How behavioural changes have led to the growth of digital payments in India

The ease of payments in India through debit and credit card transactions started in the early 90’s. In fact, private sector bank Axis Bank was one of the first banks to launch their debit card and other banks followed. Debit card became the most useful instrument for many – be it to withdraw cash at the nearest ATM or make purchases. The rapid development in technology and growing Internet penetration, as well as the Government’s active involvement in bringing about banking reforms gave the impetus for the growth of digital payments. A mini banking revolution started and online payments started becoming more popular – both at the retail and corporate levels.

Actually, it is the widespread technology development and penetration of Internet supplemented by the growth of mobile phones that prompted many to shift to the digital form of payments. The demonetisation drive of 2016 also played a key role in accelerating the growth of digital banking and digital payments. While there was always a concern on the security front, but the growth in digital transactions has just galloped. According to Razorpay, digital payment transactions have grown by 76% for the past 12 months, with several first-time digital payment users. As per some reports, the Indian digital payments industry is estimated to grow up to $700 billion by 2022. The extensive use of digital payments got a further push during the COVID-19 pandemic as consumers adopted contactless payments. Digital payments became the language for many to make their transactions as the rapid growth of e-commerce also further pushed the use of digital payments.

Fintech brands such as Google Pay, PhonePe and BharatPe swung into action by bringing millions of customers across the country to transact through their respective platforms by helping them easily transact and also reassuring them of the safety of their platform. Over the last couple of years, we have witnessed a rapid transformation in the adoption of digital payments, not only in Tier 1 cities, but Tier 2/3 and 4 towns and cities as well. There was also a huge shift in the consumer behaviour as the pandemic brought in severe restrictions forcing people to work from home and reduce social engagements across the country. UPI also saw an exponential increase in adoption and became synonymous with digital payments as it was very convenient and secured for all UPI related payments. Fintech players also introduced various innovations and used the latest technology extensively, such as AI, AR and advanced software solutions, to make the customers’ lives easy with simplified mode of payment operations, which helped them to woo more customers to register and transact digitally.

In FY2021, over 40 billion digital transactions worth more than quadrillion Indian rupees were recorded across the country. The growth in this sector will definitely happen as we still need to penetrate deeply into smaller towns. These numbers clearly indicate that the importance and the potential of digital payments for India’s financial services sector is immense. The biggest challenge, however, for all these players is to infuse more trust with the retailers and the consumers. While many of the retailers have become tech savvy, getting people in smaller towns to adopt digital payments and making the merchants accept cross the country will be a bigger challenge. This is where fintech brands will have to strategically think and execute their ideas effectively with a proper game plan to bring both the merchants and the consumers inside the digital payment ring.

The world continues to battle the Covid pandemic for the 3rd year, which has extracted a significant toll on the people and the economy. According to Karthik Raghupathy, Head of Strategy & Investor Relations, PhonePe, “One of the relatively few silver linings has been the Covid pandemic acting as a catalyst for digital payment adoption across India. During the first lockdown, we saw a massive spike in use cases like money transfers, recharges, bill payments as well as payments made for buying essentials like food, grocery, medicines, online doctor consultations, etc. We clocked 935 million transactions in October 2020, which represents 80% growth since June 2020. This macro trend and momentum towards digital payments adoption continued throughout 2021, with PhonePe crossing the 2 billion transactions mark in October 2021.”

Continuing further, Raghupathy said, “We believe something fundamental has changed in the way consumers transact and the way businesses perceive digital payments. This trend towards greater digitalization of payments and financial services is here to stay. Digital payments in India have just scratched the surface and still have a huge headroom for growth. More importantly, it offers players in the ecosystem the opportunity to positively impact the lives of millions of Indians. Our vision is to go deeper and cater to additional use cases that will further unlock growth and opportunities particularly in the ‘manage’ and ‘grow’ money (insurance, investments, credit, etc.) use cases.”

