Innovation and Growth in India's Payment Space

January 5, 2021

Digital payments are India’s future. Over the last five years, a constant rise in the number of users who have opted to use digital payments has opened the gates for global customers to take interest in the Indian markets, giving a broader platform to Indian e-commerce. Paypal was the first global entity to open an Indian subsidiary  and for cross border digital payments to happen at scale. Paypal made it easier to pay for items in India from a different corner of the world in a single click and with reliability. After that, Western Union, Tranfergo, and Transferwise came into the picture.

The Indian market has been hit with multiple policy and macro changes particularly in the last five years. Be it demonetization or the Covid-19 pandemic; the economy is majorly impacted. This has pushed the public to strongly make this shift of going online from offline. In fact  online traffic is expected to grow approximately by 300 million people by 2022, up from less than 100 million just two years ago. These progressive figures have made India a trendsetter in the global payment system. According to a PWC report, digital India is likely to hit the $12.4 trillion mark in 2025 against $3.7 trillion in 2019.

All this has been made possible by launching online payment products like Bharat QR, UPI, Bharat Bill Payment System (BBPS), Aadhaar enabled Payment System (AePS), National Electronic Toll Collection (NETC), and Rupay Cards. These products provide a convenient and faster option to go digital, mainly because these are government-led. These payment products have backed up the digital revolution that India is creating worldwide by giving positive anticipation of covering 2.2% of global online transactions by 2023.

Predicting FY 2018/2019 to FY2023

Let's take a look at the estimated Growth Rates of retail payment products:

- UPI is likely to grow from $928 million to $11.7 billion.

- BBPS transactions are expected to rise from $146 million to $12.6 billion.

- Rupay Cards usage is to grow from $15.7 billion to $25.5 billion.

- AePS reached 2.3 Billion, a 12% increase from the previous billing year.

- The transaction volume of NETC saw a surge of 162% with a volume of 37 crores of the previous year.

What are the reasons indicating such growth?

  1. Easy accessibility to mobile phones and internet packages is one such reason. People these days are tech-savvy. They know what’s best in the market and how to procure it. M-wallets are a massive hit with today’s generation with negligible ‘cart- abandonment’ compared to desktop shopping. Payment products have made it easy to access banking and other transactions online.
  1. The government has played a vital role in enhancing payment products, and hence, their growth is evident each financial year. To date, UPI is the government’s masterpiece and has given returns of over a hundred fold since its inception in 2016.
  1. Political reforms and nature’s reforms have also helped in boosting the usage of online payments. Demonetization in 2016 pushed the users to switch to online transactions as liquidity suddenly was an issue. National scale natural calamities such as covid-19 has also played an important role by encouraging no contact transactions, and people prefer to pay via payment products such as PhonePay or Paytm wallets. It has positioned India in the global market with a share of 2.2% of total online transactions.
  1. Various other factors are contributing to the sudden shift of paradigm. One of such factors is that people’s preferences for conducting financial transactions have been changed, the credit of which should go to the merchants who encourage digital payments or mobile wallets. The merchants’ loyalty reward system helps the customer hooked to the same merchant to use the cashback rewards they get from their last purchase. Hence the cycle continues.
  1. The digital payment system has revolutionized and improved the banking scenario in the country. Mobile banking helps clients skip long queues, to take out time to visit a branch and get their work done in the comfort of their homes and convenient to them. It has helped the banking sector by cutting down the cost of maintaining large infrastructures and constructing new branches in every nook and corner.
  1. The Retailing landscape has changed with time and is moving towards digitization.

Future of Online Payments

Innovations are part of this industry. With features like ‘payment reminders’ or ‘auto payments’, the payments products have marked a niche’ in the market. The users can connect with these features and add value to their life. Digitization has such a broad spectrum to flourish because most Indian market deals in offline trade, i.e., 95%, of which 70% of transactions are cash transactions. 

Here lies the ground for the online dealing to penetrate in Tier II, Tier III, and Tier IV areas. Fintech players are the ones to give credit to the foundation work of digitalization. Even though the world’s largest democracy is a consumer-driven giant! It is anticipated that with such strides being made with its retail payment products, India is on its course to become a leader in the global digital market in the next ten years.

Send more than money.