phonepe: India’s digital payments market will triple to $10 trillion by 2026: PhonePe-BCG study

Bangalore: India’s digital payments market is expected to more than triple to $10 trillion by 2026, according to the latest study by digital payments firm PhonePe & Consulting Group (BCG).

Currently, the study said, 40% of all transactions in India are digital, and payments worth $3 trillion were processed by digital devices in 2021. It does not include payments made for financial services, corporate business payments and government payments.

India’s Unified Payments Interface (UPI) continues to grow, with transactions worth 5.95 billion last month valued at Rs 10.41 lakh crore.

According to a PhonePe-BCG study, UPI has supercharged India’s transition to non-cash payments, particularly person-to-person (P2P) fund transfers and low-value merchant (P2M) payments.

“UPI has seen a nine-fold increase in transaction volume in the last three years, from five billion transactions in FY19 to nearly 46 billion in FY22, non-cash transaction volume in FY22,” the report said. accounting for over 60% of the

The study said that UPI still has room to grow and will account for 73% of all digital payment volumes by FY26.

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In terms of acceptance, quick response (QR) codes have played a big role in the expansion of digital payment services in India, the report said. Currently, QR-code payments are accepted by over 30 million merchants in the country, which is significantly higher than 2.5 million merchants five years ago.

With the increase in QR-code adoption, the total P2M transaction volume on UPI has increased from 12% in 2018 to 45% in 2021, with further growth expected.

“The major contributor to the growth of digital payments will be from merchant payments, which is expected to be significantly digitized over the next five years, from 20% digital penetration by value today to approximately 65% ​​by 2026, which A seven-fold increase from $0.3-0.4 trillion in digital merchant payments today to $2.5- 2.7 trillion by 2026,” the report said.

The report said offline payments are expected to account for 75% of all digital payment transactions in the coming years, as more stores adopt QR codes.

On the challenges, the report highlighted Know Your Customer (KYC) norms, frauds and UPI outages as potential barriers to increasing acceptability of digital payments.

“Currently, KYC is one of the major hurdles discouraging merchants and customers from signing up for digital platforms and e-wallets. Whereas Digital KYC means [such as] OKYC (Offline KYC), VKYC (Video KYC) are enabled for many players yet they come with friction when it comes to end-to-end digital KYC. Full KYC requires a physical touch point with either a video or biometric device,” the report said.

It also said that due to scalability issues with the bank’s infrastructure, technical fallout is affecting the high-growth UPI ecosystem.

“On an average, banks and NPCI (National Payments Corporation of India, which runs UPI) face a technical drop of around 1.4% in UPI transaction volume, given the unprecedented UPI growth due to unavailability of systems and network issues. Has happened. The banking platform has limited scalability and has room for improvement in the quality of service. Banks need to address this by evaluating options outside core banking including cloud,” the report said.

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