Market Situation and Industry background in India
Rise of Payment Instruments and processing companies
Introduction to Organization
Use of Information and communication technology
Why platform as a service
E-Business – What’s ahead
Description of Study: A dive in consumer credit:
Strategy for new product – Why LazyPay?
Role of Internet and Information Communication Technology
The Driving Force – Jitendra Gupta (MD Consumer Business)
What went right?
What went wrong?
What was the response?
Specifics to company
Transferable to other companies / managers
Electronic business often defined as the administration of conducting business via the Internet has now evolved even more with introducing IT in all segments on business. Electronic commerce is often confused as e-business, but, in actual it is a subset of e-business and focuses on the use of ICT to enable the external activities and relationships of the business with individuals, groups and other businesses.
To simply put this across one can say that e-commerce is part of e-business which enables the target customer to do a transaction with the organization using the internet. However, doing a transaction also means receiving payment for the goods/services rendered by the seller, which is a complex piece, as this segment needs to be highly secure as per data protection act and PCI norms, additionally, this also comes with setting up a sperate infrastructure which is of huge cost to any organization.
But, many e-commerce organizations today facilitate/accept online payments today, So, how do they do that? – Given the fact that starting from mobile recharge, to buying pajamas to booking a flight for a pleasant getaway, can all be done online today?
Most organizations in today’s world partner with payment gateway aggregators/processors i.e. outsourcing the work to a niche skilled organization who specialize in processing payments for clients and take care of the entire payment/refund cycle for the seller. In this report we are going to look at why India becomes a lucrative market for payment processors and how this is done by PayU as an organization by leveraging technology.
Market Situation and Industry background in India:
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In line with government reforms, Prime Minister Narendra Modi has pushed Indians to adopt cashless transactions, giving the digital payments sector a significant boost. The sector is experiencing an unprecedented jump in growth since November 2016, when the government demonetized high currency bills (Rs. 500 and 1000) – which represented 86 percent of India’s cash in circulation. By February 2017, digital wallet companies had shown a growth of 271 percent for a total value of US$2.8 billion (Rs. 191 crore).
Digital payments refer to electronic consumer transactions, which include payments for goods and services that are made over the internet, mobile payments at point-of-sale (PoS) via smartphone applications (apps), and peer-to-peer transfers between private users.
Multiple factors and parallel institutional and behavioral trends seem to be powering India’s transition towards a less-cash economy. The rapid penetration of smartphones and spread of internet connectivity on mobiles, digital payment services provided by non-banking institutions and the rise of the fintech sector, consumer expectations of one-touch payments, and progress in regulatory governance and tax breaks, have altogether shaped India’s payments landscape in favor of digital solutions.
Entry of global players into India’s digital payment space is expected to grow the segment by about five-fold to USD 1 trillion by 2023, investment banking firm Credit Suisse said in a report. “Digital payments (in India) currently aggregate less than USD 200 billion, of which mobile is still at just USD 10 billion in financial year (FY) 2018 (estimated). It is estimated that the total digital payment market in India will grow to USD 1 trillion by FY23 led by the growth in mobile paymentRise of Payment Instruments and processing companies:
-22225393235While principally aimed at curbing the grey economy, Indian Prime Minister Narendra Modi’s hyped demonetization campaign last year spotlighted the war between cash and electronic payments in the mother of all emerging markets which is India. And electronic payments are growing faster in India than any market of consequence. Unlike China, India is open and enjoys rule of law. And unlike the U.S., its in-play and non-traditional payment systems comprise a good portion of the mix. To be sure, cash remains India’s dominant retail-payment system. But in addition to Norway and Sweden, India represents one of the few countries where demand for cash is down. As of October’17, currency in circulation represented just 91 percent of the pre-demonetization level.
In September’17 general-purpose Indian credit and debit card payments surged 96 and 112 % respectively year over year. Post-terminal deployment was up 96%. India’s four largest merchant acquirers—the State Bank of India, Axis Bank, HDFC Bank and ICICI (First Data)—Increased September’17 transactions year over year by 91, 70, 42 and 78%respectively. Smaller acquirers, Yes, and Baroda grew transactions year over year a 195 and 174% respectively. While Ratnakar’s exploded by a whopping 6688%.
Meanwhile, global networks Mastercard and Visa, along with the National Payments Corporation of India’s national champion Rupay, reign in payment cards. Per capita retail card payments are a paltry 3.4, testifying to enormous growth headroom.
