• 14 June 2024

India’s Digital Payment Revolution

Aug 17, 2023

Discover the incredible story of India’s Digital Payment Revolution, where money goes digital and changes the way people pay. We’ll explore how this big change happened, the important people and things that made it possible, and why it matters for everyone. Get ready to learn how using phones and computers to pay for things is making life easier and helping the country grow. Let’s explore together!

Growth of digital lending in India

India’s Payment Revolution: Key Factors and Elements

Political Will:

  • Clear vision for shifting from low volume, high value, high cost to high volume, low value, low cost.
  • Evident through initiatives like Jan Dhana Yojana and Aadhaar embedding.

Proactive Central Bank (RBI):

  • Created non-profit entity, leveling playing field between non-banks and banks.
  • Collaboration with private sector for technological innovation in finance.

Technology Utilization:

  • Balancing ease-of-use and fraud prevention, exemplified by UPI.

Elements of Revolution:

Aadhaar Launch:

  • Repository of biometric data for digital identity.
  • 2010: Full digital fingerprints and iris scan for each citizen.
  • Over 1.2 billion Indians with digital identity.
  • Foundation for financial inclusion and secure identification.

Aadhaar’s Role:

  • Serves as “identity rail” for secure customer identification.
  • Facilitates secure transactions for banks, fintech, government, and businesses.

Role of National Payments Corporation of India (NPCI):

  • Umbrella organization for retail payments and settlement systems.
  • Initiated by RBI and Indian Banks’ Association under Payment and Settlement Systems Act, 2007.
  • Incorporated as a “Not for Profit” Company under Companies Act.

Unified Payments Interface (UPI):

  • Collaboration between NPCI, RBI, and Indian Banks’ Association.
  • Acts as “payments rail” enabling fund transfers.
  • Mobile-based, low-cost, 24/7, instant, convenient, interoperable, and safe payment experience.

Digital Payment Growth Statistics in India:

  1. Internet and Smartphone Penetration: Increase in internet and smartphone penetration played a major role in digital payments growth.
  2. E-commerce Impact: The e-commerce market in India is projected to grow at a CAGR of 31% and reach $200 billion by 2026. Expected online shoppers in India to reach 220 million by 2025.
  3. Private Players Support: Various private players offer digital payment services such as mobile wallets, UPI payments, and QR code-based payments.
  4. Digital Transaction Increase (2013-14 to 2022-23): Number of digital transactions increased from 127 crore in 2013-14 to 12,735 crore transactions in 2022-23 (as of Mar 23, 2022), a growth of over 100 times.
  5. Unprecedented Growth: Digital payment transactions in India have witnessed unprecedented growth over the last nine years.

Key Digital Payment Modes:

  • Bharat Interface for Money-Unified Payments Interface (BHIM-UPI).
  • Immediate Payment Service (IMPS).
  • Prepaid payment instruments (PPIs).
  • National Electronic Toll Collection (NETC) system.

UPI Performance:

  • UPI has become the preferred payment mode, recording 886.3 crore digital payment transactions with a value of Rs. 14.15 lakh crore in April 2023.

UPI Growth and Usage:

Percentage share of UPI :
  • April 2022: 5,583.05 million transactions, Rs. 84,160 billion value.
  • August 2018: 312.02 million transactions, Rs. 69.5 billion value.
  • UPI monthly turnover: 5.58 billion (April 2022).
  • UPI potential total transaction value by 2025: Rs. 41,100 billion.

PhonePe:

  • UPI usage share: 45%.
  • User share: 62%.
  • Facilitated 10 billion transactions in September FY22.
  • Annualized total payments volume: >$920 billion.
  • Preferred e-payment service for 60% of Indians (October 2022).
  • Revenue generated in the first 9 months of 2022: Rs. 1,913 crore.

Google Pay:

  • Market share: 43%.
  • Processed 46.71% of UPI transactions in February 2023.
  • Processed transactions worth INR 6.2 Lakh Cr in February 2023.
  • Preferred by 68% of people in India.

Paytm:

  • Market share: 8%.
  • Valuation: $16 billion USD.
  • UPI usage share: 14%.
  • Preferred e-payment service for 85% of users.
  • Revenue generated from digital payments: 26.67 billion rupees.

Overall Impact:

  • UPI introduction by NPCI in 2016.
  • Leading players contributing to financial inclusion.
  • Growth and evolution of India’s digital payments ecosystem.

Benefits of Growth in Digital Payments in India

  • Instant & Convenient Transactions: Digital modes like BHIM-UPI and IMPS enable instant transfers, accessible through mobile numbers or virtual payment addresses. BHIM-UPI allows multiple bank accounts in a single app, simplifying payments.
  • Enhanced Financial Inclusion: Digital payments offer easy access to accounts, aiding citizens in receiving and making payments digitally. UPI 123PAY assists feature phone users in rural areas, promoting financial inclusion.
  • Transparency in Governance: Digital payments prevent leakage and ghost beneficiaries, ensuring direct benefit transfers to target accounts for government benefits.
  • Speed and Timeliness: Digital payments are nearly instantaneous, regardless of location, contrasting with the delay of physical cash transfers.
  • National Electronic Toll Collection (NETC): NETC system enables cashless toll payments through Radio Frequency Identification technology, facilitating seamless travel.
  • Bharat Bill Payment System (BBPS): BBPS offers interoperable bill payment services via various channels like Internet banking, mobile apps, and BHIM-UPI, enabling easy bill payments.
  • Enhanced Credit Access: Digital payments establish financial footprints, improving access to formal financial services and credit for individuals and businesses.
  • Safety & Security: Digital transactions require multi-level authentication, reducing vulnerability to theft and ensuring secure payments across India.

Also, read https://thelogicalpie.com/understanding-the-communal-riots-in-india-a-timeline/blog/