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The future of Indian digital payments industry
The digital payment industry in India has grown by leaps and bounds. So much so that the retail growth in digital payments in the year 2019 was 10 times that of the financial year 2014-2015. When it comes to adoption of digital payments in India, we’ve managed to outpace China and a few other developed economies.
According to the data by the government of India, digital transactions grew by about 90% in just three years starting from FY19 to FY21. An ACI Worldwide report states that in the year 2020, India had made about 25.5 billion real-time online transactions, which was the highest in the entire world.
To put things in perspective, the second highest was China with around 15.7 billion real-time online transactions. We comfortably beat China by making almost 10 billion additional transactions.
The trends shaping the future of digital payment in India
This meteoric rise in digital payments was made possible even with an extremely large pool of unbanked and financially illiterate consumers in India. As the Reserve Bank of India and the Indian government work towards financial inclusion of every single individual in the country, the growth of the digital payments landscape is likely to shoot through the roof.
Talking about the future of digital payment in India, there are several trends that are shaping up to be the likely driving factors of the payments landscape. Here’s a quick overview of some of the key trends that you can see shaping the future of digital payment in India.
Increasing prevalence of UPI
UPI has taken the country by storm. In the year 2021 alone, UPI transactions worth more than Rs. 73 trillion were made. And considering the fact that the bulk of the transactions were made from tier 1 cities, you can quickly see the potential of UPI.
In terms of the number of UPI transactions, currently, tier 2 cities are only contributing marginally, with tier 3 cities even lower than that. However, all of that is likely to change in the future as the smartphone adoption rate and access to the internet gets stronger in rural areas, tier 2, and tier 3 cities. As the penetration of smartphones and the internet gets deeper, more individuals from these areas are likely to gravitate towards UPI for their payment needs.
Just like UPI, another trend that’s likely to fuel the growth of digital payment in India is contactless payment systems. Currently, credit and debit cards are being equipped with a smart chip as well as an NFC (Near Field Communication) chip.
The NFC chip allows you to make payments by simply bringing your card near an NFC-enabled Point of Sale (POS) terminal. With contactless payments, you won’t have to hand over your card to the merchant or enter any PIN to authenticate the transaction. In the near future, contactless payment solutions are likely to be embraced even further.
Rising popularity of Buy Now Pay Later (BNPL)
Buy Now Pay Later is a new and emerging trend in the digital payments industry. It allows you to pay for products and services instantly, without having to log into or enter any of your financial details. And you can choose to repay the amount used up by you at a later point in time. BNPL not only increases convenience, but also speeds up the entire purchase process.
Additionally, you also get to make just one single consolidated payment for all your purchases instead of multiple payments. Lazy Pay is one of the largest digital payment companies in India operating in the Buy Now Pay Later segment. Of late, the adoption of BNPL has gone up tremendously, which is likely to continue in the near future as well.
Acceleration of cross-border and cross-currency payments
The Indian payments landscape is witnessing a surprising trend of cross-border and cross-currency payments. A major driving factor of cross-border payments are from cross-border e-commerce transactions, which suggests that an increasing number of individuals are choosing to purchase products from international merchants and e-commerce websites. As trade between nations and international supply chains gets stronger, the number of cross-border and cross-currency payments are likely to go up even further.
Dominance of e-commerce
During the COVID-19 pandemic and the ensuing lockdowns, Indians resorted to online shopping and e-commerce more than ever before. The surge in e-commerce traffic and orders was so huge that even traditional brick and mortar stores are also likely to open up online storefronts allowing individuals to place their orders online. Considering the fact that now even small departmental stores and kirana stores can participate in the e-commerce segment, online shopping is likely to dominate the next few decades as well along with digital payment methods.
If the above trends end up fueling the growth of digital payment in India, it won’t be long till we have a firm hold at the top spot. With this, we’ve come to the end of this module on digital payments. In the next module, we’ll deconstruct the concept of fintech and try to understand what it is all about.
A quick recap
- Retail growth in digital payments in the year 2019 was 10 times that of the financial year 2014-2015.
- Digital transactions grew by about 90% in just three years starting from FY19 to FY21.
- ACI Worldwide report states that in the year 2020, India had made about 25.5 billion real-time online transactions, which was the highest in the entire world.
- As the Reserve Bank of India and the Indian government work towards financial inclusion of every single individual in the country, the growth of the digital payments landscape is likely to shoot through the roof.
- Several trends like increasing prevalence of UPI, contactless payments, Buy Now Pay Later models, cross-border payments, and e-commerce purchases are shaping up to be the likely driving factors of the payments landscape.
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