The world’s second-fastest growing digital economy, India, is also developing into a fintech and payments hub. Both public and private sectors in India are going through rapid digital transformation by embracing automation and advanced data analytics.
The Impact of Demonetization and Covid-19 pandemic:
The Fintech sector in the country is one of the industries at the forefront of transformation. India’s digital payment sector has been evolving since demonetization. The Covid-19 pandemic has accelerated the digital shift, with the majority of consumers now using online services, boosting the digital payment business.
According to a report of Ministry of Electronics and IT, the volume of digital payments in India has increased by 33% year-on-year (YoY) during the financial year (FY) 2021-2022. A total of 7,422 crore digital payment transactions were recorded during this period, up from 5,554 crore transactions seen in FY 2020-21.
NPCI’s unified payment interface (UPI) was the most used platform for digital transactions during the period, accounting for 452.75 crore transactions with a value of ₹8.27 lakh crore. Reports also suggest that the value of digital payments in India will grow three-fold by financial year 2026.
The introduction of different payment channels
The digital payment ecosystem of India is expanding with the growth of different payment channels. The government has contributed to the growth of Fintechs by redefining the services through the introduction of strategies like UPI, IMPS, e-KYC, and Aadhar as an authentication method. Private fintech startups also have revolutionized the digital payment market in India.
With the growing digital consumer crowd, consumer-friendly e-Wallets play a pivotal role in providing accessible digital transaction facilities through smartphones to both the urban and rural population. Although a large portion of the rural population still lacks internet access, India has come quite a long road to attain a cashless economy.
Influence of Millennials and Tech-savvy Generation Z:
Reports suggest that the millennials and Gen Z will account for more than 50% of the consumer base by 2026. The report aptly notes that this generation were born in the age of smartphones and crave instant and highly personalized experiences.
The trend is leaning increasingly towards instant payment options. This is evident by reports that reveal that the top 3 payment methods favoured by online shoppers are Credit Cards (42%), electronic payments (39%) and Debit Cards (28%).
The Importance of user experience can’t be ignored
The payments universe is expanding, and customer experience is becoming the determining factor in a business’s success rate. Enhanced customer experience will shape the future of payments. It is interesting to note that more than 60% of Millennials and Gen Z consumers are willing to share their bank account details with third parties in case of enhanced services.
Collaboration of FinTech Companies with Banks
To gain the full benefits of technology and innovation, collaborations between fintech and banks seem to be inevitable. Financial institutions need new opportunities for optimal sources of revenue. This calls for a major shift in prioritising their digitisation efforts with fintech partners.
It should now come as no surprise that partnerships between fintech and banks are booming. The fintech industry has access to newer technologies that allow banks to extend their services to a broader consumer base. And as security threats become more advanced, it has become necessary for banks’ security frameworks to evolve and alter.
Where is the Indian Digital Payment Market Going?
Covid-19 acted as a catalyst for the acceleration of digital payments in India. The last Union Budget announced a fund allocation of INR 1,500 crore to boost digital payments. The allocation of funds are aimed to reimburse losses suffered by payment service providers for processing UPI transactions for free in the year 2021. Further, the report mentions that the Reserve Bank of India announced an infrastructure development fund with an initial amount of INR 345 crore to promote digital payments in rural India.
RBI announced that they are inviting applications for the New Umbrella Entities and plans to grant the license to promote the retail payment sector. The result of this will be quite impactful considering the digitized tech giants will be fighting hard for it and this might change the entire face of fintech and digital transaction systems in India.
With the increasing pace of digital transformation, all sectors are aiming to promote cashless services which will, in turn, boost the digital payment market in India.