How India is Leading the World in Cashless Transactions

In the next three years, India is anticipated to transition to a consumption-based non-cash economy, with person-to-merchant digital transactions exceeding $1.5 trillion by FY26.

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The Starting

According to a research released on Thursday, person-to-merchant digital transactions in India would surpass $1.5 trillion by FY26, making the country’s consumer sector 50% non-cash. According to the report from Bain & Company, India’s household consumption is anticipated to reach more than $3 trillion by FY26, driven primarily by the upper-middle and high-income segments, with UPI payments likely making up a sizeable portion at around $1 trillion in person-to-merchant (P2M) payments.

According to Saurabh Trehan

Partner and Leader of the Financial Services (FS) practice at Bain & Company, “With the current technical and financial momentum, India is expected to become a nearly 50% non-cash economy in consumption in the next three years with approximately 350-400 million digital consumers.”

According to him, if government incentives are maintained and UPI 2.0, 123 Lite, credit on UPI, and Central Bank Digital Currency (CBDC) gain more traction, this growth might be further boosted to 60–75 percent.

P2M transactions

With its overall annualized transaction value rising to $1.7 trillion and its P2M transactions increasing to $380 billion (in FY23), nearly twice the amount of credit cards, UPI has experienced exponential growth in recent years.

On the strength of quick merchant acceptance and adoption given zero/low merchant discount rate (MDR), rising internet penetration, and increased awareness of digital payment methods, this growth is predicted to continue at a CAGR of 40–50%, the fastest among payment modalities.

The adoption is also anticipated to be accelerated by recent innovations including Credit on UPI, UPI 123 Pay, UPI Lite, and UPI coin vending machines, according to the report.

With credit card and Buy Now Pay Later (BNPL) transactions currently accounting for close to 8% of total spending, embedded finance has experienced tremendous growth. This is anticipated to increase to approximately 12–13% of consumption by FY26.

According to the estimate

India’s credit card spending will increase by about 2.5 times by FY26, from its present level of $100 to 110 billion. By FY26, it’s anticipated that there will be 135–140 million credit cards in use worldwide. “CBDC, a non-interest-bearing digital currency, could be a game-changer for low ticket transactions, especially in semi-urban and rural areas with limited internet connectivity,” the paper said.

The Wrapping Up

However, it went on to say that overcoming obstacles like KYC verification, offline access, security, expense, and compliance will be crucial to adoption. The National Payments Corporation of India (NPCI) wants more monetisation avenues to promote innovation from payment service providers (PSPs), but also desires to be careful not to hinder the progress of UPI growth, according to early signs, including the introduction of MDR on UPI through PPI, said Rakesh Pozhath, Partner and leading member of the FS practice, Bain & Company.

FAQS

What is the future of cashless transactions in India?

The future of cashless transactions in India looks promising. With the government’s continued efforts to promote digital payments, the increasing use of smartphones, and the need for contactless payments due to the COVID-19 pandemic, it is expected that the trend towards cashless transactions will continue to grow in the future.

Is it safe to use digital payment methods in India?

Yes, digital payment methods in India are generally safe and secure. Companies such as Paytm, PhonePe, and Google Pay use secure encryption technology to protect users’ data and transactions.

Can I use digital payment methods without a bank account in India?

Yes, it is possible to use digital payment methods without a bank account in India. Mobile wallet services such as Paytm and PhonePe allow users to store money and make payments using their mobile phones, even if they don’t have a bank account.

Are there any fees for using digital payment methods in India?

While some digital payment methods in India may charge fees for certain transactions or services, many transactions are free of charge. It’s important to check the terms and conditions of each payment method to understand the fees involved.

What are the benefits of using digital payment methods in India?

Digital payment methods offer several benefits in India, including convenience, security, and faster transactions. They also help to promote financial inclusion by enabling people to participate in the digital economy, even if they don’t have access to traditional banking services.

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