India’s digital payments landscape has witnessed phenomenal growth over the past five years.
As per a report titled, “Digital payments in India: A $10 trillion opportunity”, India’s digital payments market is at an inflection point and is expected to more than triple from the current $3 trillion to $10 trillion by 2026 (excluding large B2B/ G2B payments). As a result of this unprecedented growth, digital payments (non-cash) will constitute 2 out of 3 payment transactions by 2026 with contributions from across India.
The report by PhonePe, digital payments company, in collaboration with Boston Consulting Group (BCG) also talks about how the digital payments ecosystem has been positively disrupted by the entry of multiple new players with diverse offerings driving payments at scale, and niche players offering financial services such as credit, wealth management and insurance.
Leading global and Indian fintech players have been key drivers of UPI adoption in India among end users, aided by merchants with user-friendly transaction interfaces, and innovative offerings, supported by an open API ecosystem.
The report goes on to list the levers for the growth of digital payments in India which include - simplified customer onboarding, continued push for consumer awareness, merchants getting greater access to credit, expanding merchant acceptance, infrastructure upgrades and the setting up of a financial services marketplace driving growth in underpenetrated regions. It also talks about how IoT, 5G & CBDC will provide further impetus to growth.
Commenting on the launch, Karthik Raghupathy, Head of Strategy, and Investor Relations, PhonePe, said, ‘This report is part of the PhonePe Pulse initiative, which was launched last year, in our effort to give back to the Fintech ecosystem. We have seen the growth of UPI over the last few years. UPI has supercharged India’s transition to non-cash payments when it comes to both person-to-person (P2P) and person-to-merchant (P2M) transactions. Not surprisingly, UPI saw about 9x transaction volume increase in past 3 years, increasing from 5 billion transactions in FY19 to about 46 billion transactions in FY22: accounting for more than 60 percent non-cash transaction volumes in FY22. This indicates that digital payment has truly gained ubiquitous acceptance across the country."
While Tier 1-2 cities have witnessed high acceptance of digital payments, penetration in Tier 3-6 cities shows headroom for growth, he said. The next wave of growth will now come from Tier 3-6 locations, as evidenced in the past two years wherein Tier 3-6 cities have contributed to nearly 60-70 percent of new customers for PhonePe, Raghupathy added.
Prateek Roongta, Managing Director & Partner, Boston Consulting Group said, “India is set to become a digital payment economy as source of payments invert with 65 percent transactions being done digitally by 2026, as opposed to 40 percent transactions today. Merchant payments will emerge as the most powerful driver of this growth, especially in the offline segment due to growing QR code deployments. We expect that merchant payments will soon outpace person-to-person fund transfers.”
Prateek further added, We will increasingly observe digital payments get embedded in all forms of commerce, we will also witness the progression from embedded payments to embedded finance. As more and more merchants begin to accept digital payments, it will unlock a significant change in access to credit for small merchants due to the creation of a digital transaction trail.
The report leverages BCG’s industry expertise in payments and the fintech domain, along with PhonePe’s insights and expertise in Indian digital payments.