Indian Merchants Process 69% Of Transactions Via Digital Mode, Says Amazon Pay Report

Indian merchants process 69% of their transactions via digital payments, as per a report by Amazon Pay and Kearney India.

The data was part of a report, titled “How Urban India Pays”, released on Tuesday (July 9). It surveyed 6,000 consumers and 1,000 merchants in 120 cities across India. 

As per the report, street vendors selling fruits, flowers and food get 46% of their total transactions through digital mode. In contrast, 60% of the total transactions are made via online payments for “larger” online and offline merchants.

“63% of merchants say they accept digital payments for transactions under INR 1,000 to prevent consumers from going to competitors that accept digital payments,” noted the report. 

However, the document also flagged challenges related to adoption of digital payments by merchants, including issues related to financial fraud, limited connectivity, and trust. In the East and Northeast India, 62% of the surveyed merchants cited unreliable internet as a concern, higher than the rest of India.

On the consumer front, 90% of the surveyed users said they prefer using digital payments for online purchases. However, only 50% said they favour using online payments for offline purchases. 

Breaking down the data, the report added that UPI has emerged as the most preferred means with 53% usage, while 30% of the consumers veer towards other methods such as digital wallets and cards (credit, debit, and prepaid).

“India’s digital payment revolution is firing on all cylinders, propelled by consumers and merchants alike… With digital transactions penetrating even street vendors and smaller towns, we are at an inflection point..,” said Amazon Pay India CEO Vikas Bansal.

The report also highlighted a marginal digital divide between users in small towns (with less than 1 Lakh population) and “large” cities. 65% respondents from small towns said they make digital payments, compared to 75% in large cities. 

On the geographic front, 36% of customers in Southern India prefer UPI over cash, followed by 35% in West and North-Central India. In Northeast and East India, 32% and 31% of the users prefer the state-backed payment infrastructure, respectively. 

Demography-wise, millennials (aged 25-43 years) lead the overall adoption of digital payments, followed by GenX (aged 44-59 years). Meanwhile, on the gender front, both men and women process 72% of their total transactions via digital payments, as per the findings of the survey.

It is pertinent to note that the report highlighted that the propensity towards online payments is driven by the size as well as the type of transaction. 

“For example, UPI and digital wallet are preferred for small transaction sizes (less than INR 1,000) and online purchases, while credit cards are preferred for high value (INR 5,000 or more) offline and online purchases, such as electronics,” the report added. 

The report attributed the rise and adoption of digital payments to convenience, speed, efficiency and online “rewards” offered by fintech players. 

Among high-value category purchases such as electronics, Buy Now, Pay Later (BNPL) emerged as the most prominent. About 87% of users said they are aware of BNPL, while 34% said they have already adopted it. 

Mirroring the issues of merchants, 51% and 49% of the surveyed respondents flagged concerns about double debits and financial frauds, respectively, in the online payments space. A similar 51% highlighted issues related to the internet as their “apprehension” to using digital payments.

“Our comprehensive research offers a captivating glimpse into India’s digital payment evolution, showing a dramatic shift in consumer and merchant behaviours… We are hoping that this report serves as a valuable resource for stakeholders to navigate and contribute to the dynamic and inclusive digital payment ecosystem in India,” said partner and financial services lead for Kearney India Shashwat Sharma.

This report comes at a time when UPI transactions in India are continuing to see rapid adoption. While the numbers are up 49% year-on-year (YoY) in June 2024, the number of transactions saw a marginal decline of 1% month-on-month (MoM) to 1,389 Cr.

In terms of market share for UPI transactions, PhonePe and Google Pay dominated in the month of May with the two apps together commanding over 85% share in the total transactions. 

Not to mention, payments body National Payments Corporation of India (NPCI) has been actively working to expand the payments infrastructure beyond Indian borders, and has been tying up with governments and players in countries like Nepal, France, and New Zealand. 

Reflecting the surge in digital transactions on UPI, a report by London-based data analytics and consulting company GlobalData recently outlined that the total share of alternative payment methods in the country for purchases made online grew to 58.1% in 2023 from 20.4% in 2018.