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India is one of the leading countries adopting technology and digitization across its industries. Both public and private sectors in India are going through rapid digital transformation by embracing automation and advanced data analytics. The Fintech sector in the country is one of the industries at the forefront of transformation. India's digital payment sector has been evolving since demonetization. The Covid-19 pandemic has accelerated the digital shift and now most of the consumers are accessing online services thus enhancing the digital payment market.
According to a Research and Markets report that explored 800 million Indian mobile payment consumers, the Indian digital payments industry stood at INR 2,153 trillion in 2020 and will grow at 27% CAGR to reach INR 7,092 trillion by FY25. Further, the report says that the growth will be driven by
• Strong use case of merchant payments across user cohorts.
• Government policies such as Jan Dhan Yojana, personal data protection bill along with the growth of MSMEs.
• Low penetration of banking and financial services in India; growth of millennials & high smartphone penetration, indicating strong headroom for growth.
The digital payment ecosystem of India is expanding with the growth of different payment channels. The government has contributed to the growth of Fintechs by redefining the services through the introduction of strategies like UPI, IMPS, e-KYC, and Aadhar as an authentication method. Private fintech startups like PhonePe, PayTM, and Razorpay have revolutionized the digital payment market in India.
According to data released by the National Payment Corporation of India (NCPI), PhonePe and GooglePay dominate the digital payment sector in 2021. With the growing digital consumer crowd, consumer-friendly e-Wallets play a pivotal role in providing accessible digital transaction facilities through smartphones to both the urban and rural population. Although a large portion of the rural population still lacks internet access, India has quite a long journey ahead to attain a cashless economy.
Covid-19 acted as a catalyst for the acceleration of digital payments in India. The recent Union Budget announced a fund allocation of INR 1,500 crore to boost digital payments. Speaking to the Economic Times report, Vishwas Patel, chairman of Payment Council of India said, "Hopefully, this (the budgetary fund) will be used to reimburse losses suffered by payment service providers for processing Rupay debit cards and UPI transactions for free in the year 2021." Further, the report mentions that the Reserve Bank of India announced an infrastructure development fund with an initial amount of INR 345 crore to promote digital payments in rural India.
RBI recently announced that they are inviting applications for the New Umbrella Entities and plans to grant the license to promote the retail payment sector. The process will assess the applicants concerning their capitals and other requirements, and pronounce winners in at least six months. Recent reports reveal that technology conglomerates and giants like Amazon, Google, Facebook, Mastercard Inc., and major fintech players like HDFC Bank Ltd. and Paytm are actively competing for the license. A Bloomberg report reveals, "The companies are part of four consortia preparing to apply for licenses to operate retail payments and settlement systems in the country, people familiar with the matter said. More companies could band together before a March 31 application deadline." The result of this bid will be quite impactful considering the digitized tech giants fighting hard for it and this might change the entire face of fintech and digital transaction systems in India.
With the increasing pace of digital transformation, all sectors are aiming to promote cashless services which will, in turn, boost the digital payment market in India.
