As per the Reserve Bank of India (RBI), the volume of digital payments in the country reached 164.4 billion in 2023-24, marking a 44 per cent increase over the previous year. This growth can be attributed to several factors including enhanced financial inclusion, increasing smartphone penetration, improved customer experiences, the rise of financial technology (fintech) companies and the evolving e-commerce landscape.

The central bank also noted that the Unified Payments Interface (UPI) was the primary driver of digital payments, with its adoption rate (in terms of volumes) rising from 73.4 per cent in 2022-23 to 79.7 per cent in 2023-24. The growing involvement of fintech companies has further accelerated UPI adoption. Companies like PhonePe and Google Pay serve as third-party app providers for online payments. As per estimates by the National Payments Corporation of India (NPCI), PhonePe is leading the market in UPI payments as of March 2024, with 6,502.15 million transactions, followed closely by Google Pay with 5,061.18 million transactions. Other platforms, including Paytm, Cred and Axis Bank apps, recorded 1,230.04 million, 132.31 million and 94.6 million transactions respectively. Paytm has been witnessing a month-on-month decline in transactions due to restrictions imposed by RBI.

Government initiatives

The shift to cashless transactions has been supported by several government initiatives, including:

  • Bharat Bill Pay System (BBPS): Launched in 2015 by the RBI and operated by NPCI, BBPS aims to digitise and democratise bill payments. It has grown at a CAGR of 72 per cent from 2017-18 to 2022-23. Recently, companies like HDFC Bank have gone live on the BBPS platform for receiving credit card repayments via third-party applications. Meanwhile, EnKash has collaborated with BBPS to manage business-to-business invoice payments, and oversee onboarding and know-your-customer processes.
  • Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDisha): Launched in 2017 by the Ministry of Electronics and Information Technology (MeitY), PMGDisha aims to bridge the digital divide by providing digital skills through multilingual content and 20-hour training modules, with a special emphasis on digital payments. As of January 2024, more than 73.6 million candidates have enrolled into the programme and 63.5 million candidates have received training so far. Moreover, as per MeitY, 47.8 million people in rural households were certified as digitally literate as of March 31, 2024.
  • UPI Chalega 3.0: NPCI launched the UPI Chalega 3.0 campaign in January 2023 to promote the adoption of UPI as a preferred method for digital transactions. The campaign has employed diverse media channels to achieve widespread reach and uses its website as a key resource to highlight the ease of UPI services. The advertisements for the campaign had been viewed more than 700 million times as of January 2024, spreading awareness among an audience of over 370 million.
  • Digital Payment Suraksha: The Data Security Council of India (DSCI) launched the Digital Payment Suraksha initiative in 2016. The campaign had two key aspects – the digital payment security awareness campaign, which disseminates multilingual content on secure digital payment methods; and the digital payment security alliance, focused on policy discussion and best practices for digital payment security. The campaign has enhanced public knowledge and trust in digital transactions by reaching more than 10,000 people through YouTube videos and podcasts as of January 2024.
  • Digital Payment Abhiyan: DSCI and Google Pay launched the Digital Payment Abhiyan in 2019, in collaboration with MeitY, to build a robust foundation for e-commerce adoption by facilitating seamless and secure digital payments through the Google India YouTube channel. The channel has 38 videos on digital payment modes, which has reached more than 500 million views as of January 2024.

Key challenges to adoption

Digital payments are prone to threats such as identity theft, phishing, business email compromise, skimming and malware, with mobile devices often lacking adequate security measures. According to RBI, online financial frauds have increased, with digital payment fraud in India reaching a record  Rs 14.57 billion in 2023-24.

Further, the adoption of digital payments has been limited to larger cities. A report by Kearney India and Amazon Pay India highlights that small towns lag behind, with only 65 per cent of respondents using digital payment methods, compared to 75 per cent in larger cities. This trend is also reflected in a report by Chase India. According to the report, nearly half of rural Indian merchants are unaware of digital payments. The report further notes that most retailers handle monthly digital payment transactions of less than Rs 15,000.

The limited uptake of digital payments is attributed to inadequate infrastructure, service issues, capacity constraints and a lack of trust in these payment methods. While 94 per cent of consumers are aware of digital payments, many have not adopted them due to factors such as poor internet access, a lack of understanding and scepticism towards online payments.

Leveraging the power of AI

Fintechs are leveraging advanced technologies such as generative AI (GenAI) and data analytics, despite challenges like high investment costs, data privacy concerns and regulatory scrutiny. For example, Airtel Payments Bank has introduced Face Match, an AI-powered security feature that uses machine learning (ML) algorithms to detect potential threats and prompt facial recognition verification when necessary. Meanwhile, PhonePe is utilising ML for risk and fraud detection.

The way forward

The future of digital payments in India is expected to be dynamic, with significant growth projected. As per a PwC India report, digital payment transactions in the country are predicted to grow from 159 billion in 2023-24 to 481 billion by 2028-29, while their value is expected to double from Rs 265 trillion to Rs 593 trillion over the same period.

Emerging trends such as e-Rupi, voice payments and biometric payments are expected to improve consumer satisfaction and drive increased digital spending. For example, Google Pay has introduced features like e-Rupi UPI vouchers, while MasterCard has selected India’s UPI as the platform to launch its new biometric payment passkey service.

Meanwhile, advanced technologies like blockchain and AI will enable fintech companies to provide accessible, efficient and inclusive solutions for businesses. As technology matures, more efficient and automated processes will emerge.