High-flying Paytm represents India’s largest nontraditional retail-payment system. The digital wallet and issuer boasts 275 million users, a branded network with 6 million merchants, and a payments bank.
The state and the National Payments Corporation of India (NPCI) together play a bigger role in the Indian payments market than anything comparable in the U.S. In August 2016, apps for NPCI’s Unified Payments Interface (UPI) became operational. UPI enables instant account-to-account payments initiated by mobile phone, along with payment requests. Payee and Payer payment service providers support participation. Architects of the evolving Indian payments stack envision an atomistic payments world where consumers and merchants use the UPI and the national digital ID to make near-free irrevocable bills, along with P2P and retail payments. Each Indian is in the “Aadhaar” database, tied to a 12-digit number and biometric data that includes fingerprints and iris scans, along with photos, addresses and phone numbers.
Note: UPI isn’t a retail-payment scheme; the NPCI has its own mobile-UPI app Bharat Interface for Money, supporting retail.
Meanwhile, In September Google launched its free payment scheme Tez, instead of Android Pay. Google isn’t trying to generate transaction fees: Rather, it’s boosting consumer engagement on its platform, monetized through increased advertising revenue. Not to be outdone, Apple’s SVP Eddy Cue has declared that Apple Pay also wants into India. The world’s most valuable company, however, only has about 3 percent of the smartphone market, making their mobile wallet a nonstarter.
However, Samsung Pay by October had 2.5 million users. With modest NFC adoption, its magnetic-secure-transmission technology enables the handset to “trick” point-of-sale terminals into thinking they’re reading mag stripes.
Amazon offers Amazon Pay to merchants off platform. Flipkart, has a mobile-UPI app PhonePe, which enjoyed a sizzling 800 percent transaction growth since last December. The world’s leading social network Facebook has 200 million WhatsApp users in India and supposedly preparing to introduce integrated payments.
India has emerged as the fastest growing market for Naspers-backed payment gateway services provider PayU representing 47% of total payment volumes worth $11.7 billion. With $5.5-billion worth of payments under its belt, PayU India has seen fast-paced growth of 120% year-on-year, the south African investment giant outlined in its half-yearly report as on November 30th 2017.
This comes at a time when PayU is betting big on its India business which is set to turn profitable in the next two months. PayU expanded India presence last year through its $130-million acquisition of Indian payments company Citrus Pay, making it the biggest M;A in the country’s financial technology space.
Introduction to Organization:
PayU is a leading financial services provider in global growth markets founded in 2002 headquartered at Hoofddorp, Netherlands. PayU delivers innovative technology that enables billions of people and millions of merchants to buy and sell online and specializes in Secure payment processing, Online payments, Mobile solutions, Monetizing, Transfers, Reconciliation, Alternative payments, Fraud protection, Installments, Internet transfers, Cross border payments, PCI certified, Cash payment solutions, and Debit and credit card.
The local operations span across 17 markets in Asia, Central and Eastern Europe, Latin America, the Middle East and Africa. As a leading online payment service provider PayU deploys more than 300 payment methods and PCI certified platforms to process approximately 1.2 million payments every single day. PayU also specializes in innovative consumer and small business products that improve access to credit and banking services in markets that are underserved by traditional financial services providers.
4023592109255600With a heritage in payments, PayU has a strong track record creating fast, simple and efficient financial services technology that meet the unique needs of the merchants and consumers in our local markets. PayU believes in collaboration and partnerships. That’s why PayU has become one of the leading fintech investors globally, combining the expertise of high growth companies with their own unique local knowledge and technology to ensure that the customers have access to the best financial services. As a leading online payment service provider PayU deploys more than 300 payment methods and PCI certified platforms to process approximately 1.2 million payments every single day. PayU also specialise in innovative consumer and small business products that improves access to credit and banking services in markets that are underserved by traditional financial services providers.
Use of Information and communication technology:
An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet-based shopping and banking.
The first World Wide Web server and browser, created by Tim Berners-Lee in 1990, opened for commercial use in 1991. Thereafter, subsequent technological innovations emerged in 1994: online banking, the opening of an online pizza shop by Pizza Hut, Netscape’s SSL v2 encryption standard for secure data transfer, and Intershop’s first online shopping system. The first secure retail transaction over the Web was either by Internet Shopping Network in 1994. Immediately after, Amazon.com launched its online shopping site in 1995 and eBay was also introduced in 1995. Alibaba’s sites “Taobao” and “Tmall” were launched in 2003 and 2008, respectively. Retailers are increasingly selling goods and services prior to availability through “pretail” for testing, building, and managing demand.
