Tuesday, 14 October 2014

The next big thing in Electronic Payments....

It is estimated that almost 75% of the transactions in India transpire in cash. Of this, EY reports 50-80% of online transaction are Cash-on-delivery(COD). Consumers are gaining confidence in using their cards with heightened security on card transactions. With over 400 million cards in circulation, a large majority of debit cards are still not active for purchases, driving e-tailers to term COD as a ‘necessary evil’. Operationally it poses a number of challenges in collection cycles, pressurised cash-flows, pilferage in cash handling and expensive returns. The question arises how does one fulfill 100 million orders on COD as the segment continues to post growth YoY?

There are one million POS machines for 12 million merchants in the country. Traditional POS machines are expensive infrastructure, and their viability is proven only above a certain minimum transaction volume. Bulky POS devices make it a cumbersome task to serve a ‘on the go’ transaction at the customers doorstep.

There is a need for a payment device which comes with a smaller price-tag, ease of use and low-cost deployment and maintenance. At the same time, it should uphold the highest standards of transaction and data security via PIN authentication and all security certification standards. Finally, it should leverage the infrastructure that is available- smartphones and plastic cards, both of which are in abundant circulation today. The same business rules apply and data is to be accurately handled and a payment mode must be available instantly, no matter where and how the consumer chooses to transact.

In India, Mobile POS (mPOS) is bringing in a revolution as the cost of the POS device goes down significantly, as much as 50% of the present cost. Merchants can start to accept card payments simply by pairing their existing smartphones with a pin enabled mPOS device. What's more, a mobile app  such as mEdge can potentially deliver significant value adds in terms with shortened realization cycles and connecting the merchant and bank systems mitigating the operational challenges of COD.  

Globally, Square and Amazons Local register are leading the roost. Homegrown mPOS providers such as Ezetap, mSwipe, RayMedi and FirstData have seen great response in the market. Vitamaps mEdge, a mobile app, works as a single product and service window that deals with multiple entities like Ezetap where transaction speed is at par with other POS terminals, and settlements are received like clockwork.

It is a holistic change to the way businesses get paid, and some of the common pitfalls are centred around deployment, operational and training/staff considerations. Ease of use, hands-on training, security, seamless app management and device management are a few things that should be the focus before rolling out mPOS systems.

According to Accel partners, the size of debit transaction and EMI will increase. However, the biggest addition will be 3rd party wallets. Having said that, COD is not about to go anywhere accounting for more than 50% of online transactions.
COD in India

Usage of mPOS devices will allow users to significantly reduce cash cycles and operational cost savings. Logistic service providers charge merchants to handle cash with handling time ranging between 15-25 days after collection. With mPOS the collection cycles can be reduced to 2-5 days. What’s more is that businesses are able to negotiate supply chain costs with their logistics partners.    

COD has been a catalyst in the Indian e-commerce success story. It offers a fairly risk-free trial process and triggers aspirational purchases for customer segments that do not operate an account, the likes of younger students. With exponentially better mobile technology and apps reaching consumers, mobile payments are touted to be the next game changers.

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