In September 2015, Nandan Nilekani made a provocative speech at the TiE Leapfrog event in Bengaluru. Referring to payments banks, the Infosys co-founder said the Indian financial services industry is on the cusp of a ‘WhatsApp’ moment. A WhatsApp moment, as Nilekani puts it, is when new-age start-ups shake up a clueless old order to emerge dominant, just like WhatsApp did with the telecom industry, disrupting the SMS business to become the world’s biggest messaging service. A case in point, he said, is mobile wallet Paytm, which got a payments bank licence in August 2015. After having raised $1.3 billion, Paytm, today, facilitates more purchase transactions in volume terms than any Indian bank.
Nilekani is not alone in pitching payments banks as the next big thing. The prevailing view is that banks’ market share is up for grabs given their legacy ‘mindset’. Sharad Sharma, co-founder, Indian Software Product Industry Round Table (iSPIRT) says that the banking industry is in the throes of a non-linear change. “It happens rarely. And when it happens, big companies don’t know how to deal with it. In fact, they have never had to deal with it. Banking is a bundle of three things: identity, payments and credit. Non-linear change happens when bundles get unbundled,” he says.
Consider debit card payments, which work on two-factor authentication (the card and pin). Nilekani, the former UIDAI chairman, pitching Aadhaar, spoke of how the database, using biometrics, could replace the pin while the phone acts as the card. “The incremental cost of adding an iris camera to a smartphone is $5. In the next 12-18 months, phones with iris capability will be launched. And you will soon have a device lying in your pocket that allows a single-click two-factor authentication in real-time,” he pointed out at the TiE event. Now, he added, apply this to the whole industry, in a country of over a billion people with Aadhaar cards, bank accounts and mobile phones, and a brave new financial world