Today, PayU leverages latest technology, follows compliance norms, has built scalable infra to solve a very basic problem of making a payment online. This sounds simple, but, in itself is a very complex problem to solve to ensure many can do business online, thus, solving one critical block in the e-business puzzle.
The diagram below briefly depicts how a card payment works when a buyer places an order on any website. The user finalizes the order on the merchant website and the request is passed on to the payment processor for payment.
06032500The payment processer does “catch & dispatch” of the request placed and takes full accountability after, to ensure that the payment is processed successfully and response of the transaction is passed to the Seller who then completes the order and renders the goods or service that is requested by the buyer.
The Payment processor is also responsible for processing the refund of any such transaction initiated by the buyer through the seller or a chargeback that is raised by the buyers Bank.
If one were to look more closely this is how the flow would look like, the adjacent fig. shows that the flow from webserver to webserver calls. This typically means that the primary interface or the request gets redirected via B2B calls while the backend computation is handled by the app servers.
A further deep dive in the PayU network and architecture would reflect and backend infrastructure depicted in the below diagram.
Tier 1: The Client or Webserver: Web server helps the user to load the website via HTTP and also manages the no of hits on the PayU website.
Tier 1: The App server:
App server validates the incoming request and does the backend computation, encrypts and passes the same further for processing. Also, calls the database servers to create an entry.
Tier 3: Data Servers: The data servers store all information and transaction records via all channels and mediums. Moreover, they also have log servers which store the logs for all transactions. Not to mention the firewalls and security protocols placed as per PCIDSS mandate and ISO norms to ensure safety and data protection.
For the leaders at PayU the idea was to create a reliable and scalable Platform as a service (PaaS) which any legitimate organization could connect with to collect payments online, partnership with PayU solves an integral part of processing payment in any business to e-business model. More such acquaintances ensure that PayU also leads the market share and becomes a profitable business by itself.
As we have seen above that the process of processing a transaction is a complex one, however, majorly the dependency in on browser to browser connectivity which may cause fallouts all every interchange.
One of the major challenges for PayU was to ensure that the such fallouts reduce at all points and buyer get a flawless transaction experience and seller is able to collect the payment. However, all advancements with the dependency on B2B calls didn’t result success more that 65% on overall platform. This was one of the major blockers in approaching new clients and from the business perspective as the traditional model wasn’t improving even with increase in volumes.
This problem of B2B calls was brainstormed and many focus group meetings held to do better in terms of success rates. In this process the integration with Banks and Acquirers was looked back at and it was discovered that instead of using browser to browser calls and redirection the transaction could be completed using Server 2 Server i.e. S2S calls. Thus, keeping the primary hop as B2B and once request is received by the PayU webserver the transaction would change hand to S2S and return a B2B and S2S response to the seller’s platform, even if the B2B response fails the seller can use the S2S response to conclude on the transaction and issue goods or service forward.
This change with the help of technology and rewriting some of the API’s pushed the platform success rate by a whooping 15% and performing a 80% plus success rate.
For computation purpose success rate is the no. of successful transactions by total transactions processed on platform, mode etc.
Unable to share the details of B2B & S2S architecture due to confidentiality of the organization.
Part of the ebusiness portfolio is to solve the problems of the consumer credit market with the help of technology. As we have already seen the market situation in India and it has been agreed that the consumer credit market is underserved this gives space for disruption and innovation to be introduced in this space. PayU intends to solve this problem by using the customer base data and leveraging technology and, thus, offering a new product into the Indian market which is “LazyPay”.
In a move to revolutionize the online payments industry in the country, PayU launched ‘LazyPay’ in India on 5 April 2017 – a first-of-its kind premium deferred payment facility for consumers. It is a product aimed at those who transact digitally for any amount between INR 500 and 2500 and is an option to pay later. The aim of the product is to drive faster purchase experiences and convenience by reducing friction on online checkouts and achieving a zero-drop situation for online payments. It is a convenience product for anyone to pay later and the facility could extend for amounts from INR 3,000 and even up to INR 10,000, depending upon customer behavior.
