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India's Ascension as a Digital Payments Leader from a Cash-Only Economy

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India’s remarkable rise from a cash-based economy to a leader in digital payments, especially enabling secure transactions in less than a decade, was possible thanks to an ode of many efforts by digital companies and government initiatives. Whether shopping for groceries from local vendors, making e-commerce payments or purchasing an iPhone, digital payments in India have almost everyone’s trust in using its services. Although beset with physical infrastructure inefficiencies, the persistent work towards setting up the digital economy definitely placed the nation at the forefront of the digital payments market.

A crucial driver of this mega leap is the RBI’s National Payments Corporation of India (NPCI), which has been streamlining existing and new retail payments in the country. The NPCI’s unified payments interface (UPI) became the obvious plus point of this quick transformation. It even went global when this year France became the first European nation to accept the Indian UPI, while others, namely Singapore, Bhutan and Nepal, among others, are already up and running with this digital payment system.

Today’s Transaction Value of Digital Payments Market
Besides UPI, there has always been a collective effort from both private companies and governing bodies responsible for making India embrace digital payments faster. As a result, the total transaction value in the Digital Payments market is projected to reach $254.60 billion in 2024.

More Growth is Yet to Come
By 2028, the total transaction value is predicted to grow at an annual growth rate (CAGR 2024–2028) of 11.56 percent, or $394.40 billion. Based on estimates from the Indian government, the country accounts for around 40 percent of the world's real-time digital payments. According to global consulting company Boston Consulting Group (BCG), cash makes up the remaining 40 percent of all payments made in India. Digital accounts for 40 percent of total payments by value. According to BCG's prediction, by 2026, the share of digital payments will reach 65 percent.

”With innovative solutions and widespread adoption, we’re leading the way towards a cashless economy,” data collected by MyGovIndia suggests.

Hear it from Giri Kumar M Nair, MD & CEO, SBI Payment Services, who has been in SBI for over three decades. He shared his experience of how banking leaders or fintech firms have encouraged people to accept digital payments during CEO Insights India magazine’s recent interactions.

He says, “First awareness should be created, followed by building trust among users, which is possible by enabling ease of user experience and, of course, adding a reward or gamification feature, which will definitely help people adopt additional payments.

He particularly stressed that “Banks are coming up with so many applications, but adoption is little because the ease of use is not there.”

Building Blocks Behind the Vibrant Digital Payments Ecosystem
Low-cost payment rails have, of course, been one of the bonuses that have contributed to the development of a thriving digital payments ecosystem, along with rapidly increasing smartphone penetration, inexpensive internet access, a regulatory push towards financial inclusion, a universal digital identification program, and fintech-led, user-friendly, innovative digital products.

UPI
Known for smooth payment transactions, UPI became primarily responsible for the explosive rise of digital payments. It was introduced during denomination, which at the time was not actually well received by the public in 2016. But despite a lackluster response at first, it gained momentum a few years later during the Covid-19 outbreak, when people who were hesitant to touch currency in person resorted to the digital ease that UPI provided. Ever since then, there has been no turning back. PricewaterhouseCoopers (PwC), a consultancy firm, forecasted that by FY2026–2027, UPI will process one billion transactions daily. It has surely become a simple payment facilitator for merchants, big and small, and a likable solution among most people. The following year after UPI’s debut, the Jio revolution happened and here’s how that is going.

Jio Revolution
After UPI came Reliance Jio's 4G services, which completely commanded a new revolution in India's telecom and internet industry. Jio cleared the path for the general public to adopt digital technology and other smart form factors by making fast internet available and reasonably priced for everyone.

Back to UPI
The NPCI upgraded UPI to version 2.0 in August 2018. Unlike version 1.0, which was introduced with the goal of building a profitable P2P platform, version 2.0 is more focused on merchants and includes features like stronger verification, which further reduces fraud, the ability to link overdraft accounts to UPI, which encourages more transactions throughout the ecosystem, and the ability to pre-authorize a transaction with the option to pay later, which benefits both customers and merchants.

More Power to UPI by Fintech
In 2017, the government and regulatory bodies in India acknowledged the necessity for a strong real-time payments platform. Therefore, NPCI invited tech behemoths like Google and WhatsApp to join and contribute to the UPI ecosystem. The fintech contribution has enhanced and expedited the adoption of UPI by merchants and consumers, hence leading to a rise in transaction volumes. Out of the almost 800 million transactions processed in March 2019, 220-225 million were processed by Google Pay, PhonePe, and Paytm combined, accounting for 80–85 percent of all UPI transactions. This emphasizes how crucial a role the major tech corporations are playing in spearheading the UPI movement.

He particularly stressed that “Banks are coming up with so many applications, but adoption is little because the ease of use is not there.”

UPI Goes Overseas
France, the United Arab Emirates, and Sri Lanka are the three nations that have jumped on the UPI bandwagon quickly. Now, these three nations will take payments using the domestic digital payment system developed in India.

How the Initiation is Rolling
The introduction of UPI into France is noteworthy since it gives the technology its first footing in Europe. With regard to Sri Lanka and the UAE, India's business relations with both countries are expected to strengthen with UPI's admission. The introduction of UPI into France is noteworthy since it gives the technology its first footing in Europe. With regard to Sri Lanka and the UAE, India's business relations with both countries are expected to strengthen with UPI's admission.

Digital Rupee
The digital rupee, India's central bank digital currency that is recognized as legal tender in digital form, was also just introduced by the RBI. This pilot program, in which eight institutions are involved, aims to strengthen the ecosystem supporting the cashless economy.

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