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Expert opinion

Ecommerce in India: what happens when millennials and politicians want the same things?

Friday 9 February 2018 | 10:42 AM CET

Sebastián Kanovich from dLocal shares insights into the Indian payments initiatives that shaped the ecommerce in the country  

This editorial was first published in our Online Payments and Ecommerce Market Guide launched on 1 November 2017. The guide features several important thought leadership editorials from ecommerce and payments industry professionals, which makes it a top-reference source for anyone involved in the payments ecosystem.

A tech-savvy generation of millennials and a forward-looking government have made India the hottest ecommerce market. Back in 2008-2009, half of India’s population had no form of ID and even fewer had access to banking services. By 2020, 600 million Indians are expected to have 3G and 4G connectivity transforming the country into a USD 200 billion ecommerce mega market by 2025. For global merchants, marketplaces, and payments system players, the opportunity has only just begun to heat up.

A spectacular digital leap

It all started in 2009 with the Government of India attempting to reduce the use of cash and boost financial inclusion among a society of mostly underbanked and non-documented citizens. It was the moment when the Government introduced Aadhaar, an ambitious plan to give every citizen a 12-digit digital identity authenticated by fingerprints and retina scans. The programme had an extra benefit: Aadhaar cardholders were immediately able to open a mobile phone account.

Simultaneously, another significant initiative began that would forever change the course of payments in India. In 2009, The Reserve Bank of India and the Indian Banks Association set up the National Payments Corporation of India (NPCI) to modernise the country’s payments infrastructure. Over the course of 8 years, NPCI made tremendous impact on India’s retail payment systems, including the launch of Immediate Payment Service (IMPS), Unified Payments Interface (UPI), Bharat Bill Payment System (BBPS) and National Electronic Toll Collection (NETC). Additional initiatives followed, putting India in the spotlight, as it became the leading country in the world for real-time payments in the retail sector.

As these initiatives swept the nation, they also intersected with the Prime Minister Narendra Modi’s 2015 Digital India campaign and with his ambitious goal of connecting rural areas by the means of high-speed Internet. With a fully developed digital infrastructure, the Government’s introduction of a radical demonetisation programme in 2016 was the final spark needed to light an ecommerce boom and propel India’s citizens into the digital and financial mainstream.

Millennials – driving growth in digital payments

Aggressive promotion of digital awareness and the mandatory initiative to link Aadhaar numbers with permanent bank accounts and mobile numbers led the nation to leapfrog the PC stage of tech development and create a dynamic, mobile-based ecommerce market. India’s total number of Internet users is now higher than in the US. In January 2017, almost 28.8 million credit cards and 818 million debit cards were held by citizens in India. By the end of 2017, 1 billion bank accounts will be linked to Aadhaar cards and mobile numbers, enabling anyone with or without a card to make an online real-time payment. Mobile commerce is already about 50% of the total ecommerce, and cash-on-delivery has declined from 45% to 24% in less than a year.

The country's more than 400 million millennials account for a third of India's population and 46% of its workforce, according to Morgan Stanley Research. This generation has record-breaking earning potential and is driving an economic transformation expected to reach USD 64 billion by 2021, a five-year CAGR of 31.2%. The millennial generation moves away from cash and is embracing digital payments.

Mobile shopping – the mega opportunity ahead

Mobile adoption and ecommerce are skyrocketing as the convenience and opportunity to shop directly from devices continues to spread across the nation. That includes the ability to buy any number of goods and services from the growing number of global merchants who can handle India’s evolving payments infrastructure. Cross-border spending in 2016 was at USD 6.5 billion, with 1 in 4 shoppers making a cross-border transaction (PayPal Crossborder consumer research, 2016 ** GoogleBarometer, 2016; from dLocal webinar). Cross-border ecommerce is poised to grow as consumers become more brand conscious and discover more global retailer websites.

These statistics are shaking the foundation of a system traditionally dominated by banks. Non-bank players, including retailers and technology companies, have a big opportunity to change the game by catering to millennials’ attraction to value-added services in the payments processing chain.

The market challenges

The market is not without its challenges, however, especially when it comes to cross-border payments. Cash-on-delivery can create logistical constraints for cross-border sales. Currently, UPI does not support pull payments. While this is supposed to change soon, as of today, executing subscriptions and recurring payments with local processing is still not possible. Regulations to date do not allow e-wallets to be used for cross-border because of lax Know Your Customer (KYC) requirements. Debit cards are not automatically enabled for international purchases, and are generally perceived as a mechanism for withdrawing funds from an ATM rather than a payment instrument.

It is simple to overcome these and other payments-related challenges with the right partner. The most ROI-friendly solution is to partner with a provider that enables merchants to accept payments locally without opening an actual entity in India. Teaming up with a credible merchant of record in India that is directly connected to local banks and can support the many different local payment methods gives global merchants the reach they need and boosts their acceptance rates. It also ensures that the merchant is compliant with local laws and tax regulations, enabling them to sustainably scale and evolve their operations, as India continues to transform into an ecommerce giant.

As the ecommerce boom reverberates across the globe, the India market promises continued expansion with plenty of opportunities powered by electronic payments and breakneck speed of mobile connectivity. Merchants who can leap over India’s payment-related barriers are bound to gain a foothold and reap high rewards.

About Sebastián Kanovich

Sebastián Kanovich is the Chief Executive Officer at dLocal. He spun off dLocal from AstroPay in January 2016, creating a payments technology company which eliminates operational hurdles that hinder ecommerce expansion into emerging markets.


About dLocal

dLocal is the only 360-payments technology platform designed to handle mass online payments in emerging markets across LATAM, EMEA and APAC. With dLocal, global merchants have no need to manage separate payin and payout processors, set-up local entities, integrate dozens of isolated payment methods, or worry about stranded funds overseas.