Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members


India’s digital payments ecosystem has seen an extraordinary transformation in the last few years. This growth has largely been led by UPI, which has revolutionised the way India makes digital payments.

UPI, which links bank accounts directly with digital transactions, recorded over 452.75 crore transactions with a value of ₹8.27 lakh crore in FY 2022 alone. In fact, ever since its launch in December 2016, transactions on UPI have grown faster than that on credit and debit cards.

In this shift towards the adoption of digital payments, the Covid-19 has pandemic played a significant role. According to the Reserve Bank of India’s (RBI) annual report 2020-21, the pandemic propelled India towards less-cash alternatives, an ecosystem that was already beginning to benefit from such innovations.

India is home to almost 1.4 billion people, of which 600 million are internet users, making it the second-largest online market. This is when only 45% of the population has access to the internet. In the current landscape, digital payments penetration remains at 45% in urban areas and drops to a mere 16% in rural areas, where cash is the primary payment mode.

The new normal

While the progress in bridging the digital divide has been made in leaps and bounds, there is still a lot more ground to be covered.

But, the fact that India registered over 25.5 billion real-time online transactions in 2020, highest in the world, shows we are on the right track.  It is an indicator of how India is outpacing the leading economies, in digital payments.

Progressive regulatory policies, digital innovations in the overall fintech ecosystem and growing mobile internet usage are leading us to this new normal. And, to further widen the scope of digital payments, the government has been introducing policy and implementation initiatives to make payments secure, easy and contactless.

Not just UPI, initiatives such as Bharat Bill Pay (BBPS), Fast Tag, and the recently launched National Common Mobility Card (NCMC) have put us on a path that leads the country towards a cashless society. In fact, we are seeing more and more consumer payments moving towards digital for the first time through such interventions.

BBPS, an interoperable and integrated bill payment system set up by the RBI for online as well as agent-based settlement of recurring bills, has seen strong traction since its launch. It has brought a shift of high-ticket value transactions such as payment of school fees, taxes, etc., towards digital. And, NCMC supports low-value offline transactions in retail, transit, para-transit, enabling passengers to seamless travel across the country has also started gaining momentum.

The road ahead

The next wave of growth is expected to come from onboarding the rural population, where penetration of digital payments stands at just 16% currently. To make this happen, RBI recently released frameworks for allowing offline digital payments on feature phones via UPI.

Initiatives such as UPI Lite, UPI 123Pay, the setting up of digital banking units (DBUs) and the integration of post offices across the country with Core Banking System will bring digital payments to areas that have limited access to smartphones and internet connectivity.

For the overall payments ecosystem, these are exciting times as the new wave of digitisation will be driven by partnerships and collaborations between the government, regulator, banks and fintech companies. New innovations in merchant acquisition, authentication, lending space, etc are expected to come out of such partnerships, providing a further push for a cashless economy.

Fintechs have already revolutionised how payments and banking are carried out in India. They can further be leveraged, for the vast capabilities they bring to the table. Digital solutions such as ePOS (enabling small offline merchants collect payments digitally), BaaS (enabling new age banks to onboard customers digitally), Digital KYC (simplifying onboarding processes for untapped customer base) can further bridge this digital divide and bring India closer to the goal.

Authored by

Arun Tikoo, Senior Vice President, Cashfree Payments, India


Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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