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The best payment experience is no experience: India’s Roadmap to Invisible Payments — Subscriptions

Have you ever paid attention to the design of your internet browser? The better it camouflages itself, the more oblivious you become to its existence. The same analogy applies to our payment experiences as well. Payments infrastructure co-exists with the e-commerce ecosystem. Hence, to create a seamless e-commerce experience between a buyer and seller, it is imperative payments become invisible.

The best payment experience is no experience.

Different paths to invisible payments

India — 2015. Can you go outside and make payments without cash? No.

India — 2020. Can you go outside and make payments without cash? Yes. Digital payments are ubiquitous now.

Very few would have imagined the huge transformation. And the good part is that the next five years have a lot to work upon. Payments will become invisible.

All the kinds of interactions that you have in your daily life, specifically the ones where the exchange of money is involved, will have digital payment infrastructure deeply cemented into it. There are possibly two ways to achieve this path:

  • Subscriptions — To put it by first principles, a customer trusts a business so much that the latter is authorized to debit money from the customer’s bank account without even asking them.
  • Credit — Again going by first principles, businesses know their customers enough that they will instantly be able to credit money to their customers at the time of purchase and collect it later.

In this article, we will primarily focus on subscriptions enabling invisible payments. Since credit is such a vast topic in itself, we will keep it for the next article.

Subscriptions — Path to invisible payments

The concept of a subscription business model is centuries old. As per Wikipedia, “The subscription business model was pioneered by publishers of books and periodicals in the 17th century.” Today things have evolved and we can observe new behaviors in this centuries-old model. However, the success of subscriptions still relies on the same underlying behavior — TRUST.

Trust between a consumer and merchant is the single most important factor for success of subscription payments.

Why would a customer allow a merchant to debit money without their permission? They would do so only if they trust the merchant. They are in a long term relationship with them. The good part is we have been in long term relationships with many of the merchants around us. The local grocery shop, milkman, tuition teacher, help workers, etc.

With the evolution of digital platforms in our lives, many local businesses serving day-to-day needs are being replaced by digital platforms and services. At the same time, payments infrastructure enabling these businesses to collect money in a recurring manner is becoming efficient day by day.

Subscription Adoption Curve

Every disruption follows some pattern which we realize in retrospect. E-commerce phenomenon in India started in the early 2000s. Today e-commerce has truly transformed the way we shop. The graph below shows the category wise adoption trend of e-commerce in India.

We can observe a pattern of the most commoditized categories being part of the early waves while categories with more subjective purchases being part of latter waves. The underlying reason for this behavior was TRUST and CERTAINTY in the purchase experience.

If we superimpose the analogy of more to the less commoditized category on subscription adoption, the curve may look something like this:

The category adoption curve for Subscriptions

Let’s understand how these four phases lead to subscription adoption:

  1. Daily Essentials: Human behavior is difficult to change. Hence the businesses which naturally fit into existing behavior will lead the change. Whether it is getting groceries delivered at your doorstep by Milkbasket/Bigbasket or commuting (of-course, in pre and post-COVID times) by Metro and Cab aggregators like Ola/Uber. These platforms would stand at the forefront of the subscription adoption curve.
  2. Digital Services: The second wave of subscriptions will be led by platforms that enable digital redemption of products and services. OTTs, online education services, financial services, content journals, et al. Digital redemption mitigates the fear of quality & delivery. And hence we trust these platforms more while making payments. It’s not surprising if you may find yourself subscribing to multiple content journals and online services.
  3. Physical Services: Third-wave will be led by all kinds of physical services that are now slowly becoming subscription business models as well. Daily meals, fitness, grooming, household help services, etc. Swiggy daily, Cult.fit, Urbanclap will be set as model platforms taking a lead in making users subscribe to their services.
  4. New Subscription Models: Fourth and the last wave will be led by a shift in consumer behavior. The world is moving away from ownership and this trend will further accentuate once we resume back to normal times in the post COVID era. An increasing segment of people would prefer to access a service over owning physical assets. Taking furniture on rent over buying it so that you can easily move places. Mobile on rent instead of buying it so that you can keep changing it often.

The concept of “Subscription Box” may emerge to transform many existing businesses. Get new cosmetics & dresses on rent, books delivered every month personalized to your choice and needs. Get variety of delicacies that go well with your taste buds delivered every week.

Why is the subscription trend a great thing for India?

The users contributing to e-commerce in India are around 75 mn against 475 mn using the internet. While only 25 mn users are monthly active buyers. Subscription is a great tool to enable e-commerce platforms to make the most out of these 75 million users.

Subscription makes a platform focus on growing retention via strong adoption of loyalty programs and subscription-based product offerings. The focus of business shifts to a long term relationship over one-time sales. This shift would lead to growth of the overall ecosystem.

Secondly, businesses would invest majority of energy to provide strong value to their customers and reduce the churn. Higher retention will make customers realize the value of an offering over a longer period of time. This behavior would translate to a stronger word of mouth. It will add virality in customer acquisition over longer time spans. Hence, customer acquisition economics will also become very healthy.

Last and most important. Subscription-based businesses will be a great boost to the economy. These businesses will have better predictions of their run rate and revenues leading to more stable markets.

India Stack will be a key driver to Subscriptions

Recently, RBI (Reserve Bank of India) has opened subscription payments to a host of new business categories which were earlier restricted to only a few bills and utility categories. Also, Recurring mandates by UPI would set up foundation stones for subscription payments to flourish. Let’s understand how different kinds of businesses would leverage UPI recurring mandates to create subscription-based relations with their customers.

Aggregator platforms

Micro-transactions with aggregators like Uber and Milkbasket will get a huge UPI dominance. Debit cards and Net Banking may cease out over the next five years. There are multiple tactics aggregators may use.

  • 24 hour delayed payment: Users opt to use the UPI mandate to pay and the aggregator receives a payment after 24 hours of delay.
  • Post-paid model: When the total ride amount hits Rs. 2000, it triggers a pre-transaction notification followed by an Rs. 2000 debit after 24 hrs.
  • Frequent Authorization: Take user authorization for the weekly/fortnightly expense. The amount would vary for each user depending on their purchase behavior.

Local Shops

All the daily utility tuck shops in residential areas and more so in institutions (like offices and colleges), will see a huge shift from cash to UPI. You can give a mandate, say Rs. 100 with daily frequency, to your cafeteria and transaction happens seamlessly.

Public Transportation

The concept of card top-ups with public transport like Metro or Best Bus will vanish. They will enable users to create/modify mandates. For example, a daily mandate of Rs. 150 to Delhi Metro would ensure money is deducted in real-time at the time of card swipe.

Way Forward

Summing up, we will see many more use-cases in the time to come. In all these examples, initial adoption could be slow as trust matters a lot for activating a mandate. Platforms focusing on trust and seamless UX would take a lead.

Strong trust and a good payments infrastructure is key to the success of the subscription wave. Businesses should focus on building trust with their customers and partner with subscription payment platforms to take care of the rest.

Written by Ravindra Govindani. He works on Fintech @PayU.