Digital Payments To Evolve Into A $1 Tn Behemoth In India By 2023: Credit Suisse

India’s digital payments industry, which is currently worth around $200 Bn, is expected to grow five-fold to reach $1 Tn by 2023, a report by Swiss financial services holding company Credit Suisse predicts.

As per the report, within the said period, the value of digital payments will likely jump from the current 10% to over 25%.

Attributing the growth to the increasing popularity of UPI enabled apps like Google Tez, Credit Suisse analysts Ashish Gupta, Kush Shah, and Sunil Tirumalai stated, “In just four months of launching its payments app, Google is already processing the same number of digital transactions as Axis Bank (fourth highest among banks) and has resulted in Unified Payments Interface (UPI) transactions increasing about eight times.”

With WhatsApp currently testing its UPI-based payments feature in India, the digital payments market would receive a major boost, especially since the instant messaging app has more than 200 Mn monthly active users in the country.

According to the Credit Suisse report, around 70% of all payments in value and 90% in volume are currently made through cash in India. However, with increased penetration of high-speed Internet and smartphones, coupled with the effects of demonetisation, digital payments can now come into the mainstream.

In a way, the evolution of the Indian digital payments sector is along similar lines as that of China. In China, for instance, mobile payments currently stands at over $5 Tn.

“Data usage for 300 Mn Indian smartphone users has jumped to 5-10 GB per month from 1 GB last year. The surge in digital payments in China was triggered by its integration into e-commerce and social platforms, which now have a 95% market share. Payment integration into popular apps in India will drive the digital payments market to $1 Tn over the next five years,” the report further stated.

Driving the growth in digital payments are UPI and Aadhaar, which have helped create a public infrastructure that facilitates fast and secure transactions. The Credit Suisse report predicts that the country’s established banks will become the major beneficiaries of the increased adoption of digital payments.

As per the study, “With 800 Mn bank accounts now linked, the bulk is mobile-transaction ready. The top four banks — SBI, HDFC Bank, ICICI, and Axis — together account for over a third of the banking system’s customer base, but drive 60-70% of retail activity.”

“The tech aggregators would primarily look to tie up with these franchises. There is also no loss of customers (or their data) for the banks even as they transact on the platforms of these aggregators. Customer migration to digital will also help prune operating costs and create new lending opportunities,” the report added.

UPI Spearheading The Evolution Of Indian Digital Payments Sector

According to data released by the RBI recently, digital transactions in the country reached a record high of 1.11 Bn in January 2018, up by 4.73% from the 1.06 Bn mark touched in December last year.

The total transaction value surged to $2 Tn (INR 131.95 Tn) in January, making it the second highest reported in a single month over the last one year. Compared to that, December 2017 clocked transactions worth around $1.9 Tn (INR 125.51 Tn).

Leading the growth is UPI, which crossed the 151.7 Mn mark last month, undergoing a 4% increase from the 145.5 Mn transactions clocked in December 2017.

Similarly, the value of UPI-enabled transactions also jumped by 18% from $2 Bn (INR 131.4 Bn) in the last month of 2017 to $2.4 Bn (INR 155.4 Bn) in January. Of this, the government’s Bharat Interface for Money (BHIM) app accounted for over 9.57 Mn transactions worth upwards of $57 Mn (INR 3.65 Bn).

Launched in August 2016 by the RBI in conjunction with the National Payments Corporation of India (NPCI), the United Payments Interface was designed to help simplify peer-to-peer transactions. At that time, it was announced that UPI was adopted by 29 banks. Currently, there are 71 banks that allow transactions via UPI.

UPI is a one-touch transaction for transferring money between any two parties using a ‘unique virtual address’ on a smartphone. The UPI-driven payments follow the IMPS (Immediate Payment Service) structure of payments. Since its launch, the technology has been adopted by various banks and other private fintech companies.

In fact, over the last 12 months or so, UPI-based transactions have seen a massive 7000% increase, as stated by the RBI.

Much of this growth has come on the back of the increased adoption of apps like Google Tez, Flipkart-owned PhonePe and Paytm. While Tez and PhonePe have crossed 10 Mn downloads each on Google Play Store, Paytm has also clocked over 100 Mn downloads. PhonePe, on the other hand, hit 33 Mn transactions in November last year.

Hike Messenger, which launched its UPI app in June 2017, reported 10 Mn financial transactions in November 2017 on a 100% month-on-month growth. It has clocked more than 10 Mn downloads on Google Play Store.

With over 1 Bn downloaded globally, WhatsApp is the newest entrant in the Indian digital payments sector. As estimated by Credit Suisse, riding on its widespread popularity as a messaging app in India, WhatsApp’s UPI app could be what drive the country’s digital payments segment to $1 Tn.

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