The size of the India’s digital payments market is likely to grow more than threefold from $3 trillion at present to $10 trillion by 2026, said a report by PhonePe and Boston Consulting Group (BCG). As a result of this unprecedented growth, digital payments will constitute two out of every three payment transactions by 2026, the report said.
Simplified customer on-boarding, continued push for consumer awareness, expanding merchant acceptance, greater merchant access to credit, infrastructure upgrades and setting up of a financial services marketplace are set to drive growth in under-penetrated regions. The Internet of Things, 5G connectivity and the launch of a central bank digital currency will provide further impetus to growth, according to the report.
Karthik Raghupathy, head of strategy and investor relations, PhonePe, said Unified Payments Interface (UPI) has supercharged India’s transition to non-cash payments when it comes to both person-to-person (P2P) and person-to-merchant (P2M) transactions.
The volume of UPI transactions rose to about 46 billion in FY22 from 5 billion in FY19, accounting for more than 60% of all non-cash transaction volumes in FY22, Raghupathy said. In May 2022, the payment channel clocked a record transaction value of Rs 10 trillion. “While tier I-II cities have witnessed high acceptance of digital payments, penetration in tier III-VI cities shows headroom for growth. The next wave of growth will now come from tier III-VI locations, as evidenced in the past two years wherein tier III-VI cities have contributed to nearly 60-70% of new customers for PhonePe,” he said.
Prateek Roongta, managing director & partner, BCG, said by 2026, 65% of all transactions in India will be made digitally, as against 40% today. “Merchant payments will emerge as the most powerful 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,” Roongta said.
According to the latest available data from the National Payments Corporation of India, P2M transactions accounted for over 40% of UPI transactions by volume and 18% in value terms.