India’s Digital Payment Revolution: A Decade of Unprecedented Growth

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India’s digital payment landscape has seen remarkable growth over the past decade.

According to a recent report by PwC India, retail digital payments have surged 90-fold over the last 12 years, with transaction volumes expanding at an impressive annual rate of 40%, while the value of these transactions increased by 35% each year.

This impressive growth has been driven by various factors, the report says, including the swift expansion of digital infrastructure, the widespread popularity of the United Payments Interface (UPI) and other digital payment instruments, as well as changing consumer preferences towards digital transactions.

During the fiscal year (FY) 2023-24, the momentum carried on, with UPI, the country’s real-time payment system, recording a remarkable growth of over 50%, according to the report.

UPI is a real-time payment system developed by the National Payments Corporation of India (NPCI) that enables instant money transfers between two bank accounts through a mobile platform. The system is widely used across India for a variety of financial transactions, including peer-to-peer (P2P) payments, bill payments, and online shopping, accounting for 53.4% of all transactions in 2023, according to the 2024 Prime Time for Real-Time report by ACI Worldwide.

The Bharat Bill Payments Solution (BBPS), a centralized and interoperable bill payment system in India, witnessed a growth of 25%, largely driven by addition of new billers and increased payment options for customers by virtue of third-party application providers, while, the National Electronic Toll Collection (NETC), which facilitates electronic toll collection in India, expanded by over 10%, thanks to the continued adoption of toll tags for new vehicles.

BBPS and NETC are other initiatives by the NPCI, designed to enhance convenience, improve efficiency, and promote digital transactions in India’s financial ecosystem.

Merchant acquiring solutions, including offline and online options like QR code payments, payment aggregators and payment gateways, also saw substantial growth of more than 25%, spurred by regulatory initiatives, rising QR penetration, and the entry of new players. Finally, credit card usage rose by approximately 20% due to increased demand from Gen Zs and population in Tier II and below locations.

Digital payments growth predictions

The digital payments market in India is projected to grow further in the coming years. By FY 2028-29, PwC India expects the volume of digital transactions to more than triple, increasing from 159 billion transactions in FY 2023-24 to 481 billion. The total value of these transactions is set to double, rising from INR 262 trillion (US$3.2 trillion) to INR 577 trillion (US$6.9 trillion) over the same period.

India’s digital payments market, Source: The Indian Payments Handbook – 2024-2029, PwC India, Aug 2024

PwC India expects the daily volume of UPI transactions to increase to 1.4 billion by the end of FY 2028-29, from 359 million in FY 2023-24. By then, UPI transactions are projected to reach a total volume of 439 billion and a value of INR 483 trillion (US$5.8 trillion).

UPI transactions in India, Source: The Indian Payments Handbook – 2024-2029, PwC India, Aug 2024

India’s credit card market is also poised for substantial growth. The industry, which has seen a 100% increase in issued cards over the past five years, is anticipated to replicate this growth within the next five financial years. By FY 2028-29, the number of active credit cards is expected to double to 200 million, supported by a compound annual growth rate (CAGR) of 15%.

Credit and debit cards in India, Source: The Indian Payments Handbook – 2024-2029, PwC India, Aug 2024

In terms of transaction volume and value, credit card usage is projected to increase significantly. The number of transactions is expected to grow by 21%, while total value is anticipated to increase by 18%, reaching estimated 9 billion transactions and total spending of over INR 40 trillion (US$476.5 billion) by FY 2028-29.

Card transactions in India, Source: The Indian Payments Handbook – 2024-2029, PwC India, Aug 2024

Emerging digital payments trends in India

The PwC India report also explores emerging trends in the digital payment landscape, focusing on new payment instruments, future opportunities for industry stakeholders, and the evolving regulatory landscape over the next five years.

India’s digital payment landscape is expected to experience accelerated, sustained, and robust growth, building on the momentum of the past decade. This growth will be driven by product innovations tailored to both end-customers and merchants, with a focus on sustainable profit margins, expanding into new markets, and increasing regulatory involvement.

Innovations in emerging payment modes, including UPI Lite, credit card on UPI, virtual credit cards, pay-by-points, business payments and merchant acquisition, will continue to drive growth, with credit cards linked to UPI in particular poised to surge.

Furthermore, the integration of payments, insurance, wealth management and lending services will continue to transform the financial landscape, creating comprehensive ecosystems that cater to the evolving needs of customers. Many banks, non-banking financial companies (NBFCs) and fintech companies are now offering these services through super-apps, providing a variety of financial and non-financial products and services under one product.

The report also highlights the digitalization of business payments in India, emphasizing how connected finance will play a crucial role in making businesses more agile. Connected finance provides a consolidated view of multiple financial channels and accounts, allowing businesses to better manage their finances, including tracking current accounts, vendor payments, budgeting, and tax filing. In India, banks are increasingly collaborating with software-as-a-service (SaaS) companies to provide small and medium-sized enterprises (SMEs) and micro, small and medium-sized enterprises (MSMEs) with connected finance, allowing them to integrate business software with their accounts and gain access to real-time financial insights.

The report notes that loyalty programs are also evolving, transforming into sophisticated marketing platforms that leverage data analytics, artificial intelligence (AI), and customer insights. These programs are becoming more personalized, addressing individual needs and behaviors, while also navigating the complexities of data privacy and customer trust.

Finally, the report emphasizes the importance of regulatory frameworks in fostering payment innovation. It notes that several developments have occurred over the past year, including the release of new guidelines by the Reserve Bank of India (RBI) in October 31, 2023 for cross-border payment aggregators. These guidelines enable non-bank entities to enter the payment aggregation business and expand their scope to include the import of services. They allow payment aggregator-cross border (PA-CB) providers to operate independently, without the support of authorized dealer (AD) banks.

The RBI is also planning to introduce interoperability for Internet banking transactions, with an expected rollout in the current year. The move aims to facilitate quicker settlement of funds for merchants and address delays in payment receipts. Currently, banks have to individually integrate with each payment aggregator used by different online merchants, which is a complex and cumbersome process given the numerous aggregators in the market.

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