India's digital payments revolution: a decade of unprecedented growth www.deekpay.com

The State of Digital Payments in India

Over the past decade.Digital payments in IndiaSignificant growth has been achieved in the field.

According to a recent report by PricewaterhouseCoopers India, India's domestic retaildigital paymentGrowing 90-fold over the last 12 years, the volume of transactions has grown at a staggering 40% per annum, while the value of these transactions has grown by 35% per annum.

The report says this growth is driven by a number of factors, including the rapid expansion of digital infrastructure,Unified Payment Interface of India (UPI) and other digital payment instruments in India, as well as changing consumer preferences for digital transactions.

The report says that the momentum continues in fiscal year (FY) 2023-24, with India's real-time payment system UPI Achieved significant growth in excess of 50%.

UPI is a programme of theNational Payments Corporation of India (NPCI) has developed a real-time payment system that enables instant transfer of funds between two bank accounts through a mobile platform. The system is widely used across India for a variety of financial transactions including peer-to-peer (P2P) payments, bill payments and online shopping, accounting for 53.41 TP3T of all transactions in 2023, according to the report, 'Real Time Prime Time 2024', published by ACI Worldwide.

Read more:What is UPI India?

Bharat Bill Payment Solutions (BBPS), India's centralised, interoperable bill payment system, grew by 25%, largely due to the addition of new payees and third-party application providers offering customers more payment options, while the National Electronic Toll Collection System (NETC), which facilitates e-tolling in India, grew by more than 10% thanks to the continued adoption of the new vehicle toll tags on new vehicles.

BBPS and NETC are NPCIa key component of the Indian financial ecosystem that aims to increase convenience, improve efficiency and facilitate digital transactions in the Indian financial ecosystem.

Merchant acquiring solutions (including QR code payment.)Payment aggregatorrespond in singingPayment Gatewayand other offline and online options) also witnessed a significant growth of over 25%, thanks to regulatory initiatives, increased penetration of QR codes, and the entry of new players. Lastly, credit card usage grew by around 20% due to increased demand from Generation Z and the population in Tier 2 and below.

Recommended Reading:What is a payment gateway?

India's Digital Payments Growth Forecast

The digital payments market in India is expected to grow further in the coming years. By FY 2028-29, PwC India expects the number of digital payment transactions to more than triple from 159 billion in FY 2023-24 to 481 billion. The total value of these transactions is expected to double from INR 262 trillion (USD 3.2 trillion) to INR 577 trillion (USD 6.9 trillion).

PwC India expects UPI's daily transaction volume to increase to 1.4 billion by the end of FY 2028-29 from 359 million in FY 2023-24. By then.UPI TradingThe total volume is expected to reach 439 billion transactions with a value of INR 483 trillion (USD 5.8 trillion).

The credit card market in India is also expected to witness significant growth. Over the last five years, the industry has seen credit card issuance grow by 1,00% and is expected to replicate this growth momentum over the next five fiscal years. By FY2028-29, the number of active credit cards is expected to double to 200 million, growing at a compound annual growth rate (CAGR) of 15%.

Credit card usage is expected to increase significantly in terms of transaction volume and value. The number of transactions is projected to grow by 211 TP3T and the total transaction value by 181 TP3T, and by FY 2028-29, the number of transactions is projected to reach 9 billion, with a total spend of more than INR 40 trillion (USD 476.5 billion).

India's digital payments revolution: a decade of unprecedented growth

Emerging Digital Payments Trends in India

The PwC India report also explores emerging trends in the digital payments space, focussing on new payment instruments, future opportunities for industry stakeholders and the changing regulatory landscape over the next five years.

The digital payments space in India is expected to see accelerated, sustained and robust growth, building on the momentum of the last decade. This growth will be driven by product innovations tailored to end-customers and merchants, with a focus on sustainable margins, expansion into new markets and increased regulatory engagement.

Innovations in emerging payment models, including UPI Lite, credit cards on UPI, virtual credit cards, pay-per-points, business payments and merchant acquisitions will continue to drive growth, especially with UPI-linked credit cards growing significantly.

In addition, the integration of payments, insurance, wealth management and lending services will continue to transform the financial landscape, creating an integrated ecosystem that meets the evolving needs of customers. Many banks,Non-Banking Financial Companies (NBFC) and fintech companies are now offering these services through super apps that provide a variety of financial and non-financial products and services under one product.

Recommended Reading:Non-Banking Financial Corporation of India NBFC

The report also highlights the digitisation of commercial payments in India, emphasising how connected finance will play a key role in improving business agility. Connected finance provides an integrated view of multiple financial channels and accounts, enabling businesses to better manage their finances, including tracking current accounts, vendor payments, budgets and tax returns. In India, banks are increasingly partnering with Software-as-a-Service (SaaS) companies to offer Connected Finance to Small and Medium Enterprises (SMEs) and Micro, Small and Medium Enterprises (MSMEs), enabling them to integrate business software with their accounts and gain real-time financial insights.

Loyalty programmes are also evolving and transforming into sophisticated marketing platforms that leverage data analytics, artificial intelligence (AI) and customer insights, the report notes. These programmes are becoming more personalised, catering to individual needs and behaviours while also dealing with the complexities of data privacy and customer trust.

Finally, the report highlights the importance of the regulatory framework in fostering innovation in payments. The report notes that a number of developments have taken place over the past year, includingReserve Bank of India (RBI) on 31 October 2023 for the cross-borderpayment aggregatorof the new guidelines. These guidelines enable non-banking entities to enter the payment aggregation business and extend its scope to include the importation of services. They allow payment aggregator-cross-border (PA-CB) providers to operate independently without the support of an authorised dealer (AD) bank.

RBI There are also plans to introduce interoperability of online banking transactions, a move aimed at facilitating faster settlement of funds by merchants and addressing delays in payment receipts. Currently, banks have to work with each of the different online merchants using thePayment aggregatorIntegration alone, which is a complex and cumbersome process due to the multitude of aggregators on the market.

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