With digital adoption fast gaining currency, India is likely to see retail digital payments double to $ 7 trillion by 2030 from current levels, a study by Kearney and Amazon Pay said.
In the report 'How Urban India Pays', Kearney-Amazon Pay said strong adoption of digital payments in online purchases has potentially led to a permanent shift in consumer behaviours, fueling offline adoption as well.
While 90 per cent of the respondents of the survey preferred digital payments when making online purchases, affluent consumers lead the way with the highest Degree of Digital Payment Usage (DDPU), tending to use various modes of digital payment for 80 per cent of their transactions.
"Millennials and Gen X are leading in the adoption of all types of digital payment instruments," it said. "Men and women both use digital payments in about 72 per cent of their transactions, indicating gender parity.
The research was based on an online survey of over 6,000 consumers along with more than 1,000 merchants through offline and online methods across 120 cities with representation from various regions, income groups, city categories, age brackets and genders.
India has seen a surge in e-commerce, with the market valued at $ 75 billion to $ 80 billion in 2022 and expected to grow at a 21 per cent czGR until 2030.
"In line with India's digital journey, retail digital payments have grown dramatically over the past five years - from $ 300 billion in FY18 to $ 3.6 trillion in FY24. By FY30, they are likely to double to $ 7 trillion," the report said.
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The Unified Payments Interface (UPI) has been a key driver of this growth, demonstrating a CAGR of 138 per cent in its volumes during FY18-24. Other instruments such as cards and digital wallets are also gaining in popularity, contributing 10 per cent of digital transaction value today.
"With such dynamic developments, it is no wonder that India is a global frontrunner in the digital payment landscape, accounting for a stellar 46 per cent of the global digital transaction volumes in 2022," it said.
Digital payments have penetrated small towns, with respondents in these areas highlighting that 65 per cent of their transactions are digital, while respondents in larger cities cited this ratio to be 75 per cent.
"There is a strong correlation between a city's average DDPU and its retail potential, as measured by the Kearney India Retail Index, with the top six metros displaying both high DDPU and high retail potential," the report said.
DDPU surpasses retail potential in some cities such as Lucknow, Patna, Bhopal, Jaipur, Bhubaneswar, Indore, Ahmedabad and Pune, which have a high DDPU nearly matching that of larger metropolitan cities despite having a lower retail potential than the top six metros.
The report said co-branded credit cards are gaining momentum. "Emerging methods such as buy now, pay later (BNPL), wearable payments and voice assistant-based payments are also starting to make inroads."
Digital modes of payment constitute around 69 per cent of the total transaction volumes for the Indian merchants that were surveyed. Even street vendors such as paan shops, fruit and flower sellers, food stalls, and kirana stores are joining the digital payment brigade.
"Challenges for merchant adoption mirror consumer concerns, emphasizing issues of financial fraud, limited connectivity and trust," it said.
The report said the next wave of growth in digital payments will be fueled by increasing penetration in segments with lower DDPU, such as consumers in lower-income groups and smaller towns, along with enhancing the value of spending via digital modes of payment in the higher DDPU segments by addressing their concerns.
"All key stakeholders across the digital payments' ecosystem, including payment providers, the government, and value-added services players, will need to play a part in expanding digital payment adoption," it said.
The focus areas should be empowering communities with financial education by launching target programmes to boost awareness of digital payments and new methods such as UPI Lite and UPI Lite X, especially for aspiring consumer segments, women in small towns, and street commerce merchants, to encourage higher adoption.
Also, there is a need to create user-friendly consumer journeys by streamlining documentation and know-your-customer (KYC) processes, optimising user interfaces, and establishing responsive customer complaint resolution mechanism, it said adding also there is a need to enhance digital infrastructure by addressing system and network issues and exploring innovations such as UPI Lite X for areas with limited internet.
Also, risk of fraud has to be minimised and access to credit-based payment methods expanded by using alternate data for underwriting risk, developing innovative credit products and promoting credit education for financial health.
"These areas can help India overcome challenges in the digital payment ecosystem by fostering a more inclusive, secure, and user-friendly environment, thereby enhancing the adoption of digital payments among consumers and merchants in India," it added.
