$2 Trillion – India payments rise force regulators on data protection

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2016 was a pivotal year in India’s digital economy. Demonetization was deemed a execution failure by many experts. However, it has triggered a digital payment boom in the country. In the last two years, transaction sizes in India have grown 50 times to $2 Trillion (143 Trillion INR). Some claim demonetization wasn’t the reason for the payment boom. If not causation, there is definite correlation between the two.

When we talk about Asia Fintech/Payments, China’s $40 Trillion market perhaps takes precedence over the other economies. However, if India continues to grow at the current pace, we may see yet another leap frogging Asian Fintech economy. I must confess, I was pretty excited when I first read about the 50X growth of the payments market.

Several global players have set up shop in India. Google, Amazon and Alibaba have all taken part in the payments boom in different ways. While these tech giants keep clashing, the Indian government has led the way in setting up the core infrastructural elements through the Unified Payments Interface (UPI). This is perhaps one of the few instances where a government has pioneered innovation at this scale.

I recently spoke to Elizabeth Chapman, CEO of ZestMoney – a fintech lender in India. As a Westerner, now running a startup based out of India, she is perhaps best suited to assess the developments there, especially in comparison to the west. There were two key developments she was very pleased about.

One, getting a digital identifier for 1.3 Billion people. Getting the Aadhaar programme up and running in under two years, was no mean feat. The data base has been linked to several governance aspects, like tax for example. The other development Liz was impressed about was the UPI, which has catalysed the payments boom.

Now coming back to India payments, Facebook is a key player. Whatsapp payments was tested with a limited audience in India. While the uptake was very good for the functionality, regulatory support was missing. The Reserve Bank of India (RBI) initially came up with a rule that customers’ payments data can’t be stored outside of India.

The Government of India also imposed a rule that any data classified as critical personal data cannot be stored outside of India. Most international technology firms have expressed their dissatisfaction with these data protection rules. One of the key reasons why Whatsapp Payments didn’t take off in India was because of this rule.

In an emerging markets context, consumers care less about data protection and privacy. As long as they get to be part of the banking system and the financial ladder, getting paid is all they care about. Which is why QR codes and PayTM wallets have become so commonplace on Indian roadside shops.

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In a recent Linkedin conversation, one of the comments were about decentralised ways of storing assets in a wallet. It is a great concept in the west, and I love to talk about it till the cows come home. However, this was hyped as a great development in an emerging markets context. I don’t believe that is true.

Emerging markets consumers DO NOT care about decentralisation. I am not talking about the college graduate in south east Asia who is writing a Blockchain and has 10 different wallets to store cryptos.

I am talking about the lady who is selling the turmeric in the picture above. All she cares about is an easy way to get paid, so that she can cook dinner for her kids, and pay their school fees. They care about how inflation could take away all their wealth in Latin America and parts of Africa. Therefore, a solution that solves their day to day problems will see massive uptake.

We have already seen the rise of digital payments in India. With the removal of these data localization rules by RBI and the Government of India, there will be more explosive growth. With Facebook’s Libra (Sorry, couldn’t help mentioning it) around the corner, getting rid of the data localization rules, may not necessarily be a bad thing.

For Facebook, India is the biggest market – be it based on population or internet growth, or middle class income or financial inclusion. All the metrics point to India for Facebook.

For me, Financial Inclusion comes ahead of Data Protection. We thought Identity with Aadhaar – we didn’t think decentralisation. Let’s get them all on to the next generation payment network, get an economic identity created for them. Data protection, privacy and decentralisation will soon follow as awareness of the risks of the digital economy becomes more prevalent. For now, let us just help the lady selling the turmeric get paid.


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

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