UPI to stay on top; digital currency to boost payments over the next 5 years

Retail online transaction platform UPI is likely to continue to dominate the digital payments space in the country, although new methods such as BNPL and digital currency are set to define the future of payments, according to a study.

Unified Payments Interface (UPI), Buy Now Pay Later (BNPL), Central Bank Digital Currency (CBDC) and offline payments will drive the growth of digital payments in India over the next five years, PwC India said in a report.

UPI is expected to continue to be the top contributor in the digital payments space, followed by BNPL, he said.

India’s digital payments market has been growing steadily at a CAGR of 23% (by volume) and is expected to reach 217 billion (21,700 crore) transactions in FY26 from 59 billion (5,900 crore) in FY26. of FY22, according to the report titled ‘The Indian Payments Handbook 2021-26’.

In 2020-2021, UPI transactions reached a record 22 billion (2,200 crore), and it is expected to reach 169 billion (16,900 crore) by 2025-26, with a CAGR (compound annual growth rate) of 122%. mentioned.

Partnerships with other countries in Asia to enable low-value transactions and cross-border remittances via UPI will help drive this growth. The BNPL, which is currently estimated at Rs 363 billion (Rs 36,300 crore), is expected to reach Rs 3,191 billion (Rs 3.19,100 crore) by the end of 202526, according to the report.

“We expect the payments industry to focus heavily on improving the customer experience and providing payment options to customers, improving security, delivering technology innovations such as distributed ledger technology (DLT) and emerging technologies such as IoT (Internet of Things) over the next two years.

“With the efforts and initiatives of key stakeholders such as regulators, banks, payment/fintech companies, card networks and service providers, the industry is set to experience phenomenal growth in the coming years” , said Mihir Gandhi, Partner & Payments Transformation Leader, PwC India, said.

Presenting an overview of trends that will contribute to the growth of the digital payments industry in India, the report states that existing products and emerging use cases such as UPI, Fastag, transit (NCMC) and cards will continue to make breakthroughs and gain additional wallet share. Indian customers. These methods will continue to drive growth in the number of adoptions and transactions, the report says.

Enabling recurring payments and IPO subscriptions along with cross-border remittances will give UPI a boost. Parking and fuel payments are being explored as new use cases for Fastag, according to PwC’s report.

“Emergence of new players focused on digital travel and customer expansion in Tier 3 and 4 locations will drive card growth. Integration of NCMC with debit and credit cards alongside prepaid with News of public transport operators commissioning acceptance infrastructure will bode well for the public transport segment.”

Additionally, he said, the RBI allowing to expand the scope of tokenization to cover additional use cases such as laptops, desktops, wearables, IoT devices as well as the Card-on-File (CoFT) tokenization, with enhanced card-linked security, will ensure that the overall customer payment experience remains intact.

This is important for major merchants in grocery and retail, food delivery and apparel, among others, who experience repeat purchase transactions from their customers, according to the report.

When it comes to offline payments, the PwC report says recent RBI guidelines on offline payments have given the segment a much-needed boost.

“Poor connectivity and lack of access to online payment methods have opened an opportunity for offline payments. Efforts have been made by various players in the past to develop and deploy such solutions, but with limited success .”

They will provide the necessary guidance to participants in the development of offline payment solutions. Additionally, it will encourage banking and non-banking businesses to collaborate with solution developers, according to the report.

In the field of corporate payments, financial institutions and service providers offer payment solutions that can meet all the requirements of organizations and increase their operational efficiency.

Integrating payments into enterprise resource planning software that helps automate critical business functions and using payment data to improve operational efficiency and optimize critical processes are some of the cases of use.

Regarding the proposed CBDC, he said, given the current scenario, the central bank digital currency will have to co-exist with the existing rails rather than replacing them.

“Some of the major use cases of CBDC that apply in the Indian context are programmable direct transfer of benefits, online and offline retail payments, and cross-border remittances,” he said. .

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Sylvia B. Polson