The Rise of Digital Payments in India

Digital payments in India grew from 25B transactions in FY20 to 64B in FY22. This adoption of digital payment was fueled by the government's “Digital India” initiative, UPI payment, and lower mobile data costs. By 2026, India’s digital payment landscape is expected to grow to 411B transactions by FY27.

The Indian government launched “Cashless India” as a part of the “Digital India” initiative with the slogan of “Faceless, Paperless, Cashless”. The “Cashless India” has a Demonetization campaign, digital payment options, and incentives that promote digital transactions. On November 8, 2016, the “Demonetization” campaign banned the notes of 500 and 1000, constituting 86% of currency in circulation. Due to this, digital payments increased by 56% -- from 71.27 crore transactions in October 2016 it went up to 111.45 crore transactions till the end of May 2017. 

To promote digital transactions, the government provided multiple incentives: a service tax of 15% waived off on digital transactions up to Rs 2000, a discount of 0.75% on payment of fuel by credit card, mobile wallet, or e-wallets, free accident insurance worth rupees 10 lakh on account of online ticket buyers. In early 2014, the Indian Government launched Jan Dhan Yojana, which had 20 crore new zero-balance accounts. The JAM (Jan Dhan-Aadhar-Mobile) policy ensured that all government subsidies were digitally transferred to the recipient. The government launched digital payment methods like BHIM (Bharat Interface for Money), Unified Payment Interface (UPI), Aadhaar-enabled Payment System (AepS), National Electronic Toll Collection (NETC), National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS) that accelerated digital payment adoption in India.

The UPI streamlined interbank fund transfers via mobile apps, eliminating the need for entering intricate bank details or adding beneficiaries. UPI gained massive traction as it acts as a universal payment system to access multiple multiple bank accounts and the payment is made in real-time without registering the beneficiary by just a QR code or UPI ID or a registered phone number. UPI can be used from all digital payment apps. The number of UPI transactions increased from 0.4B in FY17 to 10B in FY19 and to 72B in FY22. In FY22, UPI accounted for 52 percent of the total 8,840 crore financial digital transactions with a total value of Rs 126 lakh crore, the government noted in its pre-budget Economic Survey. As per PwC’s analysis, it is estimated that UPI will record 1 billion transactions per day by FY 2026–2027.

The fall in the price of data enabled users to spend more data fuelled the adoption of digital transactions. The price of 1 GB of mobile data was reduced from INR 215 in 2016 to just INR 10.5 in 2018. This was mostly due to the entry of a new telecom service provider: Jio. While the leading telecom providers were charging Rs 220 for 1 GB of data, Jio gave sim cards for free with access to 1 GB of data per day. As data became cheaper, the consumption increased from 0.12 GB/month/user in 2016 to 14.9 GB/month/user in 2022.

With government initiative, success of UPI, and reduced mobile data cost, India has been able to succeed in the “Digital India” campaign. With India’s projected economic growth rate of 7.2% and an increasing number of digital payment users. BCG expects India’s digital payment market to be worth $10 Trillion by 2026.

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