UPI transactions will dominate retail digital payments in India by 2027, PwC study reveals

By Puja Sharma

The digital payments space has seen a massive boom over the past few years, growing at a compound annual growth rate (CAGR) of 30%., according to the PwC report “The Indian Payments Handbook – 2022-27.”

UPI has contributed significantly to this growth, reaching a record 22 billion 2 transactions in 2020–21. UPI transactions are expected to cross 160 billion by 2025–26. Though the increase in card issuance has been gradual, the number of active debit and credit cards is expected to reach 1,021 million and 145 million respectively by 2025–26. National Electronic Toll Collection (NETC) has also seen significant growth of 94% in terms of volume as compared to the previous year as digitisation of toll collection gathers pace.

With customers steadily shifting to electronic bill payments, the Bharat Bill Payment System (BBPS) platform is also maturing. The onboarding of new billers has increased at a CAGR of 56% since the platform was launched. With the National Payments Corporation of India (NPCI) transferring all its BBPS transactions to its new subsidiary, NPCI Bharat BillPay Ltd, BBPS will be given additional focus. By FY 2025–26, this is expected to reach INR 4 trillion. Also noteworthy is the increase in QR and physical PoS acceptance points throughout the country for digital payments.

The global digital payments market, which currently stands at $5,872 billion, is expected to reach $9,073 billion by the end of 2025, growing at a compound annual growth rate (CAGR) of 11%. Global cashless payment volumes are set to increase by more than 80% from 2020 to 2025, from about 1 trillion transactions to almost 1.9 trillion, and to almost triple by 2030.

India, China, South Korea, Thailand, and the UK generated the maximum number of real-time payment transactions in 2021. Card transactions are also increasing globally as the issuance of virtual and contactless cards continues to gain momentum. Partnerships and collaboration between card network institutions are going to play a significant role in expanding the card market, which is expected to reach $45 trillion by 2023.

India continues to witness an upsurge in digital payments transactions – a trend that has continued from 2020–21 and the first half of 2021–22. UPI has been the main driving factor behind this growth, along with credit and debit cards. Bharat Bill Payment System (BBPS) as a platform is also maturing, with customers increasingly shifting to electronic bill payments and new billers getting onboarded. It is also noteworthy that the number of acceptance points, both QR and physical point of sale (PoS), for digital payments, has increased tremendously across the country.

There has been a massive shift in the FinTech space, with more than 2,000 FinTechs currently operating in the country. These FinTechs have leveraged India Stack to develop banking and payment offerings. Consumer apps launched by these FinTechs have been able to provide a better user interface and experience in terms of onboarding and usage. The success of UPI can be attributed to this development as these FinTechs have been able to take a payment product to the masses. Initially, these FinTechs were seen as challengers to traditional banks and financial institutions but have gradually emerged as collaborators. Neobanks are one such example.

Key focus areas

Payments data monetisation Corporates are looking to fully utilise payments data to improve operational efficiency and optimise essential processes. Tracking and forecasting payments for accurate cash management and ensuring enhanced security and fraud protection are some of the key services that corporates are seeking from service providers.

Integrated payments solutions Integrating payments into enterprise resource planning (ERP) software that helps to automate essential business functions such as payroll and accounts receivables saves a lot of manual effort and improves the cash flow of any business.

Corporate credit cards for SMEs by FinTechs Small corporates/start-ups often struggle to get the desired credit cards for their employees. Some of the FinTechs working in the corporate credit card segment are catering to these needs.

CBDC With cryptocurrencies gaining more significance as an alternative payment mode, central banks worldwide are acknowledging their possible impact on economies. Several central banks are researching CBDC. As per a BIS survey conducted in 2021, 86% of central banks were actively researching on the potential for CBDCs, 60% were experimenting with the technology and 14% were deploying pilot projects.

The pandemic has resulted in more users adopting digital payments, and this trend is expected to continue as economies worldwide continue to recover.

The payments industry is expected to focus on the following areas over the next two years:

• Enhanced customer experience: Zero-touch payments are expected to gain traction in the future as they reduce waiting time and can be used both online and offline.
• IoT: With the emergence of connected devices and people gradually upgrading to smart homes and connected cards, IoT embedded with payments will emerge as the next area of exploration. Identification of use cases along with the ability to support multiple payment modes will be a requirement for acceptance among the masses.
• Leveraging AI/ML: Leveraging artificial intelligence (AI)/machine learning (ML) solutions to analyse transaction data will provide deep insights into customer preferences. Such information can be used for targeted offers, fraud management, credit decisions, customer service, etc. Operational activities of a routine nature can be automated using ML, bringing efficiency into the overall payments value chain.
• DLT: Players in the payments space will leverage DLT to build new use cases around smart contracts and transaction settlements, thus bringing more efficiency into the existing system.