A dive in Consumer Credit:
LazyPay appears as a payment option at the time of checkout on websites and apps integrating the product. It provides users a deferred payment facility for 15 days with a transaction limit decided as per the purchasing behavior of every individual. Select consumers can now simply shop via LazyPay and conveniently settle the dues during the payment cycle instead of having to feed in card details or net banking credentials. This further makes the transactions smooth and seamless without transaction failures, need for passwords, etc.
In the range of INR 500 – 2500, consumers generally pay online for movie tickets, food, groceries, small bills (phone, electricity, water or DTH), etc. The platform pre-decides whether online user is eligible for a LazyPay transaction. Users are selected based on a trust score, which is computed basis their online transaction purchases and rewarded with this premium experience accordingly. More than 10 million users have been qualified for LazyPay so far and the system is equipped with algorithms that will write off debts in real time. The said algorithms put in place for dynamic, real-time underwriting, are based on 80-odd variables. Proactive analytics and machine learning algorithms are a part of the internal architecture.
PayU India plans to invest USD 50 million in LazyPay over the next couple of years. The company aims to get over 5 mm users onboard in the next one year. PayU India has largest merchant distribution network in the online payment space, which it will utilize for expansion.
Strategy for new product introduction – Why LazyPay?:
In 2015, $ 4.4 bn revenue was lost due to 20 – 30% of transactions failing at the payment page. Hence, there was a need for a product which is faster and can give higher conversions. LazyPay is simply a premium experience to fast forward consumer purchases. PayU wants to provide users a privileged experience for payments, just like frequent flyers would experience privileges while checking-in at airports. PayU aims to recreate the “kirana” store experience where a shop owner allows you to take products home and pay later because he is acquainted with them.
Role of Internet and Information Communication Technology:
To ensure that a consumer can use LazyPay he needs to qualify for the same. This qualification is done through understanding his/her payment patterns and payment data stored with PayU & Citrus. PayU leverages that historical data and with use of advanced programs and analytical tools to check such information and make a consumer qualify for the program. Data processing and analyzing tools like Tablue, Qlikvew, and advanced programming in python and Java are using to help achieve the meaningful information behind the scene.
The Driving Force – Jitendra Gupta (MD – Consumer Business):
Jitendra Gupta, Managing Director, PayU India said, “At PayU India, our endeavor is to provide world class experiences to consumers and drive higher conversions for merchants. LazyPay is the perfect example of our philosophy of simplifying the online payment process, wherein we separate the purchase and payment experiences and provide a deferral payment facility to the consumer. Furthermore, as a consumer-centric product, Lazy Pay delivers instant gratification to consumers, even though they might be out of funds at the time of placing the order.”
With this philosophy of serving the consumer credit market Jitendra Gupta leaves no stone unturned to ensure that this program is a success and has been a successful run till now and sure to grow for days to come.
The pilot for LazyPay went live in March 2017 and the initial response has been very encouraging. Within a month, LazyPay has 5 big merchants and more than 12 smaller merchants onboard including Zomato, Box8, Jazz Cinemas, Netmeds and Innerchef. The product has already clocked over 5,000 transactions with average ticket size of INR 600-650. In addition to this, 20% of the customers have done 2 or more transactions so far. This outcome has been achieved without any marketing.
Followed by this success this payment mode was cross-sold to several existing partners and also acquired new clients for the product. Enabling this payment mode is easy with an existing client it can be done with a click of button, however, for new one the merchant would need to integrate with PayU.
What went right?
LazyPay userbase and business has been growing since inception and the approach was to phase this out than going with a big bang theory. In April LazyPay clocked 16% growth over March 2018. This is really amazing considering our March growth was extraordinary @ 85% compared to previous year. In fact, LazyPay had quite a few milestones in April 2018. A few listed below:
1 million credits issued so far on Lazypay
Crossed customer base of 0.25 million
100,000 Monthly active users on App
These numbers prove that the business is in the right direction and we are able to solve the consumer credit problem to some extent.
What went wrong?
When LazyPay was introduced, PayU and Citrus combined had years of experience in payment processing and the knowledge of the problem in consumer credit space.
With introduction of LazyPay PayU could have done few more things differently than they how it was introduced, listed below are a few:
Test Market – Consumer Credit trial period: The trial period should have been extended over 3 payment cycles to understand the % of Credit loss or delay in payment from the consumer.
Partnership with Clients: Given the knowledge of the product online utility and entertainment vendors should have been approached in advance to introduce this payment mode. This is keeping in mid the transaction size of these providers range between Rs. 500-2500 which is within the range of LazyPay credit offered to a consumer.
What was the response?
