Decoding the US$10Tn Opportunity!


Indian digital payments landscape is projected to be at US$10 trillion by 2026: PhonePe Pulse & BCG report on digital payments

India’s digital payments landscape has witnessed tremendous growth over the past five years. With 2 out of 5 transactions being digital and contributing to a US$3 trillion digital payment market, the industry is poised for a quantum leap towards the realisation of a cashless economy. Despite this explosive growth, certain segments of the market remain underpenetrated with considerable scope for growth. To deep dive into the current and future digital payments landscape, PhonePe Pulse in collaboration with Boston Consulting Group (BCG) released an exclusive report titled, “Digital Payments in India: A US$10Tn Opportunity”.

Pulse, PhonePe’s flagship initiative launched last year, has emerged as India’s go-to destination for accurate and comprehensive data and insights on digital payments trends in the country. This insightful report is PhonePe Pulse’s second annual edition which provides an in-depth commentary on the digital payments ecosystem and explores factors and enablers that will help unlock the massive growth potential going forward. The report talks about how the digital payments ecosystem has been positively disrupted by the entry of multiple new players with diverse offerings driving digital payments adoption at scale. Leading global and Indian fintech players have been key drivers of UPI adoption in India among end users, aided by a large QR-code based merchant acceptance network covering almost 99% postal codes in the country.

To decode the findings of the report and the digital payments ecosystem, CNBC-TV18 engaged in a panel discussion with leading industry experts: Praveena Rai, Chief Operating Officer, NCPI; ** Karthik Raghupathy**, Head of Strategy and Investor Relations, PhonePe and Prateek Roongta, Managing Director and Partner, Boston Consulting Group (BCG).

The panelists discussed the speedy adoption of digital money with more than 40% of payments now moving to non-cash modes. The current size of digital transactions is around US$3 trillion, and is estimated to grow more than threefold to US$10 trillion by 2026. The Fintech ecosystem’s seamless onboarding of merchants, tech-first enablers, and the “feet on the street” as quoted by Praveena, have been instrumental in this journey. Additionally, Praveena called attention to how India has transitioned into a product tech country from a service tech one, with the proliferation of techpreneurs and tech leaders leveraging a CX driven approach.

Sharing his perspective on UPI and its growth in India, Karthik highlighted UPI as a noteworthy case study of public-private partnership which has created incredible impact at scale, while also receiving global recognition. He further added that NPCI has been instrumental in laying out the fundamental capabilities and frameworks that have established UPI, and private players such as PhonePe have enabled that growth at scale. He elaborated that further growth can be enabled via three dimensions - infrastructure investments, product innovation and enriched UI & UX interfaces coupled with the ability to scale across demographic cohorts.

The panel also discussed in detail the growth levers for scaling digital payments that included - simplified customer onboarding, continued push for consumer awareness, merchants getting greater access to credit, infrastructure upgrades, setting up of a financial services marketplace driving growth in underpenetrated regions and IoT, 5G & CBDC that will provide further impetus to growth.

Prateek opined that the next wave of growth is expected from merchant payments and Open Network Digital Commerce (ONDC), touted to be a game-changer in the digital commerce space, to spur this movement. Furthermore, digitization will positively impact MSMEs, who have so far been skeptics or on the fence, to join the online bandwagon. Given the synergies between seller readiness, consumer acceptance, and maturation of third-party logistics, ONDC will play a critical role in disrupting traditional trade and commerce practices.

Tracking the depths of digital penetration, Karthik shared insights across three broad areas: Geography – while digital payments penetration has witnessed monumental growth across the country, Southern India leads the way while North-eastern states are showcasing impressive YoY growth rates. Category – significant growth in Peer to Merchant (P2M) payments owing to rapid adoption of digital payments by offline merchants as well as shifting consumer preferences to digital payments. Demographics Demographics – cohorts such as the population over 60 years that historically would have taken a longer time to adopt digital payments have swiftly accepted this mode.

The panellists also deliberated on some red flags which need to be addressed for seamless digital adoption - hesitancy to accept digital payments by merchants, lack of high-speed internet connectivity, absence of adequate financial literacy, and most importantly the trust in the platform were cited as impediments that could slow down the growth. The panel members also shared that RBI is taking counteractive measures to reinstate consumer confidence, such as increased consumer awareness initiatives. Also enabling offline connectivity, introducing online dispute management systems, and voice-based payment solutions will help in bolstering consumer sentiment toward digitizing their transactions.

Lastly, the panelists on an optimistic note, believe future growth drivers shall be large-scale acceptance at merchant points for microservices, embedded finance, and the ability to cross-sell from the core into adjacent financial services.

Watch the full video of the panel discussion here