Bain and Company have released a report titled “Future of India Retail Payments,” which states that merchant payments on Unified Payments Interface (UPI) are expected to exceed $1 trillion by FY26. This projection is due to an anticipated growth rate of 40% to 50%.
The growth in UPI merchant payments will be driven by increased awareness, growth in merchant acceptance of UPI, new payment features such as UPI Lite and UPI 123 Pay, along with the opening up of international payment corridors on the domestic payment railroad.
Growth of UPI and Mobile Wallets in India
According to data from the National Payments Corporation of India, merchant transactions worth $40 billion were settled through UPI in March 2023 alone, with the sector already reaching a $500 billion payment run rate. The share of UPI and mobile wallets in the $3.2 trillion digital payments pie is set to grow to 28% in FY26 from 11% in FY22. As all digital payment modes including credit cards, debit cards, and buy now, pay later grow, cash will go down to 48% compared to 69% in FY22.
India’s Role in Creating a Non-Cash Economy
“India is leading the way in creating a non-cash economy and is outpacing many other emerging economies with the help of UPI, a game-changer by NPCI,” said Rakesh Pozhath, partner and leading member of the financial services practice, at Bain & Company. He also added that Brazil is following India’s UPI to promote innovations in Pix, its own real-time payments system.
Credit Card Spends in India
The report predicts that credit card spending in India will grow 2.5 times to $280 billion from around $100 billion currently by FY26. A significant part of this growth will be driven by an increase in spending through new credit cards that will be issued. As of March 2023, data from the Reserve Bank of India shows that there are 85 million credit cards in the market.
Expansion of Payment Form Factors and Acceptance Infrastructure
The report states that the expansion of payment form factors will not be limited to credit cards but will also include the growth of acceptance infrastructure. Point of sales terminals is expected to double to 13 million by FY26 from around 6 million currently. This growth will be driven by new-generation Android PoS and softPoS terminals. Android terminals are smart terminals that can process transactions across multiple modes, generate receipts, and process pay-later transactions. SoftPoS terminals are where smartphones are converted into PoS machines accepting smartphone-based payments.
Regulatory Intervention and Consumer Protection
The report acknowledges that regulatory intervention aimed at protecting consumers’ interests could create some regulatory headwinds for fintech startups. However, it will ultimately lead to a better consumer protection culture. Steps like mandatory tokenisation of cards, data localisation, data protection norms, and strict requirements to become PA/PGs could prevent market monopolisation.
Reduction of Government Subsidies and Alternate Revenue Channels
In the next three to five years, Bain and Company predict that there will be a reduction in subsidies from the government around payments. This will eventually lead to market forces dictating pricing around merchant payments. Payment service providers will also figure out alternate revenue channels by then, such as unsecured retail credit to users, working capital for merchants accepting payments digitally, and commerce-related offerings. The report also calls out omnichannel as the next major growth opportunity for payment fintechs.
