India Architecture

Last month I had a whirlwind tour of 3 cities in India in 5 days, and had the privilege to visit several major financial institutions to talk about payments. It's a fascinating country, ranked second to China in population with over 1.1 billion people. Much is written about the growth of the middle class and the investments in India's infrastructure. Some prominent examples are obvious to the traveler: the engineering projects for modern office buildings, national highways, and new airports in cities such as Bangalore. But there are other infrastructure initiatives that are less visible but just as important.



Linking Payments to Growth

Despite India’s population the Boston Consulting Group (BCG) estimates only about 135 million households have access to banking services, so cash remains the primary means of value transfer. A modern economy needs a  well integrated payments infrastructure and access to basic banking and payment services - particularly from rural areas which are traditionally costly to reach and service. I would argue that  the ability to provide secure and reliable payment services to consumers and businesses is a key to increasing economic activity and fostering growth in any developing economy.


The BCG Global Payments Report of 2009 projects that domestic payments in India will grow at about 17% compounded annual growth rate (CAGR) between 2008 and 2016, totaling over eight billion payments a year. That's about double the projected growth rate of domestic payments at a global level. China saw huge increases in domestic payments as migrants to the cities started to send funds back to families in rural areas, and I believe the same will happen in India.


Mobile is the Key

The modernization of the country's payment systems is a top priority for the Reserve Bank of India and there are several key initiatives for modernize existing systems to facilitate faster clearing and settlement and support higher volumes. Clearly a significant source of that volume will come from new bank customers, and the major banks (and telcos) are looking to the mobile channel as a cost effective means to service these clients. The proposed development of a mobile payments infrastructure linked to the National Financial Switch (NFS) will provide a much needed payments connection from city banks to rural communities.