PayU continues to focus on scaling Lazypay offering and intends to grow volume by 5 times by March 2019 while maintaining loss rate under 5%. That means the org will have more than 1 million customers using Lazypay product by year end. While, PayU’s offering has completed 1 million transactions in last 1 year (FY17-18), PayU team targets to hit 1 million transactions first quarter if FY18-19. The ideal goal is to own at least 10% share of merchant online transactions. Just to note that LazyPay already has a 8-9% of Swiggy’s online transactions share within 4 months of going live.
PayU team are ready with higher credit line offering (in partnership with Reliance Money) to Lazypay users and ready to do beta release in June 2018. In this new offering will give credit on tap up to INR 100,000/user. The product is quite unique wherein limits can be used either for merchant purchases or withdrawal in to bank account with in 3 minutes and repay at customer’s flexibility. This will not only drive our credit issuance volume but also create stickiness in Lazypay user base. Consumers would want to use Lazypay more to be eligible for higher credit on tap offering. PayU is expecting this new product to contribute double the volume of Lazypay in this year.
Launching a new Product in the credit space was a disruptive idea, however, there were many learning out of this as well as PayU was doing this or the first time outside of traditional business. Few of the learning are shared as below:
PayU should have given more time to test market
Launch preparation and user awareness could have been better
Product managers just thought of the product from customer side and not business side.
Operations team was not skilled with collections operations and required training
Tools and CRM was introduced much later
PayU team was challenged in this fast-faced environment with the above hurdles however the team was able to come up with workarounds and permanent fix.
Specifics to company
As mentioned above, this was a new product that was launched by PayU and all learnings were specific to the organization. There are many learnings as such however due to the confidentiality of the organization and the coverage of the project paper shared the major areas.
Transferable to other companies / managers
The learnings for PayU definitely applies to all other organizations who want to launch a similar product. Few pointers mentioned in brief below:
Test Market: The consumers used the offering but PayU should have given more time to test market actually to understand the repayment behavior.
Negligence of Product team: Product manager covered the product lifecycle however didn’t pay attention to operational readiness and operations team was included in the endeavor much later.
Operational Readiness: Operations team was not trained on time and only after launch was requested to start a collections ops process for the defaulters in payments thus initial burn rate being higher. This could have been avoided by introduction of the CRM and leveraging technology in ops to streamline the process, which was eventually achieved.
If we critically discuss the roadmap for the product and the lessons learned we would need to do a separate study for this altogether. However, above points are the major areas to keep in mind while launching such a product.
There is no doubt that India a mother of all growing markets today and digitization is seeing a rapid growth. In this economy e-business is also growing and for Fintech and payment processors this is one of the most lucrative markets to do business in.
Fintech organizations are also learning and moving ahead from traditional programming and execution of transactions to using Artificial Intelligence and Machine Learning, using comprehensive APIs, Blockchain, Human Digital Interfaces and Quantum Computing. It’s not just the market that is growing, technology is also evolving and technology-based businesses, fintech in specific’s have been able to build faster processing, easy onboarding and greater reliability and security in the business with the use of technology.
Source & References:
Lucas Dominic, March 9, 2016, https://securionpay.com/blog/5-turning-points-history-e-payments/Monika E. Hartmann, January 2006, https://www.researchgate.net/publication/226938882Daniel Thomas, November 2015, https://www.ft.com/content/91b5efe2-70bb-11e5-9b9e-690fdae72044PTI, Feb 2018, https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/digital-payments-in-india-to-reach-1-trillion-by-2023-credit-suisse/articleshow/62935890.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Pranav Mukul, New Delhi, http://indianexpress.com/article/technology/social/e-payment-to-tap-into-indias-200-billion-market-whatsapp-bets-on-improvement/Eric Grover, Dec 2017, https://www.bai.org/banking-strategies/article-detail/india-s-exploding-payments-market-when-electronic-goes-electric-and-eclecticDezan Shira & Associates, July 2017, https://www.india-briefing.com/news/growth-of-digital-payments-systems-in-india-14797.html/Wikipedia, May 2018, https://en.wikipedia.org/w/index.php?title=Electronic_business&oldid=839288510Varsha Bansal, Nov 2017, https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/with-47-per-cent-of-total-volume-india-is-gateway-for-payu/articleshow/61855888.cmsTeam Trend Micro, August 01, 2015, https://www.trendmicro.com/vinfo/us/security/news/security-technology/next-gen-payment-processing-architectures