Along similar lines, Manasi Narasimhan, Vice President, Marketing, South Asia, Mastercard, remarked, “The COVID-19 pandemic has been a turning point for the payments industry. It has accelerated the adoption of contactless payments by consumers. Therefore, the fintech industry continues to witness ground breaking innovation. These innovations are also backed by global investments and have helped create fintech ‘Decacorns’, a term completely unheard even a couple of years ago. As per the study conducted by Boston Consulting Group (BCG), the Indian FinTech industry is estimated to reach $150-160 billion by 2025. Looking at the current state of digital transformation, Fin Techs are bolstering their infrastructure by expanding capacity or investing in new resources to withstand the stress to their systems from higher transaction volumes.”

Adding further, she pointed out that even the lending FinTechs are keeping the uncertainty in mind and providing relief to the consumers through services like buy-now-pay-later. “Being a leading global payment network, Mastercard also brings a host of cutting-edge digital payment solutions to millions of small merchants who have been left out of the formal digital economy. We are committed to accelerating digital inclusion among the unbanked and underbanked population as part of our goal to expand digital payments infrastructure and adoption across the country,” she added.

Parth Joshi, Chief Marketing Officer, BharatPe, believed that the consumers have become more receptive of the fintech offerings over the last 2 years. He noted, “From BNPL, UPI, digital lending, to insurance and investments – an increasing number of consumers have explored a wide-range of fintech products and also adopted them as an integral part of their lives. India’s fintech ecosystem has seen huge growth over the last couple of years. The pandemic continues to accelerate digitalisation across the full breadth of the financial services industry. I believe that the Indian fintech market is poised to grow multi-fold in the coming years. The fintech industry will spend on technology, talent and innovation. Banks will also continue to invest heavily in technology.”

From a marketing standpoint, Joshi foresaw continued focus on digital communication channels. “With India on the verge of another set of curbs owing to fear of a third wave, we anticipate a further increase in adoption of UPI and digital payments,” he added.

Sharing his views, Vikas Bansal, Director, Amazon Pay India, said, “The pandemic catalysed the offline-to-online payments journey for millions of customers and merchants. It also induced several behavioural changes amongst the customers and drove the need for safe and secure payment transactions, while maintaining social distancing. The rise of digital payments has paved the way for several new businesses and has expanded the reach of several leading business players across sectors.”

Continuing further, he said, “At Amazon Pay, we are focused on making digital payments secure, trusted, ubiquitous, and convenient. Customers across cash habituated, new-to-credit, digital-native, and credit-served can use different payment modes on Amazon Pay, including Amazon Pay Later, Amazon Pay ICICI Bank credit card, pay with Alexa, cash deposit at doorstep & Amazon Pay UPI to shop and pay for anything, seamlessly. As the nation prepares to deal with another wave of COVID-19, several of these UPI and credit-based products like BNPL, card-based transactions would extend customer convenience, further helping consumers in their day-to-day transactions and paving the way to digital transformation.”

Now more than ever, digitally savvy consumers are seeking agile credit, insurance, and payment products online, and Flipkart, true to our ethos, is bringing them to the market as required. Dheeraj Aneja, Senior Vice President and Head – Fintech and Payments Group, Flipkart, said, “On Flipkart’s platform, the UPI adoption increased by 120% YoY. Mobile wallets, UPI, and contactless payments will continue to gain new users in the months to come.”

In the post-COVID-19 era, convenience and access will remain the key drivers. Flipkart has come up with various payment options on its platform, with an aim of easing transactions for shoppers across all market segments in the country. Most recently, Flipkart launched the ‘Flipkart Pay Later EMI’ facility, which opened a credit line of up to Rs 70,000 for customers, which can be paid back over flexible tenures. The early response during this festive season and beyond has been overwhelmingly positive, with Flipkart Pay Later EMI contributing a healthy & rapidly growing share of all EMIs on the platform. “The Buy-Now-Pay-Later facility, which is emerging as the fastest-growing digital payment method on e-commerce platforms in India, has seen a 2x year-on-year growth in customers,” Aneja informed.

He further pointed out that the pandemic has led many first-timers and new-to-internet users to embrace digital payments. Looking at this new normal, this trend can be touted as the beginning of the next big wave in the adoption of digital payments in the country. We offer different payment options with the objective of enabling convenient transactions and extending credit facilities for shoppers across all market segments in the country. The payment constructs and in-house fintech innovations of Flipkart are empowering new-to-internet customers and helping bring the next 200 million users to the platform.”