As young India goes digital, the lack of small change with a retailer could soon be a thing of the past. Digital payments are expected to grow ten-fold to $500 billion in 2020 accounting for 15% of India’s GDP, according to a Google-BCG report, Digital Payments 2020. Digital payments are being driven by the rising penetration of smartphones, non-bank institutions offering payment solutions, customers demanding instantaneous solutions and changes in the regulatory framework. BCG estimates non-cash payment transactions—cheques, demand drafts, NEFT, RTGS, credit cards and mobile wallets—which account for 22% of consumer payments now, will double to 40% by 2020 and overtake cash by 2023.
Yet there are some infrastructural challenges. The presence of PoS terminals with merchants has to rise substantially from the current 800,000 to around 10 million; mobile wallets have to expand and overcome the convenience that cash offers. Most people prefer cash since they find digital ‘too complicated’. Cash has ‘universal acceptance, no language barrier, simplicity of use and speed of payment.’ That’s why cash in circulation accounts for 18% of India’s GDP against 3.5-8% in mature markets. With 18.33 crore RuPay cards issued under the Jan-Dhan Yojana, there is a new window of opportunity for digital transactions. Person-to-merchant (P2M) will account for the bulk of digital transactions. Small payments are expected to drive digital payments. Almost half of the P2M transactions will be under R100. Going digital will enable payment service providers to access consumer data, which can be used to offer coupons and loyalty points. More important, it helps the government keep a closer watch on the money flows too.