*Digital payment boom: A by-product of the Covid-19 economic disruption*
For the Indian economy, disruptions have been far too many. Starting from Demonetization and GST, they have continued with the outbreak of Covid-19. While these disruptions have been a set back for the economy. They have been a blessing in disguise for the growth of digital transactions in India.
The story lies in numbers:
In the last five years, digital payments in India have grown at a 60% CAGR to US$820 bn. While UPI transactions are growing, credit card penetration has remained stagnant. It means India has leapfrogged from stage I to stage III.
As a matter of fact, credit card penetration remains very low at 4% in India. Card spends have seen a 35% CAGR growth over the past 3 years. But, it remains pale in comparison to 60% CAGR growth in the digital payment market.
Growth drivers of rising digital payments:
Digital payments are outgrowing credit card transactions in India. As a result, digital platforms are now outpacing legacy players like Visa and Mastercard. Google Pay and PhonePe controls ~80% of UPI volumes. Google volumes are already 2x of Visa and 2.6x of Mastercard in India.
Person to Person (P2P) transactions are the major growth drivers for digital payments. Currently, ~85% of all transactions are P2P. Person to Merchant (P2M) transactions remain low-ticket bills. Their share remains low in the total volume.
Going forward, P2M transactions should also pick up with higher merchant adoption. With 5-10 mn merchants each, their presence is already larger than the card providers.
What the future holds:
Payment platforms are now focusing on the financial service sector as well. They are gearing up with insurance, stockbroking and online lending services products. This, in turn, will provide higher penetration to the entire banking system,
Key Takeaways:
Covid-19 and economic disruptions have helped digital transactions growing across India. The pandemic has supercharged the growth of e-commerce. Favorable government policies around financial inclusion have also improved the adoption of these technologies.
The trend of digital payments is likely to grow further. As per the RedSeer Consulting report, the digital payments market should grow over 3x by 2025. The penetration of smartphones will be a key catalyst in this drive. The report says that the number of unique mobile payment users is likely to multiply by 5x in 2025. Hence, the sector will remain bullish in the future.