the government will intervene to boost economic growth and development. It will try to solve economic distress by launching various schemes that target the most vulnerable segments of the population.
This will likely be in the form of macro-support that they will offer to select industries – for example, travel, tourism, hotel, restaurant, malls etc-the industries that are likely to be most impacted given consumers will avoid situations where they are likely to encounter crowds and direct support to individuals who are likely to be impacted the most are migrant labour, employees in the travel, hotel and tourism industries, informal sector employees, etc.
The best way for the government to offer these targeted benefits is by using the JAM trinity. Digital solutions that will enable these direct benefits to be transferred to the right customer segment and give the ability to the government to not just monitor to whom these funds are disbursed, but importantly monitor where these funds are eventually spent will be critical for us to measure the efficacy of these DBT (Direct Benefits Transfer) type schemes.
Rise Of Ecommerce Platforms
We can already see the rise in traffic on various ecommerce platforms due to social distancing-this trend will continue more than ever post lockdown. Select ecommerce merchants are going to flourish- Amazon, Grofers, Big Basket, Flipkart, Paytm, Zomato, Swiggy and Netflix are likely to emerge as big winners in the post-lockdown world as people avoid crowds till an effective vaccine is found for Covid-19.
It will be critical for all customers to be able to pay digitally for these transactions given these companies are likely to shun cash. In turn, payment of salaries to the millions of people these ecommerce companies employ will also need to be digitally done in order to ensure their safety.
Fintech and payment companies that support these solutions will likely see enormous growth in addition to these ecommerce companies.
Lenders-There Will Be Winners And Losers
Lenders who are well funded and have the most information about their consumers will thrive while those that don’t will likely shut down. Given that many people are going to be distressed given the slowdown, lenders who have the best information about customers and are able to get to them first to collect dues and secure future payments will succeed.
Lenders who have invested in mechanisms that enable them to monitor end-use of funds and are using this data to understand their customers’ credit standing using high-end analytics will emerge from the likely pile of ash that Covid-19 will likely leave behind among lenders.
Covid-19 is not just a health emergency but is going to cause a major financial crisis globally. However, after every war or crisis, a period of sustained growth follows and there will be growth post-Covid-these thoughts are meant to give us some guidance on what to expect in the financial services sector.
In the meantime, please do take every precaution to stay safe.