Over the past few years, the digital payment space has grown at a significant pace in India. In February 2020, the Reserve Bank of India (RBI) governor, Shaktikanta Das, had highlighted that digital payments accounted for almost 97 per cent of daily payment system transactions, in terms of volumes. Further, Credit Suisse predicts that India’s digital payment industry is set to grow fivefold to reach $1 trillion by 2023.

The market accelerators include growth in interoperability between prepaid instrument (PPI) players and reduced transaction charges. On top of this, new entrants such as WhatsApp Pay will intensify the competitive landscape, which is expected to drive the growth trajectory of digital payments in the country.

While the pandemic has placed unprecedented strain on the Indian economy, the rapid adoption of digital payment systems is set to play a pivotal role in softening the impact of this economic fallout, having already catalysed digital transformation across business models.

A look at the key developments in the digital payment space…

 QR code

QR codes have come back to life in the wake of the Covid-19 crisis. During the lockdown, the average business per merchant on the BharatPe QR payment app went up by 60-70 per cent. In June 2020, Amazon Pay launched Smart Stores, an app that lets customers explore products from offline stores by scanning QR codes and buy them via Amazon Pay. Meanwhile, in order to abide by social distancing rules, airlines and Indian Railways started using these codes to examine tickets and check in passengers. The railways also modified its reservation system and now issues a unique QR code against every ticket.

In a move to streamline the QR code ecosystem, in November 2020, the RBI decided to continue with the existing interoperable QR codes – Unified Payments Interface (UPI) QR and Bharat QR. To this end, the regulatory body has directed all payment operators that have deployed proprietary QR codes, such as Paytm, PhonePe, MobiKwik and Google Pay, to shift to either UPI or Bharat QR codes by March 31, 2022. In addition, the RBI has barred payment system operators from rolling out any new proprietary QR codes for payment transactions.


In the aftermath of the pandemic, banks and card companies are pushing near-field-communication (NFC)-based payment options, as they reduce the cost of merchant acquisition. For instance, Google Pay has partnered with several banks such as Axis Bank, State Bank of India (SBI), Kotak Mahindra Bank, and HDFC Bank to launch a tokenised card option. These tokens enable users to make safe transactions with their cards and use the tap-to-pay feature on NFC-enabled point-of-sale (PoS) terminals. In June 2020, MasterCard, in partnership with Axis Bank and Worldline India, launched a soft-PoS solution allowing merchants to transact through Bharat QR codes and NFC payments, among other services. Meanwhile, the National Payments Corporation of India (NPCI) is also working on an NFC solution for the UPI platform that will be used on PoS devices.

UPI payments crossing milestones

Starting with just 21 member banks and fewer than 1 million transactions in August 2016, the number of live banks on UPI grew to 189 by October 2020. One of the main reasons for this accelerating growth is the marketing strategies of payment system players, which successfully attracted customers. The rapid rise in the adoption of UPI can be credited to the seamless digital payment services offered by applications such as Paytm, PhonePe and Google Pay. The UPI market share is mainly driven by Google Pay and PhonePe, which provide around 80 per cent of the total transaction volume, with PhonePe holding the largest market share of 40.3 per cent, followed by Google Pay with 39.5 per cent. Paytm comes in third.

According to recent data from the RBI, the total volume of transactions over the government’s UPI platform is likely to set a new record in November 2020, having already crossed 1.12 billion transactions in the first 15 days of the month, amounting to Rs 2.06 trillion. In comparison, it had registered 1 billion transactions, amounting to Rs 1.91 trillion, during the first 15 days of October 2020. If the trend continues, UPI is likely to record 2.25-2.3 billion transactions in November 2020. Earlier in the same month, WhatsAppPay went live on UPI in the multi-bank model. WhatsApp’s entry into the already crowded UPI ecosystem could be one of the reasons behind this spurt.

Additionally, the government’s increasing efforts to push digital literacy has led to widespread acceptance of these apps. In August 2020, the NPCI formed a subsidiary, NPCI International Payments Limited (NIPL), in a bid to take its products beyond Indian shores. NIPL will facilitate and co-create payment technologies with other countries, and help popularise Indian payment technologies such as UPI and RuPay abroad.

Battle of the giants

Following approval from the NPCI in November 2020, WhatsApp launched its WhatsAppPay feature across India. With this, WhatsApp users with debit cards that support UPI can immediately start using the service. To this end, WhatsApp is collaborating with ICICI Bank, HDFC Bank, Axis Bank, SBI and Jio Payments Bank.

With WhatsApp’s entry into the digital payment ecosystem, the battle for a share of transactions via UPI is expected to intensify. One of the key challenges that digital payment vendors typically face is getting their apps on to consumers’ smartphones. It took Google Pay around three years to build a user base of around 70 million. WhatsApp’s massive existing user base of over 400 million is thus one of its biggest advantages over its rivals, which will make this market highly competitive.

In a bid to address the risks emerging from the overload of payments infrastructure and to protect the UPI ecosystem from monopolies, in November 2020, the NPCI placed a 30 per cent cap on the total volume of UPI transactions through third-party payment apps (TPAPs), starting January 2021. With this move, India has managed to navigate the risk of WhatsApp potentially monopolising the market with its massive user base. While existing TPAPs, such as Google Pay and PhonePe, have been given two years, starting January 2021, to comply with the regulation, new entrant WhatsApp Pay will have to comply with it from 2021 itself. Further, the NPCI has directed WhatsApp Pay to launch its service in a graded manner, starting with a maximum of 20 million users.

But this cap will also impact the other giants. At present, both Google Pay and PhonePe process more than 40 per cent of UPI transactions each; the guidelines, once effective, will reduce each of their shares by 10 per cent. However, they will not have any effect on Paytm, as it operates as a payment service and not as a TPAP.

Policy steering the gear

In September 2020, the RBI finalised the guidelines for a new umbrella entity (NUE) for the operation of payment systems. It will complement and supplement the NPCI’s role in expediting innovation in the digital payment landscape. To this end, SBI and the Tata Group have also sought NUE licences. However, until the NUE is active, the NPCI will continue to be a nodal body for the UPI ecosystem.

In tandem, the Payments Council of India has initiated discussions with the Indian Banks’ Association for creating a joint venture to apply for a self-regulatory organisation (SRO) licence. If the parties succeed, the digital payment industry may soon get a self-regulator. According to the RBI, an SRO should act primarily as a coordination and synchronisation body to manage synergies among all stakeholders. The SRO could be made to coordinate with the NPCI and the NUE players. The SRO will reportedly ensure compliance of payment gateways and payment aggregators with the new licence regime of the RBI, among other tasks.

Further, in June 2020, the RBI set up a Payment Infrastructure Development Fund (PIDF) worth Rs 5 billion, with the aim of supporting and improving the development of the digital payment ecosystem in the rural and north-eastern areas of the country. To this end, the RBI has contributed an initial seed amount of Rs 2.5 billion to the PIDF. The remaining amount is expected to be jointly contributed by all card-issuing banks and network operators.

Challenges and the way ahead

There still remain some key hindrances to the growth of digital payments, such as the higher costs of digital infrastructure as compared to traditional payments, the lack of financial literacy amongst smaller merchants, the high propensity of households to save cash, and the cash-intensive, unorganised structure of small and medium enterprises. Privacy risks stemming from cyberattacks and the threat of data misuse also negatively affect consumer confidence. According to experts and industry sources, various payment options will dominate the future digital space, including biometric technology, contactless cards, invisible payments, voice payment, and facial recognition. The digital payments segment is certainly an interesting space to watch.

By Shikha Swaroop