Digital payments in India is projected to reach $10 trillion by 2026

A report from Boston Consulting Group (BCG) and PhonePe says that Indian digital payments and its extensive Pulse database is going to look at top digital payments trends in India. India's digital payments landscape has witnessed a phenomenal growth over the past five years. As a result of this unprecedented growth, digital payments (non-cash) will constitute 2 out of 3 payment transactions by 2026. The report also talks about how the digital payments ecosystem has been positively disrupted by the entry of multiple new players with diverse offerings driving digital payments adoption at scale. Leading global and Indian fintech players have been key 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 user-friendly interfaces, innovative offerings and an open API ecosystem. The report goes on to list the levers for further growth of digital payments in India which include - simplified customer onboarding, continued push for consumer awareness, expanding merchant acceptance, merchants getting greater access to credit, infrastructure upgrades and the setting up of a financial services marketplace driving growth in underpenetrated regions. It also talks about how IoT, 5G & CBDC will provide further impetus to growth.

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. India's largest Fintech platform has seen the growth of UPI over the last few years. 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. Not surprisingly, UPI saw about a 9x transaction volume increase in the past 3 years, increasing from 5 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 truly gained ubiquitous acceptance across the country. While Tier 1 & 2 cities have witnessed high acceptance of digital payments, penetration in Tier 3& 6 cities shows headroom for growth. Going forward, the next wave of growth will now 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 the growth. Experts say "India is set to become a digital payment economy as a source of payments invert with 65% transactions being done digitally by 2026, as opposed to 40% transactions 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." We are going to witness the progression from embedded payments to embedded finance. As more and more merchants begin to accept digital payments, it will unlock a significant change in access to credit for small merchants due to the creation of a digital transaction trail.

S Mohini Ratna, Editor, VARINDIA