The digital payments market, which has been led by companies such as Paytm, PhonePe, Pine Labs, Razorpay, BharatPe, and others on both B2C and B2B sides, has surged expeditiously with businesses offering cash backs, rewards, and offers to woo customers.
The nascent yet fast-evolving digital payments industry in India, propelled by policy framework and technology penetration, is expected to grow at a compound annual growth rate of 27 per cent during the FY20-25 period. The growth in retail electronic payment systems including National Electronic Fund Transfer (NEFT), mobile banking, and development of payment acceptance infrastructure is likely to boost digital payment transactions from Rs 2,153 lakh crore in FY20 to Rs 7,092 lakh crore in FY25, according to the India Trend Book Report 2021 by the Indian Private Equity and Venture Capital Association (IVCA) and Ernst & Young.
The digital payments market, which has been led by companies such as Paytm, PhonePe, Pine Labs, Razorpay, BharatPe, and others on the B2C and B2B sides, has surged expeditiously with businesses offering cash backs, rewards, and offers to woo customers. Moreover, the recent pandemic has stimulated the demand for digital wallets as contactless payment is reckoned as the new normal protocol. Policy frameworks, on the other hand, such as Pre-Paid Instruments (PPI), Universal Payment Interface (UPI) by the NPCI apart from Aadhar, and the launch of BHIM-app have driven the financial inclusion and improved the payment acceptance infrastructure in the country.
In terms of segment-wise growth, the payment gateway aggregator market is expected to grow at around 19 per cent CAGR from Rs 9.5 lakh crore in FY20 to Rs 22.6 lakh crore in FY25 while the merchant payments segment is likely to see 52 per cent growth from Rs 4.7 lakh crore to Rs 33 lakh crore during the said period. The maximum growth is likely to be witnessed in the mobile payments segment at 58 per cent from Rs 25 lakh crore to Rs 245 lakh crore.
Meanwhile, the overall fintech market, which also catered to online lending, wealth management, insurance technology, etc., is likely to grow from Rs 1.9 lakh crore in 2019 at a CAGR of 22.7 per cent during the period 2020-25. While some fintech subsectors such as MSME digital lending have been facing temporary downturn, others including digital payments and insurtech have benefitted from Covid-induced digital adoption among consumers. According to the IVCA report, India has emerged as Asia’s biggest destination for fintech deals, leaving behind China in the quarter ended June 2020. Amid COVID-19, India saw a 60 per cent YoY increase in fintech investments to $1.5 billion in 1H20.
“Covid-19 pandemic has accelerated the shift toward a more digital world. It has changed the ways businesses were done and technology is at the forefront of these changes. Opportunities for internet and tech companies have increased multifold in the last one year. Wide penetration of internet and lower internet cost has complemented the digital and technology trend for consumers and have changed the ways of shopping, education, agriculture, retail, logistics, finance, health, etc. businesses,” said Ankur Bansal, Co-founder and Director, BlackSoil.