Digital payments and online transactions have been growing at an explosive rate in India over the past decade. From mobile wallets to UPI and QR code-based apps, various forms of digital payments have permeated the Indian economy. The adoption of cashless payment modes like debit/credit cards, mobile wallets, UPI etc. has significantly increased thanks to rapid internet penetration, demonetization, entry of fintech players and supportive regulatory policies.
The Current Digital Payments Landscape in India
As per a recent report by ACI Worldwide and AGS Transact Technologies, the total volume of real-time digital transactions in India has jumped over 200% from 2018 to 2021, exceeding 25 billion transactions. The value of these transactions is estimated at over $1 trillion annually. In 2022, India registered an impressive 89.5 million digital transactions, representing a substantial 46 percent share of the worldwide real-time payment landscape. Notably, India’s digital payment volume surpassed the combined totals of the top four leading countries.
Some key trends shaping digital payments adoption in India:
- Mobile wallets like Paytm, PhonePe, Amazon Pay, Mobikwik etc have gained immense popularity for peer-to-peer transfers, online shopping, mobile & utility bill payments. Paytm alone claims over 33 crore users.
- Unified Payments Interface (UPI) has revolutionized digital transactions, clocking over 4.2 billion transactions worth ₹7.7 lakh crore in October 2021 alone as per NPCI. During the fiscal year 2023, the UPI platform facilitated a grand total of 8,376 crore transactions, amounting to ₹139-lakh crore. This is a significant increase compared to the 4,597 crore transactions valued at ₹84-lakh crore in the previous fiscal year, FY22.. Major apps include Google Pay, PhonePe, Paytm, Amazon Pay.
- QR code based payment apps like BharatPe, Paytm, Google Pay Business have digitized millions of small merchants, street vendors, kirana stores etc.
- POS terminals and mPOS devices have increased multifold with reduced costs and growing acceptance of cards and mobile wallets. Spending via credit/debit cards surpassed ₹6 lakh crore in FY21.
- Majority of transactions are now real-time due to innovations like UPI and IMPS. NEFT and RTGS remain popular for larger bulk transfers.
- Fintech startups like BharatPe, Pine Labs, MSwipe, Ezetap etc. have played a key role in expanding digital payments ecosystem.
Key Growth Drivers of Digital Payments in India
The rapid rise in digital payments over the past few years can be attributed to multiple factors:
Widespread Internet and Smartphone Penetration
- Internet users in India expected to reach 900 million by 2025 according to IAMAI-Kantar Cube report.
- 57% internet penetration with over 500 million smartphone users has expanded reach of digital payments.
- Affordable data costs due to intense competition between Jio, Airtel, Vi etc.
Government Initiatives
- PM Jan Dhan Yojana – 420 million+ new bank accounts opened under financial inclusion program since 2014.
- Demonetization in 2016 – banned ₹500 and ₹1000 notes paving way for digital transactions.
- Goods and Services Tax (GST) – increased tax compliance and encouraged businesses to adopt e-invoicing and other digital systems.
- Digital India Program – government initiative to strengthen digital infrastructure, technologies, services and literacy.
Unified Payments Interface (UPI)
- Open architecture by NPCI allows all bank accounts to send/receive money via UPI apps like Google Pay, PhonePe, Paytm etc.
- Fast, convenient, secure – round the clock real-time transfers.
- 65+ banks participate in UPI network enabling interoperability.
- UPI 2.0 added more features like linking overdraft account, invoice in the inbox etc.
Innovative Payment Systems
- Bharat QR Code – common QR code acceptance mark allowing users to pay via any UPI app.
- BHIM App – UPI-based payments app by NPCI for quick and simple transactions.
- AePS – Aadhaar-enabled Payment System allows biometric ATM withdrawals.
- India Stack APIs like eKYC, eSign, DigiLocker enable paperless onboarding and transactions.
Entry of Fintech Players
- Innovative payment startups like Paytm, PhonePe, Freecharge, Mobikwik etc.
- POS manufacturers like Pine Labs, MSwipe, Ezetap providing affordable payment terminals.
- Global tech giants like Google, Amazon, WhatsApp launching payment services for Indian users.
Supportive Regulatory Environment
- Payment banks licensed by RBI – India Posts, Fino, Jio Payments etc.
- Relaxed KYC and onboarding norms for wallets and UPI apps increasing adoption.
- Data localization directives like RBI’s 2018 order to store all payments data in India.
COVID-19 Pandemic
- Surge in contactless, cashless and digital payments for safety and hygiene. UPI payments alone jumped 105% in FY 21 as per NPCI.
- Small businesses increasingly accepting payments via QR codes, payment links due to COVID-19. Grocery stores, pharmacies, food delivery going digital.
Challenges and Issues in Digital Payments Growth
While India has made significant progress in adoption of digital payments, multiple challenges remain:
- Lack of awareness about digital payment tools and poor digital literacy among merchants and consumers.
- Security and trust issues – concerns about frauds, scams and interceptions during digital transactions hindering adoption.
- Accessibility gap – digital payments ecosystem remains out of reach for economically weaker sections, rural areas with poor connectivity. Gender gap in access persists.
- Merchant resistance – Many small merchants prefer cash or are reluctant to pay MDR charges levied on card/wallet payments by banks.
- Interoperability challenges – some merchant QR codes still accept payments via a single app making transactions cumbersome.
- Infrastructure limitations – connectivity issues, power outages etc. especially in remote rural regions hampering usage.
- Regulatory uncertainty – frequent policy changes around KYC norms, fee caps, cross-border payments etc.
The Road Ahead for Digital Payments in India
Digital payments in India stand poised for massive growth in the coming decade fueled by surging smartphone and internet penetration, development of payment infrastructure, entry of new players and a supportive regulatory environment.
Key Trends and Projections
- Digital transactions projected to reach 1.1 billion per day by 2025 as per Niti Aayog – around 4 times current daily average of 300 million.
- Non-cash contribution in the consumer payments segment expected to double from current levels of around 30% by 2025 according to various estimates.
- UPI emerging as the preferred payment mode – projected to cross 2 billion monthly transactions by end of 2022 as per RedSeer. Total transaction values estimated to reach $1 trillion by 2026.
- Digital payments in rural India will see robust growth given the focus on financial inclusion. NITI Aayog aims to bring 300 million feature phone users onto UPI.
Opportunities for Stakeholders
- Incumbent banks, fintech firms and new entrants can tap the fast-growing digital payments space in India.
- Regulators have a pivotal role to play in encouraging innovation while safeguarding consumer interests and ensuring robust infrastructure.
- Scope for global collaborations and investments across digital payments value chain spanning infrastructure, technology, marketing etc.
- Small businesses and merchants represent a segment where further penetration of affordable digital payment acceptance options is possible.
- Analytics, AI/ML technologies can power the next wave of innovations in digital payments domain.
- Recent PTPFC initiative by RBI can benefit immensely.
To summarize, while India has made significant progress on adoption of digital payments, the industry is still at a relatively nascent stage with massive headroom for growth in the coming decade. With supportive regulatory policies, infrastructure development and constantly evolving business models, India’s digital payments ecosystem is poised for an exciting journey transforming the cash-dominated economy into a digitally empowered, transparent and efficient one.