India’s digital push, amplified by the adoption of mobile-based, real time payment platform Unified Payments Interface (UPI), has put India on the map of one of the fastest growing digital payment economies in the world. And, it is expected that India will contribute approximately 2.2 per cent of the world’s digital payment market by 2023, a report by PWC and Payments Council of India (PCI) said. Furthermore, the global digital payments market is also expected to reach the milestone of more than $12 trillion transactions by value by 2025 from $3.7 trillion transactions in 2019, thereby growing at a compounded annual growth rate (CAGR) of 24 per cent.
“Emergence of e-commerce players has connected geographically separated businesses with customers across the country. This has prompted customers and businesses to exchange payments digitally. With digitisation in the government sector, tax returns, GST payouts and relief packages from the government are being processed electronically, leading to the popularity of digital payments in the country”, the report said.
Moreover, the emergence of UPI for peer-to-peer and peer-to-merchants payments, Bharat QR, a QR-based merchant payment solution, Aadhaar enabled payment system (AePS) that allows transactions at micro ATMs using Aadhar authentication, National Electronic Toll Collection (NETC), Bharat Bill Payment System (BBPS) and RuPay Cards, have ensured last mile connectivity and have also addressed the needs of end customers.
The Covid-19 pandemic is expected to further amplify the reach of digital payments with people terrified of using cash. “The consumers’ shift to digital channels would enable every business, small or large scale, to embrace digital payments and facilitate financial inclusion at a macro level. The pandemic is also accelerating the transition to online as physical retail stores and businesses have taken a massive hit”, the report added.
While digital payment transactions saw a drop in the month of April due to the strict lockdown, since then they have shown a gradual recovery to pre-Covid levels. UPI even clocked the highest transactions in value and volume terms in June since its inception, indicating people’s preference for digital payment methods. The report estimates that UPI truncation in volume terms will reach 59 billion by 2023, BBPS transactions in volume terms are expected to reach 570 million, and AePS may clock 2,467 million transactions.
While the government and the regulator – Reserve Bank of India – have been proactive in their policies to deepen the acceptance of digital payments, a few initiatives such as launching a Covid-19 focused sandbox for payment and fintech players to innovate, allowing non-bank entities to use Aadhaar based e-KYC, faster on-boarding of merchants, a lower controlled interchange on QR code/UPI/RuPay instead of a zero merchant discount rate will certainly help the ecosystem.
“Going forward, the digital payments industry is set to undergo a transformation in order to improve customer experience, cost efficiency, security. The uptake of digital payment methods is set to further increase and gain more acceptance in the market,” the report said.
It further added that, as the Covid-19 crisis had significantly improved the uptake of digital payments, the prospects of the digital payments industry looked encouraging and would attract significant investments in the future. Mergers and acquisitions would be a path followed by companies to grow inorganically and establish themselves as leading players in the market.