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India to have a $1 trillion digital payments industry by 2023

The entry of global players into India’s digital payment space is expected to grow the segment by about five-fold to US $1 trillion by 2023, according to a report.

It said that in India, digital payments aggregate less than US $200 billion, of which mobile payments were at an estimated value of US $10 billion in the financial year 2018.

It expects that the total digital payment market in India will grow to US $1 trillion by the financial year 2023, led by a growth in mobile payments.

The report predicted that the use of digital payments will further increase when the most popular application in India, WhatsApp, integrates a payments button.

The share of cash transactions in India is estimated to account for 70% of total transactions in value terms and 90% in volume.

Over the next four years, the integration of a payment function into popular apps in India will drive the digital payment market to US $1 trillion. Digital payments in India are soaring on the back of the entry of global tech giants that are acting as aggregators for retail transactions, the report said.

Further, it compared the surge in digital payments in India against China’s growing digital economy.  Digital payments in China leapfrogged to over US $5 trillion in the past five years on the back of rising mobile and data penetration.

Data usage for 300 million Indian smartphone users jumped to 5-10 GB (Gigabyte) per month in 2018 from 1 GB in 2017. The growth in digital payments in China was triggered by its integration into e-commerce and social platforms, which had a 95% market share as of last year.

However, unlike China, mobile payments in India are being built on public infrastructure like UPI and Aadhaar that allow open-architecture and an inter-operable payment system to evolve, the report said.

UPI is an instant real-time payment system developed by NCPI that facilitates inter-bank transactions. The Reserve Bank of India (RBI) regulates the interface and it works by instantly transferring funds between two bank accounts on a mobile platform.

As recently reported, NCPI data showed that in April of this year, UPI recorded 781 million transactions. But this was a 2.2% decline from the 799 million transactions recorded in March.

Digital payment platforms witness their greatest increase when the government announced demonetisation in November 2016 and removed IN ₹1,000 and IN ₹500 currency notes.

India’s monthly digital transactions volume had increased three times to two billion in November 2018 from 736 million transactions in October 2016. By next year, non-cash payment methods, including cheques, demand drafts, net-banking, credit and debit cards, mobile wallets and UPI, are expected to double to 40%.

The biggest factor that has contributed to the growth of online payments is that they are convenient. Also, users are attracted by offers and discounts that are available while using digital payment methods.

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