Non-Cash Economy: UPI Merchant Payments To Reach $1 Tn By 2026, Says Report

Merchant payments on Unified Payments Interface (UPI) are expected to grow at a CAGR of 40%-50% to reach $1 Tn annually by 2026, a report by consulting firm Bain & Company said.

While India’s household consumption is expected to reach over $3 Tn by FY26, largely propelled by the upper-middle and high-income segments, UPI payments are likely to account for a significant portion of it at around $1 Tn person-to-merchant (P2M) payments, the report, ‘The Future of India Retail Payments’, said.

UPI’s total annualised transaction value rose to $1.7 Tn in FY23, while P2M transactions climbed to $380 Bn, almost twice the amount spent on credit cards, the report added.

As per the report, factors such as rapid merchant acceptance and adoption given zero/ low merchant discount rate (MDR), increasing internet penetration, and wider awareness of digital payment methods will drive the growth of UPI payments. Additionally, new innovations like credit on UPI, UPI 123 Pay, UPI Lite, and UPI coin vending machines are expected to further accelerate the adoption.

“With the current technical and financial momentum, India is expected to become a nearly 50% non-cash economy in consumption in the next three years with approximately 350-400 Mn digital consumers,” Saurabh Trehan, partner and leader of the financial services (FS) practice at Bain & Company, said.

This growth could be further propelled to 60%–75% in case of continued government incentives and higher traction for UPI 2.0, 123 Lite, credit on UPI, Central Bank Digital Currency (CBDC), Trehan added.

The report said that embedded finance has gained huge traction in the country, with credit card and Buy Now Pay Later (BNPL) transactions accounting for nearly 8% of total consumption today. By FY26, this is expected to grow to around 12%–13% of consumption, driven by varied models of BNPL in both online and offline consumption to drive payments on credit beyond traditional credit cards.

Credit on UPI will drive consumption financing for living expenditure items such as travel, healthcare, education, fashion and lifestyle, food and beverage, grocery for which credit penetration is currently low, the report said.

It must be noted that the Reserve Bank of India (RBI) proposed in April to allow banks to offer pre-sanctioned credit lines to users via UPI. Last year, the RBI revealed plans to allow linking credit cards with UPI.

UPI processed a record 868.5 Cr transactions worth INR 14.1 Lakh Cr in March, with PhonePe, Google Pay, and Paytm continuing to lead the race.

The central bank also launched UPI Lite in September last year to further propel the digital payments ecosystem in the country. On Wednesday, fintech major PhonePe launched UPI Lite feature on its app which would allow users to initiate low-value payments under INR 200 from their UPI Lite account without entering a pin. PhonePe’s rival Paytm also launched this offering in February.