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One striking aspect of India's renaissance stares us so clearly in the face that we often tend to overlook it. In the last 40 years, India has witnessed the world's greatest internal migration ever seen in any one country and in any era. This migration has been so widespread and consistent that it dwarfs the next great human migration in history: the westward migration of people, which shaped the United States in the 19th century. 

Internal Migration: India's Biggest Intangible Asset

According to The Economic Times' Article, India's 450 million internal migrants transact vast sums of money, which is eight times larger than the Government of India's education and healthcare budgets combined.

As per the Census 2011, the number of internal migrants in India was approximately 450 million, a 45% increase over the 309 million recorded in 2001. A big chunk (83.5%) of them are employed in blue-collar jobs, mainly in the informal sector. The measure of internal migration in India is substantial. While the internal migrants are both temporary and long-staying, the latter is more likely to need to pay bills and making payments for their families, while the former generally takes back their savings when the work season ends. 

Current Waters

According to the RedSeer Consulting Report, India's digital payment market was worth around INR 2,162 trillion in 2019-20 digital payments. It is expected to grow over three-fold to INR 7,092 trillion by 2025 on account of increasing digitization and government policies around financial inclusion. It is also expected that 162 million mobile payment users will multiply 5x to reach nearly 800 million by 2025. This growth will be driven by many demand and supply-side drivers, which we shall dwell on in another blog post. Also mobile payments will rise to around 3.5 percent of total digital payments. 

According to the report, the share of grocery stores' digital payments increased to 75 percent due to COVID-19 as people preferred paying through mobile phones due to safety concerns. Wallets also play a crucial role in its growth with the continuous increase in both frequency and user base. COVID-19 seems like another demonetization-like catalyst for the industry. 

Key Soldiers of The Digital Bill Payment in India

The swift development of India's electronic transaction industry is influenced by various variables, including ever-growing mobile usage, increased comfort levels with the medium, rising non-bank billing agencies (electronic wallets, transaction banks, etc.), and innovative legislative practices thriving user willingness for the electronic billing system. 

The ease of bill payment and the accessibility of profitable deals are two main variables influencing the development of India's digital payments. This, coupled with increasing smartphone penetration, proves to be a blessing for the digital payment sphere. India presently has the fifth-biggest online customer base in the world with 300 million users. 50 percent of these users are mobile-only linked to the Internet, which plays a vital role in digital payments' growth story.

The Grand Indian Experiment

Bill aggregators like BillDesk, PayU, Paytm, Tech-Process, and Euronet have created their own ecosystem of bilateral arrangements with banks and prepaid institutions on one side and billers on the other. Although the market is dominated by TechProcess and BillDesk, new players have emerged, and with expected increases in competition this will bring innovation. With the rise in digital payments, payment processors and aggregators are expected to evolve in tandem.

According to research firm CBInsights, Indian fintech startups raised $2.74 billion last year, compared to $3.66 billion that their counterparts in China brought in. Those investments have culminated in the Indian market now having more than half a billion internet users.

Also, the advance in the fintech sector came on the heels of a  series of innovations over the last decade, of which one to be highlighted is the Reserve Bank of India’s-regulated Unified Payments Interface (UPI). Piloted in April 2016, the Bharat Bill Payment System enables users transfer money instantly between two bank accounts over a smartphone. The demonetization, pandemic, and physical distancing have triggered further tailwinds to UPI.

Scanning the Future

More than where India is right now, fintech companies are looking at where it can potentially improve and grow. The Bank for International Settlements (BIS) in 2018 ranked India at 7th spot among the 24 countries where it tracks digital payments. In that year, around 67 million payments were processed per day in India. It is about one-seventh of the US and one-eighth of China and marked an eight-fold growth in just six years.

According to a report published by PCI & PWC, with global transaction value for digital payments expected to touch $12.4 trillion by 2025, India is expected to contribute about 2.2 percent of the world’s digital payment market by 2023 alone.

With online payments made possible even without a smartphone using USSD 2.0, India's UPI and digital payments story can only go further upwards. It will open up newer possibilities in fintech and beyond.