The Effect Of India's POS Payment And Fin-Tech Sector On The Economy

Abhishek Kothari, Co-Founder, FlexiLoans.comAs a technocrat, Kothari is delicately monetizing and setting up data innovation for centers in various domains

India is expected to clock the fastest growth in digital payments' transaction value between 2019 and 2023, with a compounded annual growth of 20.2%. With the launch of UPI led payment solutions and a significant push from the government to increase payments penetration, Indian POS and Fin-Tech market are at the cusp of a substantial transformation. Large players backed by Google, Amazon, Softbank, Walmart, etc. are in the race to win this $135B market.

In an increasingly cashless future, payment providers who can embrace emerging payment innovations to offer differentiated, value-adding digital experiences will be able to deepen their relationships with customers and take a dominant place in the changing market landscape. POS-based financing, alternatively called Merchant Cash Advance, is a perfect mix of data and technology to solve the funding problems for a merchant. There are many merits of this concept as India moves towards a digital payment ecosystem, and there are several emerging FinTech lenders who offer digitally-led products against card swipes.

New lending platforms are transforming credit evaluation and loan origination as well as opening lending to non-traditional sources of capital. The success of any payment solution provider will require a robust revenue model given the pressure on MDRs and margins, and lending is the answer.

Challenges to the growth of POS-based funding
After payments, digital lending as space is at the vanguard of innovations, driven by a clutch of startups seeking to take formal lending to a customer segment that never got easy credit from banks. Harnessing data analytics, easy-to-use technology platforms, and well-designed loan products, these entities are breaching the scope of operations of the formal banking network.

There are innumerable challenges that POS-based funding is currently facing, and they differ from the perspectives of the service providers, clients, and even an end-consumer. Firstly, if the lender is too dependent on the repayments via swipes only, then in the event of borrower discontinuing the use of a machine or moving to a different POS provider, it would mean a risk of defaults. Lenders must deploy their own risk control mechanisms to proactively or re-actively manage such events.

Secondly, the majority of these merchants are not very online or internet savvy. This segment needs financial and technical education/awareness drives before this concept sees its true potential.

Thirdly, not every POS provider follows robust on-boarding and KYC norms at the time of machine deployment or cannot share it with third parties in the absence of a reliable consent layer, which results in duplicity of the KYC process during loan sanction.

Key Factors Considered by the Industry
In a tech-powered present, providers of point-of-sale financing offer
consumers the opportunity to buy merchandise through instant installment loans. Startups are reinventing lending at the point-of-sale. POS lenders are partnering with merchants to provide shoppers - both in-store and online -access to capital.

With the mass adoption of mobile phones and the arrival of the Age of the App, the ability to access a form of credit nearly as simple as the credit card became more practical. If more and more people's "card" is their smart-phone, then flashing an approval code on their phone from a point-of-sale lender isn't much of a stretch. Helped along by FinTech-enabled online marketplace lenders, the attraction of what had been a less-popular form of consumer credit grew.

The bottom line is that consumers want a simple and comfortable experience when they make a large purchase, and research shows that retail brands can modernize their payment model by moving away from the co-brand/store credit approach of the past. There is tremendous opportunity in this space, and well-known technology brands have already started to create ripples and bring about the much-needed disruption.

Technology-enabled Point-of-sale Finance, or Point of-sale Lending, has become attractive to all three legs of the consumer credit stool

The role of POS
For consumers, POS lending offers transparent, fixed-payment loans as a simpler alternative to credit cards. For merchants, offering POS financing can help boost sales, increase conversion rates, and smooth cash flows. While POS installments is not a new business, the combination of consumers' aversion to credit cards and more effective underwriting algorithms has created fresh momentum in the market.

If POS lending startups can effectively measure their risk, these startups will thrive.

Advantages of adapting to POS-based funding
Combining lending with payments has multiple benefits –

1. Increased machine adoption, stickiness, and usage: It acts as an incentive and a value-added service to increase the utilization of POS terminals. As merchants discover their ability to borrow against their transactions, they tend to do more transactions. Many POS providers and Fin-Tech have reported a definite increase in customer loyalty and adoption because of the combined proposition of lending with payments.

2. Reduced EMI burden: Most cash advance pro-grams allow merchants to opt for a daily deduction from their swipes to repay their interest fees. This means that the merchant can pay in regular installments instead of monthly, and this helps them manage money better.

3. Ability to create a credit bureau footprint: Once the merchant successfully borrows and repays, their bureau score goes up, and they are then able to borrow at better rates as their risk profile becomes more evident to other lenders.

Opportunities in the POS Funding Space
The Merchant Cash Advance program is a great financing option for merchants who accept card payments and can be used to incentivize payment adoption and reduce EMI burden. India POS terminals market is forecasted to exhibit a CAGR of more than 11%, in value terms, during 2017-2022, primarily owing to increasing government focus and initiatives aimed at digitizing the country's economy.

Technology-enabled Point-of-sale Finance, or Point-of-sale Lending, has become attractive to all three legs of the consumer credit stool. It appeals to consumers who want what they want -- now -- but with somewhat more control and more flexibility than traditional credit card purchases allow. And it calls to both online and store-based merchants who wish to even more ways to enable them to make a sale while the consumer is hot to trot.

The Future of POS Funding
Currently, 30 lakh POS devices are deployed across India, but astonishingly there are approximately more than 5 core registered businesses over the country. This massive difference in the number underscores the untapped opportunities in India POS terminals market and prospects for a lucrative business. A report by Global Market Insights, Inc., has predicted: "India POS terminals industry to surpass a valuation of USD 3 billion by 2024 having recorded a revenue worth USD 450 million in 2016".

Digital payments are projected to grow multi-fold over the next decade leading to billions of financial footprints that can be used very effectively to provide secure credit. Aggregated merchant base, transaction data, and continuously advancing technology will be critical propellers for this industry, and a merchant friendly fee structure with paperless/branchless execution can result in exponential growth.