Business model of Digital payments

 


The Indian banking system has seen a tectonic shift with the introduction of digital payments. The RBI has stated that there has been a phenomenal increase in digital payments with a CAGR of 19% in value and 66% in volume for digital payments in India between 2014-2019, despite this exceptional growth 70-80% of transactions in India are still in cash this only shows the scope of further growth in this sector.

Let us discuss how digital payments can generate profits despite their thin margins, direct government control of regulators on pricing with customers who prefer no cost for the services rendered with minimum customer loyalty.


Digital payment Apps can create revenues from the following verticals

1 Bank: The watertight compartment between banking roles and payment apps has been blurred. Payment apps generate income by partnering with banks and cross-sell bank products to their existing customers like insurance, stock brokerage, etc on a revenue-sharing basis.

2 Wallets: As per the recent RBI circular payment apps could become small banks. capturing specific customer segments like corporate wallet solutions, gift cards, meal coupons, transit cards for the B2B segment, etc and earn commissions from it can be an add-on feature.

3 Transaction discount rate: It is the amount charged by payment apps for transferring merchant's money to their account for services rendered like taxi, air tickets, movie tickets, etc.

4 Advertisements: Allow businesses to advertise on their website and helping them to generate revenue and take a percentage cut in it.

5 Increasing the settlement time with merchants: gaining from additional float available to them, thereby earning interest by depositing in government securities and also provide working capital loans to the merchants with the data available and charge interest on it.

The payment applications have been successful in raising funds from private equity to manage its operating expenses.


Reference:

https://www.pwc.in/assets/pdfs/consulting/financial-services/fintech/point-of-view/pov-downloads/evolving-business-models-in-the-payments-industry.pdf



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