payments industry in India
Key trends in the industry
Impact of ongoing financial crisis on payments industry
Outlook on the industry along with what major players are doing to
disrupt (emerging technologies, new processes etc.)
Payments industry market size in India
The Indian payment ecosystem has undergone a paradigm shift in recent years,
especially in the past two years with the Covid-19 pandemic forever changing how users
India’s digital payments landscape has transformed dramatically over the past five years.
Today, 40% of payments (by value) are digital, contributing to a US$3 trillion.
Digital payment market on account of rapid expansion in digital infrastructure, UPI-led
migration to digital, pandemic-led acceleration of shift in customer preferences,
growing merchant acceptance network and disruptive innovations by fintechs.
The combination of bank account penetration through the Jan Dhan Yojana program3
with 440 million bank accounts opened so far, 1.25 billion Aadhaar-based unique
identification numbers enabling KYC, over a billion mobile devices and low-cost internet
accessed by more than 750 million users have acted as the foundation for the relentless
growth in digital payments.
Key trends in the industry
The digital payments landscape in India has developed significantly over the past decade and expected
digital payments market to more than triple to US$10 trillion by 2026
The Covid-19 pandemic necessitated the payments industry undergo a facelift, sparked by novel
approaches from new-age players, fostered by industry consolidation, and customers’ demand for end-to-
end experience. Crossing the threshold, the industry is entering a new era – Payments 4.X, where
payments are embedded and invisible, and an enabling function to provide frictionless customer
experience. As customers make a permanent shift to next-gen payment methods, Digital IDs are critical
for a seamless payment experience. The B2B payments segment is witnessing rapid digitization. BigTechs,
PayTechs, and industry newcomers are ready to jump in with newfangled solutions to help underserved
small to medium-sized businesses (SMBs).
As incumbents struggle with profits, new-age firms are forging ahead to take the lead in the Payments 4.X
era by riding the success of non-card products and services. The new era demands collaboration,
platformification, and firms can unleash full market potential only by embracing API-based business
models and open ecosystems. Data prowess and enhanced payment processing capabilities are inevitable
to thrive ahead. The clock is ticking for banks and traditional payments firms because the competitive
advantage is not guaranteed forever. As industry players seek economies of scale, consolidations loom,
and non-banks explore new territories to threaten incumbents’ market share. While all these 2022 trends
are at play, central bank digital currency (CBDC) is emerging globally and might open a new chapter in the
current payments landscape.
Impact of ongoing financial crisis on payments
1. Macroeconomic environment
In many regions of the world, inflation is at its highest level in decades, potentially calling for changes in the
business models of payments providers and other financial services firms alike. In this context, a central bank
response to inflation may serve to expand interest margins, generating more income from this side of the
payments equation, primarily for deposit-holding parties such as banks. The combination of inflation and
interest margins, in turn, will require changes in the cash management strategies of businesses and
consumers. At the same time, factors like the global energy and commodities environment create economic-
growth uncertainties and increase the likelihood of recession, differing by region. This, in turn, will have
impact on the liquidity and investment strategies of many companies and households, altering payments
economics on both the demand and supply sides.
2. Geopolitical environment
Geopolitical disruptions are altering the long-standing trend toward globalization, prompting moves to
greater payments regionalization and localization. Instances of regional and domestic networks with local
control over key infrastructure are proliferating, challenging the standardization of solutions across
geographies. An increasing number of countries are looking to ensure local instances of payment services and
key infrastructures, likely leading to increased complexity in local regulations and requirements.
3. Capital markets reset
While “attacker” payments companies significantly outperformed both the broader market and “incumbent” payments
players over the last few years in the capital markets, 2022 saw a significant reset in valuations. In the 12 months ending
August 2022, these same attackers delivered a negative 70 percent return to shareholders, compared to negative 26
percent for incumbents. This valuation reset creates opportunities across the landscape as incumbent companies
consider acquisitions and attackers focus on sustainable growth and a path to profitability.
4. Commerce expectations
A main driver of the past high valuations of fintechs and attackers was the expectation of revenue growth through
expanding customer relationships. This opportunity persists as payments increasingly serve an integrated, value-added
commerce role rather than merely executing a stand-alone financial or money movement transaction. The most
common current embodiment of this trend is commerce facilitation, extending beyond checkout and payment to
enhance the commerce journey. The most promising for the future is embedded finance, or integrating finance products
into nonfinance ecosystems. Players that can monetize services and data are poised to capture a larger share of revenue
5. Technology modernization
After a long period of mostly incremental upgrades to networks, and to bank and business payment systems, companies
are now making more structural as well as de novo infrastructure improvements. For instance, banks are aggressively
modernizing their core systems to real-time, third-generation cores and updating their payments infrastructures, largely
in response to the continued rise of instant payments, open-banking requirements, and cloud technology. We forecast
that several regions will enter the next S-curve on instant-payment transaction growth. In addition, with the continued
growth of embedded finance, digital natives’ expectations for how those services are delivered will continue to exert
pressure on providers to modernize their payments infrastructure.
Outlook on the industry
The Indian FinTech market has been on an upward growth trajectory over the last five
years. This is evidenced by an increase in both the number of FinTech companies
founded and the investment they have attracted. From January 2013 to October 2021,
approximately 2,000 FinTech companies have been founded, turning India into a hotbed
of entrepreneurial activity (Figure 1).3 This has also translated into increased consumer
adoption of FinTech solutions. In 2018, India ranked second globally in the FinTech
adoption rate. The average percentage of FinTech users in the country is 57.9%, behind
China’s 83.5%, and much higher than developed countries’ 34.2%.4 With a strong
technological ecosystem as its backbone and a huge market base with a low penetration
of financial services (FS), the Indian FinTech market holds immense potential.
The overall transaction value in the Indian FinTech market is estimated to jump from
approximately USD 66.1 billion in 2019 to USD 137.8 billion in 2023, growing at a CAGR
of 20.18% (Figure 2).5 The global FinTech market is also poised to achieve high growth
levels in the coming years. The overall transaction value in the global FinTech market is
predicted to grow from around USD 5.49 trillion in 2019 to USD 9.82 trillion in 2023, a
CAGR of 15.64%
In India, along with sustained funding, both supply-side factors such as Government
and regulatory support, and technological advancements and demand-side factors
such as large unmet needs and rising customer digital expectations have been
converging to drive the FinTech market.
The launch of UPI by the National Payments Corporation of India (NPCI) has resulted in
the roll-out of interoperable payment services amongst FinTechs and incumbent
institutions, leading to the widespread adoption of digital payments across merchants
and customers. The platform was used by 92 banks and witnessed 620 million
transactions worth INR 1 trillion in December 2021 , making it one of the largest
payment platforms across the world.