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Re-writing India’s MSME growth story through acceptance of digital payments

The Covid-19 outbreak followed demonetization and has enormously accelerated consumers’ and businesses’ general adoption of digital payments. According to the Ministry of Electronics and IT, digital payments rose YoY, with a projected 7422 crore transactions in FY 2022, a 33% increase from FY 2021. 

The digital payment sector exploded due to the development of revolutionary payment solutions such as the Unified Payments Interface (UPI), National Electronic Toll Collection (NETC), and Bharat Bill Pay Service (BBPS). Following a slight decline in the first few months of FY 2020-21, transaction volumes rebounded back to pre-Covid-19 levels, implying that this crisis was simply a momentary blip in the growth story.

FinTech companies are catering to the requirements of India’s rapidly expanding 6.3 crore MSME sector. In this sector, micro-transactions make up a significant portion of the economy. FinTech companies are meeting these requirements by facilitating digital purchases, small loan devices, new payment methods such as UPI and QR, and distinct technological and operational platforms. It has made cashless and contactless payment methods available to customers, which has helped small and medium-sized businesses (SMEs) streamline their record-keeping and minimize the overhead costs associated with their operations.

Rapid growth in digital infrastructure, UPI-led migration to digital, pandemic-accelerated shift in customer preferences, rising merchant acceptance network, and disruptive innovations by Fintech have all contributed to a US$3 trillion digital payment sector today, accounting for 40% of all payments (by value). 

The rapid rise of digital payments in India is driven by several interrelated causes, including the increasing acceptance of digital payments by businesses, the digitization of value chains, and the creation of a financial services sector in underserved areas. India’s debut of its sovereign digital currency, the Digital Rupee, and the advent of embedded payments over 5G and the IoT have also provided a boost. 

As part of its efforts to build a safe payment infrastructure, the Reserve Bank of India (RBI) has established a framework for geo-tagging payment system touchpoints and implemented many programs to encourage small businesses in India to accept digital payments. 

As more MSMEs migrate their activities online, they produce a traceable digital trail of financial transactions, making it easier for modern FinTech lenders to decide whether to lend to MSMEs. Digital transaction data replaced the traditional cash flow figures. Consistent online sales show the company’s financial stability as well as its ability to adapt and remain competitive in a fast-paced market.

Cashflow-based loan arrangements simplify and broaden access to finance for micro, small, and medium-sized companies (MSMEs). AePS, which was created to increase access to financial services, is proving to be a game-changing tool for the government’s ability to disperse monies. 

The India Trend Book Report 2021 by the Indian Private Equity and Venture Capital Association predicts that digital payment transactions will increase from INR 2,153 lakh crore in FY20 to INR 7,092 lakh crore in FY25.

Credit services adapt to meet client expectations as Indian MSMEs grow more digitally aware, eliminating credit gaps. The UPI system has accelerated India’s shift away from cash payments, particularly in P2P financial transfers and P2M payments of little value. 

Due to their user-friendly transaction interfaces and innovative solutions, as well as the support of an open API environment, tech giants and major Indian FinTech businesses have been instrumental in driving UPI acceptance among MSMEs. 

The evolution of the payment ecosystem provides new ideas, systems, products, and use cases. This evolution puts various existing payment systems and corporate practices to the test. Banks, FinTechs, and IT firms can take advantage of the chances of moving up the value chain and diversifying their revenue streams. 

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Views expressed above are the author’s own.

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