The Indian population is projected to make digital payments worth USD 500 billion by 2020, resulting in non-cash overtaking cash transactions by 2023, according to a report issued by Google and Boston Consultancy Group (BCG), Forbes reports.
The non-cash payments, including cheques, demand drafts, net-banking and cards, currently account for 22% of all consumer payments in India and are projected to increase to 59% of all consumer payments by 2025. The report highlights a number of factors supporting this 2023 projection like:
Internet penetration: As digital payments industry survives and thrives on the internet, The National Optic Fibre Initiative under Digital India will link every village with a broadband connection. As the fastest growing internet economy in the world, India is slated to add 300 million internet users by 2020.
Usage of smartphones: India currently ranks 2 in the world with over 1 billion mobile subscriptions. Of this, approximately 240 million consumers use smart phones and this base is projected to increase to over 520 million by 2020.
Growth of fintech startups: One97, which operates India’s largest digital wallet, Paytm, with investments from China’s Alibaba, is currently valued at USD 4 billion. According to the data from research firm VCCEdge, fintech firms have received an all-time high amount of USD 186 million by investors, until July 2016. This spread of fintech startups is part of the global norm. The number of fintech startups in the world has doubled to 1,000 in approximately five years with funding growing six times to reach USD 20 billion in 2015.
Improved O2O (Online to Offline) presence: Online shopping, bill payment and mobile recharge are the foremost reasons for using a digital mode of payment. Sensing these opportunities, Indian ecommerce companies Snapdeal and Shopclues have acquired major digital wallets such as Easycharge and Momoe in the past few years.
In the future, the major part of cashless transactions is forecasted as person-to-merchants as wallet companies sign up more offline merchants and cash-on-delivery goes down. These would contribute to approximately 40% of cashless transactions by 2020. According to Upasana Taku, co-founder, Mobikwik: “The wallet is being used for more than just recharging: people also pay, save, borrow and invest.” the source cites. Mobikwik already claims to have more than 100,000 merchants on its platform.
Policy incentives: Fifteen banks have rolled out Unified Payment Interface (UPI) to introduce a virtual payment address, easing digital transactions between two parties. Also Reserve Bank of India’s (RBI) decision to provide 11 entities with licenses to set up payment banks for the underserved population of the country will lead to an increase in the usage of digital banks and wallets in villages.
This is a significant step that has won accolades from various corners of the startup industry, including from the founder of Paytm, Vijay Shekhar Sharma. “This is indeed a great moment for us. We have managed to significantly reduce the cash usage in the economy,” Sharma said. “With this nod from the RBI, we will be able to further drive our overall commitment to financial inclusion for the unbanked segment, modernize payment systems and build more trust for our services.”, the source cites.
In spite of this progress made over the past few years, around 50% of digital payment users still find cashless transactions complicated and merchants often voice discontent with the speed of transactions, which are not accepted everywhere in the country. Therefore Indian government needs to educate the end user and to invest in upgrading its wireless internet infrastructure.
It must implement the report’s ten-point agenda that includes: building universal network; partnerships; reducing entry barriers; building additional revenue streams through customer data; offering a full suite of financial services; and exploiting new technologies. This will empower Indian startups to usher in a payment revolution in their country.
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