Digital Payments in India Projected To Reach $10 Trillion by 2026: BCG and PhonePe Pulse Release Report on Digital Payments

  • Value of digital payments in India to increase three-fold from US$3 trillion today to US$10 trillion by 2026
  • Digital payments will constitute nearly 65% of all payments by 2026, up from 40% today
  • UPI adoption will surge from 35% in FY 21 to 75% in the next five years
  • 7x growth in digital merchant payments – from US$ 0.3-0.4 trillion today to US$ 2.5-2.7 trillion by 2026

Boston Consulting Group (BCG), in collaboration with PhonePe, India’s leading digital payments company, recently unveiled a report titled, “Digital payments in India: A US$10 trillion opportunity”. The report leverages BCG’s industry expertise in payments and the fintech domain, along with PhonePe’s deep insights and expertise as the market leader in Indian digital payments and its extensive Pulse database to look at top digital payments trends in India.

India’s digital payments landscape has witnessed a phenomenal growth over the past five years. As per the report, India’s digital payments market is at an inflection point and is expected to increase more than threefold from the current US$3 trillion to US$10 trillion by 2026. As a result of this unprecedented growth, digital payments (non-cash) will constitute 2 out of 3 payment transactions by 2026.

The report also talks about how the digital payments ecosystem has been positively disrupted by the entry of multiple new players with diverse offerings driving digital payments adoption at scale. Leading global and Indian fintech players have been key drivers of UPI adoption in India among end users, aided by buildout of a large QR-code based merchant acceptance network, and further supported by user-friendly interfaces, innovative offerings and an open API ecosystem.

The report goes on to list the levers for further growth of digital payments in India which include – simplified customer onboarding, continued push for consumer awareness, expanding merchant acceptance, merchants getting greater access to credit, infrastructure upgrades and the setting up of a financial services marketplace driving growth in underpenetrated regions. It also talks about how IoT, 5G & CBDC will provide further impetus to growth.

Commenting on the launch, Karthik Raghupathy, Head of Strategy, and Investor Relations, PhonePe, said, ‘’We are excited to partner with BCG to release Digital payments in India: A $10 trillion opportunity. The report is an in-depth commentary on the growth of digital payments in India and looks at factors and enablers that will help unlock the massive growth potential going forward. This report is part of the PhonePe Pulse initiative, which was launched last year, in our effort to give back to the Fintech ecosystem. PhonePe Pulse has been very well received by all the key stakeholders in the ecosystem and has emerged as India’s go to destination for insights and trends on digital payment in the country.

Karthik further added, “‘As India’s largest Fintech platform we have seen the growth of UPI over the last few years. UPI has supercharged India’s transition to non-cash payments when it comes to both person-to-person (P2P) and person-to-merchant (P2M) transactions. Not surprisingly, UPI saw about 9x transaction volume increase in past 3 years, increasing from 5 billion transactions in FY19 to about 46 billion transactions in FY22: accounting for more than 60% non-cash transaction volumes in FY22. This indicates that digital payment has truly gained ubiquitous acceptance across the country. While Tier 1-2 cities have witnessed high acceptance of digital payments, penetration in Tier 3-6 cities shows headroom for growth. The next wave of growth will now come from Tier 3-6 locations, as evidenced in the past two years wherein Tier 3-6 cities have contributed to nearly 60-70% of new customers for PhonePe.”

Prateek Roongta, Managing Director & Partner, Boston Consulting Group said, “India is set to become a digital payment economy as source of payments invert with 65% transactions being done digitally by 2026, as opposed to 40% transactions today. Merchant payments will emerge as the most powerful driver of this growth, especially in the offline segment due to growing QR code deployments. We expect that merchant payments will soon outpace person-to-person fund transfers.”

Prateek further added, “We will increasingly observe digital payments get embedded in all forms of commerce, we will also witness the progression from embedded payments to embedded finance. As more and more merchants begin to accept digital payments, it will unlock a significant change in access to credit for small merchants due to the creation of a digital transaction trail.”

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