India’s digital payments market is expected to increase more than threefold from the current three trillion dollars to $10 trillion by 2026, as per the latest report by PhonePe in collaboration with Boston Consulting Group (BCG). Titled, ‘Digital payments in India: A $10 trillion opportunity’, the report highlights that India’s digital payments landscape has witnessed growth over the past five years. As a result of this growth, digital payments will aim to constitute two out of three payment transactions by 2026.
The report is an in-depth commentary on the growth of digital payments in India and looks at factors and enablers that will help unlock the massive growth potential going forward, Karthik Raghupathy, head, 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. PhonePe Pulse has been received by all the key stakeholders in the ecosystem. As India’s fintech platform we have seen the growth of unified payments interface (UPI) over the last few years. UPI has helped with India’s transition to non-cash payments when it comes to both person-to-person (P2P) and person-to-merchant (P2M) transactions. UPI saw about a nine times transaction volume increase in the past three years, increasing from five billion transactions in FY19 to about 46 billion transactions in FY22: accounting for more than 60% non-cash transaction volumes in FY22. This indicates that digital payment has gained acceptance across the country. While tier 1 and tier 2 cities have witnessed acceptance of digital payments, penetration in tier 3 – 6 cities shows headroom for growth. The next wave of growth is expected to come from tier 3-6 locations, as evidenced in the past two years wherein tier 3-6 cities have contributed to nearly 60-70% of new customers for PhonePe,” he added.
According to the report, digital payments ecosystem has been disrupted by the entry of multiple new players with offerings driving digital payments adoption at scale. Global and Indian fintech players have been drivers of UPI adoption in India among end users, aided by buildout of a large QR-code based merchant acceptance network, and further supported by interfaces, offerings and an application programming interface (API) ecosystem. Furthermore, the report listed the reasons for further growth of digital payments in India which include simplified customer onboarding, continued push for consumer awareness, expanding merchant acceptance, merchants getting access to credit, infrastructure upgrades and the setting up of a financial services marketplace driving growth in underpenetrated regions. It talks about how internet of things (IoT), 5G and central bank digital currency (CBDC) will provide further impetus to growth.
For Prateek Roongta, managing director and partner, Boston Consulting Group, India can become a digital payment economy as source of payments invert with 65% transactions being done digitally by 2026, as opposed to 40% transactions today. “Merchant payments will emerge as the 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. We will 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 change in access to credit for small merchants due to the creation of a digital transaction trail,” he stated.