Mudra Compass

India is undergoing a remarkable digital transformation. In recent years, the nation’s digital landscape has evolved into a vibrant mix of new experiences, introducing innovative ways of traveling, shopping, and making payments. This rapid digital expansion is driven by several factors, including strong population growth, rising GDP, the widespread availability of affordable internet, and government initiatives to develop digital infrastructure. Additionally, the growth of digital payment systems has played a significant role. The country has also experienced a boom in e-commerce, with the market estimated at USD 75 billion to USD 80 billion in 2022 and projected to grow at a compound annual growth rate (CAGR) of 21% until 2030.

A comprehensive study by Kearney India and Amazon Pay India, titled “How Urban India Pays,” revealed that 90% of urban Indians with internet access favour digital payments when shopping online. Additionally, half of these individuals also prefer using digital payments for in-person transactions.

The research, which surveyed over 6,000 consumers across various age groups and income brackets, along with more than 1,000 merchants in 120 cities, highlights a significant shift in payment preferences. The primary drivers behind this change are convenience, safety, and the ease of tracking transactions. In response to this shift, Indian merchants have quickly embraced digital payments, with 69% of their transactions now being conducted through digital platforms.

In line with India’s ongoing digital transformation, retail digital payments have witnessed an exponential rise over the past five years, increasing from USD 300 billion in FY18 to an impressive USD 3.6 trillion in FY24. Projections suggest that by FY30, this figure could double to reach USD 7 trillion. A major force behind this surge has been the Unified Payments Interface (UPI), which has shown a staggering compound annual growth rate (CAGR) of 138% in transaction volumes between FY18 and FY24.

Alongside UPI, other payment methods like cards and digital wallets have also gained significant traction, now contributing to 10% of the total value of digital transactions. This remarkable growth aligns with the Reserve Bank of India’s (RBI) Payments Vision 2025, centered on the theme “E-Payments for Everyone, Everywhere, Every time” (4 Es). While UPI continues to dominate digital payments, around 30% of respondents still prefer using digital wallets and cards (credit, debit, or prepaid) for their online shopping, and approximately 20% favour these methods for offline transactions.

When looking at the demographics of digital payment users in India, Millennials (aged 25–43) and Gen X (aged 44–59) are at the forefront of adopting various digital payment methods. Their comfort with technology and preference for convenience fuel this trend. Interestingly, Baby Boomers (aged 60 and above) are also showing a notable increase in their use of digital wallets and cards, surpassing some younger age groups. This growing adoption among Boomers highlights the broad acceptance and trust in digital payment methods, demonstrating that the shift is cutting across generational lines.

Digital Payments Adoption by Income Groups

• High-income earners (over Rs 2 million annually) are leading the digital payments shift, using these methods for 80% of their transactions.
• The aspiring class (earning less than Rs 500,000 annually) makes 67% of their transactions digitally.
• Small towns (populations under 500,000) are quickly adopting digital payments, accounting for 65% of their transactions.
• In major metro areas and larger cities (populations between 1.5 million and 5 million), around 75% of transactions are made digitally.

UPI’s dominance in India’s digital payment landscape is clear

In June 2024 alone, UPI processed an astounding 13.89 billion transactions, amounting to Rs 20.07 trillion. This marks a year-on-year (YoY) growth of 48.7% in transaction volume and a 36% increase in transaction value. The Amazon Pay survey highlights this rapid growth, showing that 53% of surveyed consumers prefer UPI for their online purchases, reflecting its widespread popularity.

Meanwhile, other payment methods like digital wallets and cards, including credit, debit, and prepaid options, are also gaining ground. These methods collectively account for 30% of consumer preferences for online purchases. Their appeal lies in the flexibility and ease of use they offer, especially for those who enjoy stored-value options or card-specific perks such as rewards and cashback.

When it comes to offline transactions, 25% of surveyed consumers opt for UPI, while 20% prefer digital wallets and cards due to their convenience and security. This shows a growing inclination toward digital payment methods, even for in-person purchases.

Emerging payment options, such as co-branded credit cards, are becoming increasingly popular. The survey indicates that 46% of respondents own at least one co-branded credit card, like the Amazon Pay ICICI credit card. These cards provide specialized benefits and incentives through partnerships with major brands, boosting consumer spending and loyalty. Companies like Swiggy, Zomato, Paytm, and Flipkart are also tapping into this trend by launching co-branded credit cards in collaboration with financial institutions.

Furthermore, innovative payment solutions such as buy now, pay later (BNPL), wearable payments, and voice assistant-based transactions are gaining traction. BNPL, in particular, has attracted significant interest, with 87% of survey participants aware of this option and 34% already using it for its flexibility and convenience.

Final Words

Remarkably, retail digital payments in India have skyrocketed from $500 billion in FY19 to a staggering $3.6 trillion in FY24. The Reserve Bank of India (RBI) estimates that this figure could potentially double to $7 trillion by 2030, fuelled by factors such as rising consumption, widespread internet availability, and a strong digital infrastructure.

India is rapidly progressing toward becoming a cashless economy. The main factors propelling the adoption of digital payments are convenience, speed, and rewards. However, challenges such as security concerns, unreliable internet connectivity, and the risk of fraudulent transactions still persist. Tackling these issues effectively will be key in further accelerating the nation’s transition to digital transactions on a broader scale.