Cashless economy: India to triple digital payment industry to $ 10 trillion by 2026
Virendra Pandit
New Delhi: Fuelled by increased merchant adoption for payments and customer interest, the Indian digital payments industry would grow by over three times in the next four years, from USD 3 trillion now to over USD 10 trillion, experts have said.
By 2026, a report by Unified Payment Interface (UPI) leader PhonePe and the Boston Consulting Group (BCG), India will be a major low-cash economy.
According to the study, UPI has supercharged India’s transition to non-cash payments, especially in person-to-person (P2P) fund transfers and low-value person-to-merchant (P2M) payments.
“The major contribution for the digital payments’ growth would be from merchant payments that are expected to significantly digitize in the next five years, increasing from 20 percent digital penetration by value today to about 65 percent by 2026,” the report said.
This also means a seven-times growth from a meager USD 0.3-0.4 trillion worth of digital merchant payments at present to USD 2.5- 2.7 trillion by 2026.
The overall share of digital payment transactions will grow from 40 percent in 2021 to 65 percent in 2026 and will make up two of every three payments in 2026.
UPI saw about a nine times transaction volume increase in the past 3 years, increasing from 5 billion transactions in FY19 to about 46 billion in FY22. It accounted for over 60 percent of non-cash transaction volumes in FY22. PhonePe alone enjoys a share of 47 percent in UPI volumes.
In the financial year 2021-22, UPI breached the USD 1 trillion mark in transaction values, a milestone for the indigenous payments system, officials said.
While Tier 1 and 2 cities have witnessed the high acceptance of digital payments, penetration in Tier 3-6 cities shows headroom for growth. The next wave of growth will now come from Tier 3-6 locations,” said Karthik Raghupathy, Head of Strategy, and Investor Relations at PhonePe.
According to the report, factors including expanding merchant acceptance, infrastructure push, and setting up a financial services marketplace to drive growth in under-penetrated regions and digitized value chains will lead to the next phase of growth in digital payments.
The upcoming technology innovations and upgrades, including the Internet of Things (IoT), 5G, and the Reserve Bank of India’s (RBI) initiative of a Central Bank Digital Currency (CBDC) will help increase the adoption of digital payments.
BCG’s Managing Director and Partner Prateek Roongta said, “We will increasingly observe digital payments get embedded in all forms of commerce, and also witness the progression from embedded payments to embedded finance.”
“As more and more merchants accept digital payments, it will unlock a significant change in access to credit for small merchants due to the creation of a digital transaction trail,” he added.
