The digital payments industry will more than triple to $10 trillion by 2026, from $3 trillion today, according to research by Boston Consulting Group and Phone Pe.
The report, titled Digital Payments In India: A $10 Trillion Opportunity, says non-cash payments will constitute almost 65% of all payments by 2026, up from 40% today, and that almost 75% of people will use India’s unified payment. interface (UPI) over the next five years, up from 35% today.
Digital payment merchant transactions will also grow sevenfold to $2.5-2.7 trillion by 2026, from $0.3-0.4 trillion today, the report says.
Prateek Roongta, managing director and partner at Boston Consulting Group, said “India will increasingly see the integration of digital payments into all forms of commerce” in the coming days.
According to the report, the entry of several new players has positively disrupted the digital payments ecosystem in India.
“It has been positively disrupted by the entry of several new players with diverse offerings promoting large-scale payments, and niche players offering financial services, such as credit, wealth management and insurance. Leading global and Indian Fintech players have been key drivers of UPI adoption in India among end users, aided by merchants with user-friendly transaction interfaces and innovative offerings, backed by an ecosystem of ‘Open API,’ the report says.
“We will also see the progression of integrated payments towards integrated finance. As more merchants begin to accept digital payments, this will unlock a significant shift in access to credit for small merchants due to the creation of a digital transaction trail,” Roongta said.
“India is set to become a digital payment economy as the source of payments will reverse with 65% of transactions occurring digitally by 2026 from 40% today. Merchant payments will emerge as the most power of this growth, especially in the offline segment, due to increasing deployments of QR codes. We expect merchant payments to soon exceed person-to-person funds transfers,” he adds.
According to the report, several factors, such as simplified customer onboarding, continued consumer awareness, improved merchant access to credit, expanded merchant acceptance, upgraded infrastructure and the establishment of a growth-enhancing financial services market in under-penetrated regions has led to the growing popularity and acceptance of digital transactions in India.
Karthik Raghupathy, Head of Strategy and Investor Relations, PhonePe, said, “UPI has accelerated India’s transition to non-cash payments for person-to-person (P2P) transactions and person-to-merchant (P2M). Unsurprisingly, UPI has seen its transaction volume increase approximately nine times over the past three years, growing from 5 billion transactions in FY19 to approximately 46 billion transactions in FY22, representing more 60% of non-cash transaction volumes in FY22. This indicates that digital payment has truly gained ubiquitous acceptance across the country. »
He adds, “While Tier 1-2 cities have seen strong acceptance of digital payments, penetration in Tier 3-6 cities shows room for growth. The next wave of growth will now come from Tier 3-6 locations, as evidenced by the past two years, where Tier 3-6 cities contributed nearly 60-70% of new customers.