Among the many disruptions witnessed since the start of the pandemic, the rise of digital payments has been one of the most significant. Custo­mers switched to e-commerce and contactless modes of digital payment to minimise the risk of contact and infection risk. A jump of over 50 per cent was observed in monthly digital transaction volumes over six months following the imposition of lockdown in March 2020. Since then, the volume of di­gital payments conducted across platforms has only risen in the country. Accor­ding to ACI Worldwide, India accounted for 48 billion worldwide real-time transactions in calendar year 2021 – nearly three times that of China (18 billion), and 6.5 times that of the US, Canada, the UK, France and Germany combined.

According to the “PhonePe Pulse-BCG Report on Digital Payments in In­dia”, currently, 40 per cent of total payments (by value) in India are digital, comprising a $3 trillion digital payment market. This is on account of rapid expansion in digital infrastructure, unified payment interface (UPI)-led migration to digital, pandemic-led ac­celeration of shifts in customer preferences, a growing merchant acceptance network and disruptive innovations in fintech.

According to the Ministry of Electro­ni­cs and Information Technology, a total of 74.22 billion digital payment transactions were recorded during 2021-22, up from the 55.54 billion transactions seen in 2020-21, registering a growth of 33 per cent.

UPI gains traction

The National Payment Corporation of In­dia’s UPI was the most used platform for digital transactions, accounting for more than 60 per cent of non-cash transaction volumes during the period. UPI recorded over 45 billion transactions in 2021-22, which is nearly double the 22 billion transactions recorded in the previous financial year. The value of these transactions more than doubled from Rs 41.03 trillion to Rs 84.17 trillion.

One of the main reasons for UPI’s acc­elerating growth is the marketing strategies of payment system players (PSPs), which have been successful in attracting customers. Another factor contributing to UPI penetration is its interoperability, which has led to its usage beyond just payments through PSPs to merchants, causing UPI to outperform all other forms of digital payments. Additionally, the implementation of unified QR codes across all kinds of shops in the country has increased the convenience of transactions.

While Tier 1 and 2 cities witnessed hi­gh acceptance of digital payments, it is yet to penetrate cities in Tiers 3 through 6. The next wave of growth is likely to come fr­om these locations, as evident from the past two years, wherein Tiers 3-6 cities co­ntributed 60-70 per cent of new mobile payment customers.

Fintech players drive growth

Global and Indian fintech players have been key drivers of UPI adoption in India among end-users, aided by the build-out of a large QR-code based merchant acceptance network.

Fintech players such as PhonePe and Google Pay account for the major share of UPI payments and have already surpassed other payment forms such as credit and debit cards.

Other digital transaction modes

A total of 2.3 billion transactions, worth Rs 300.38 billion, took place through the Aadhaar Enabled Payment System (AEPS) in 2021-22. AEPS is a bank-led payments model based on unique identification numbers that allows Aadhaar card holders to make financial transactions using Aa­dhaar-based authentication.

Over 4.6 billion transactions worth Rs 37,063.63 billion were carried out throu­gh Im­mediate Payment Services (IMPS) in 2021-22. IMPS offers instant interbank el­e­ctronic fund transfer through mobile pho­nes.

Low-price internet data, high smartphone penetration and biometrics-based Aadhaar have contributed significantly to the phenomenal growth of digital payme­nts in India.

Sector-wise growth

Virtually every sector witnessed growth in terms of digital payments, with food and beverages (18 per cent), financial services (17.9 per cent), games (13.9 per cent), utilities (13.7 per cent)and e-commerce (11.8 per cent) being the top contributors. With a larger number of people opting for freelancing, services saw the highest growth of 769.86 per cent in digital transaction volumes in 2021, as compared to 2020. Hou­sing and real estate was the second-fastest-growing sector in 2021, seeing a growth of 315.65 per cent.

Security measures

One of the biggest and most crucial challenges with respect to digital payments is security. With the growth in digital payments, there have been increasing incide­n­ts of digital payment-related frauds. Di­gital payment methods such as UPI and mobile wallets have become the latest targets of fraudsters.

Keeping in view the surge in security breach incidents in the digital payment spa­ce, the Reserve Bank of India has come out with detailed guidelines for strengthening India’s digital payments ecosystem. Fur­ther, there has been a renewed focus on cu­sto­mer engagement and security through grievance redressal mechanisms and by ed­ucating users on key security practices.


Expanding merchant acceptance, digitising value chains and establishing a financial services marketplace in underpenetra­ted segments are the primary factors that will spur the rapid growth of digital payments in In­dia. The emergence of embedded payments via 5G and the internet of things, along with the launch of India’s sovereign Digital Ru­pee, are, together, expected to provide further impetus to this space.

According to the “PhonePe Pulse-BCG Report on Digital Payments in In­dia”, India’s digital payment market is ex­pected to triple from $3 trillion currently to $10 trillion by 2026. As a result of this unprecedented growth, digital payments (non-cash) will constitute nearly 65 per cent of all payments by 2026. In other words, two out of three transactions (by val­ue) will be digital.

With consumers abandoning traditional payment cards in favour of mobile-based real-time payments, the country’s real-time payments share of total global pa­yment volumes is expected to exceed 70 per cent by 2026.

Going forward, there is a continued need to build customer trust through a co­m­prehensive approach to addressing fraud management, simplify digital onboarding and know your customer (KYC) mechani­sms, reduce strain on the tech infrastructure of banks, allow better economics for payment players and, finally, strengthen the country’s digital infrastructure.

Shilpa Gupta