India's digital payments sector has grown exponentially over the last five years, with the country spearheading a digital payment economy and poised to become the global leader in real-time transactions. According to a recent PhonePe and Boston Consulting Group (BCG) study release, the digital payments landscape in India is anticipated to triple by over $10 trillion by 2026. The study states Indian digital transactions accounted for 40% of total transactions, with $3 trillion worth of digital payments undertaken during 2021. These payments exclude financial services and corporate/ business/government payments. Government initiatives, multiple payment channels, the rise in fintech startups, and digitizing merchant gateways are a few reasons for India's digital payments revolution.

The rise of disruptive and innovative technologies across lending and payments, both mobile and web-based has helped revamp the functioning, structuring, and servicing of the Indian financial sector. For instance, the Unified Payments Interface (UPI), an instant real-time payment system developed by the National Payment Corporation of India (NPCI), has led India's transition to cashless payments, mainly across peer-to-peer (P2P) and person-to-merchants (P2M) payments. The Covid-19 pandemic had a large role in the growth of customers and businesses to digital solutions in India. Stats from RBI's Payments Vision Document 2019-21 show more than 500% increase in merchants accepting digital payments for the half-year ended September 2021 over the half-year that ended in March 2019. UPI transactions supercharged the transition accounting for over a 1200% increase in this period.

The Rise of QR Code Payment

Similarly, Quick Response (QR) code solutions also had a significant role in expanding digital payments in India wherein customers could easily undertake digital payments through BharatQR- the world's first interoperable (QR) code acceptance system. Government initiatives toward digital solutions have also aided the increasing use of digital technology across payments. However, these government measures in digital payment solutions primarily benefit small businesses and person-to-merchant costs (P2M).

For example, the latest RBI guidelines state that only two interoperable QR codes will be applicable in India: UPI QR and Bharat QR which means payment system operators (PSOs) can operate only via these two interoperable codes. Further, the availability of cheap internet and smartphone penetration across the length and breadth of India has aided the use of digital payments. According to RBI's Payments Vision Document 2019-21, mobile banking and internet users rose by a whopping 99% and 18% between March 2019 and September 2021. Similarly, a Deloitte report says that India's smartphone penetration is expected to have 1 billion smartphone users by 2026, mainly aided by the Government's BharatNet program aimed at fiberizing all Indian villages by 2025.

Digital innovations aided by government initiatives have helped customers and businesses like Kirana stores undertake quick, safe, non-cash, and zero-cost transactions. The major contributors to the growth of the digital payments sector are merchant payments (P2M). Merchant points are getting digitized through payment and tech platforms rapidly in India - during Q1 2022, an increase of about 9.36 billion transactions was seen in P2M payments. As per the PhonePe BCG report, P2M payments are expected to leap from the existing 20% merchant payments to about 65% by 2026. Which indicates a seven-digit growth to $2.5-$2.7 trillion by 2026 compared to the current $0.3-$0.4 trillion merchant payments.

UPI on the frontline

According to the Worldline report, UPI P2M transactions have become the most popular digital payment mode among customers, with a market share of 65% (volume) and 50% (value), respectively. UPI is at the forefront of the rise in P2M Payments; around 40% of global digital transactions occur in India and nearly 2,200 transactions per second. The Phone-Pe BCG report further shows UPI's growth trajectory registering transactions worth 5.95 billion during May 2022. For Q1 2022, UPI transactions totalled 14.55 billion and Rs 26.19 trillion in volume and value, respectively. As per the latest July 2022 stats by NPCI , UPI P2M transactions clocked 2.99 billion transactions in the book, totalling Rs. 0.23 trillion in value.

In Conclusion

The success of UPI in recent times, as seen from the above stats, has made it a most favored case study for understanding the success of Indian digital payments within the context of global revenues. Moreover, every new payment mode like QR code has changed how consumers and businesses engage with each other. History is evidence of innovations like industrial revolutions contributing to the advent of mass production, transportation, and the internet. However, digital payments is perhaps the most transformational one giving rise to an Industrial Revolution 4.0 – with India’s prominent role in accelerating the adoption of digital payment solutions. Also, India's digital payments stack has become a case study for the world where 50+ countries are looking to adopt the same model. With UPI spearheading the digital initiatives under the Digital India Programme, the chapter is just unfolding.