The Internet of Things, 5G connectivity, and the launch of a central bank digital currency are expected to provide impetus to growth. In fact, the size of India’s digital payments market is likely to grow more than threefold from $3 trillion at present to $10 trillion by 2026.
As a result of this unprecedented growth, digital payments constitute two out of every three payment transactions by 2026, according to a report by PhonePe and Boston Consulting Group (BCG).
Experts believe that 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.
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 percent of all non-cash transaction volumes in FY22, Raghupathy added.
In May 2022, the payment channel clocked a record transaction value of Rs 10 trillion. “While tier I-II cities have witnessed the 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,” Raghupathy further stated.
Prateek Roongta, Managing Director & Partner, BCG, said, “By 2026, 65 percent of all transactions in India will be made digitally, as against 40 percent 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.”
According to the latest available data from the National Payments Corporation of India, P2M transactions accounted for over 40 percent of UPI transactions by volume and 18 percent in value terms.