India undoubtedly has the most advanced real-time payments system globally, and pre-pandemic numbers reflect the exponential growth. Findings from ACI’s global report, “Prime Time for Real-Time,” indicate that real-time payments in India will grow at 23.4 percent annually for the next five years as it seeks to lead the world in overall real-time payments volumes. At the same time, transaction volume is set to grow from 15.3 billion (present-day) to 52.8 billion. With a combination of centrally driven initiatives, emerging payment instruments such as UPI, prepaid cards, NCMC mobility cards, BharatQR code, FASTag and more, consumers are looking to adopt convenient alternatives for paying digitally. Although consumer spending across industries such as travel, fuel, retail and entertainment took a hit in the last few months, a more precautionary lifestyle – encouraged by the government’s call to stay indoors and seek a more “digital” way of life – led many first timers and novice internet users to embrace digital payments, including for utility bill payments, OTT, mobile recharge, grocery, pharmacy and other essentials.

Rural Bharat paves the way

While urban India leads the real-time payments market, the lack of smartphone users, weak internet infrastructure and slower connections have hampered efforts to drive financial inclusion in more remote and rural areas. Increase in acceptance of digital payments, especially among Tier 2 cities and smaller towns, is now leading to growth in digital payments, as smaller retailers and local grocery stores encourage use of QR codes and digital wallets that are now available even on entry-level smartphones. Notably, the Reserve Bank of India (RBI) has also announced a pilot for offline retail payments using cards, wallets and mobile devices to help rural populations go digital. This comes on the heels of its recent USD $33 million contribution to the nation’s Payments Infrastructure Development Fund (PIDF) that aims to enhance digital and physical point-of-sale infrastructure. Innovative policy interventions such as these are on the rise, helping to bring banking to the underserved while closing the urban-rural gap in India.

Fintech to the rescue

The pandemic has also put the spotlight back on the much-required collaboration among banks, financial institutions and fintechs to accelerate digital transformation of their business models. Fintechs are leveraging their technical expertise while partnering with banks to provide economies of scale, providing banking facilities and expanding the reach of their financial services to the hinterlands of India. Today, a lot of the fintech players are working with neighborhood grocery stores, where merchants can send an SMS with a UPI payment link to customers, who can opt for deliveries with the added flexibility to pay for their purchases from the comfort of their homes. The recent announcement of WhatsApp Pay collaboration with Jio has the potential to revolutionize the payments space as purchasing through WhatsApp chat will be simple and a key driver for customers to make in-app transactions. Payment innovations, alliances and partnerships like these will enable the larger ecosystem, while helping to respond to new challenges we face.

Migration from cash to contactless payments

Emerging mobile technologies, integrated payment methods that enhance user experience and peoples’ openness to using alternative payments have impacted traditional banking, with the shift from cash to contactless modes of payments. In the current environment, small time merchants, retailers, service providers and utilities are encouraging contactless, digital payments to minimize the risk of physical contact. This is in line with what both the government and the National Payments Corporation of India (NPCI) have been encouraging consumers to do – and it is a trend that is likely to continue, even as a degree of normalcy returns.

As lockdowns lift and the economy starts to open with demand for eCommerce and non-essentials likely to increase again, and a revival in heavy-spend sectors like education, we can already see major digital payment modes as beneficiaries. In fact, UPI already bounced back to pre-COVID-19 volumes in June and has continued to reach new highs in July and August. Although credit card-based transactions have also seen a sharp recovery, the payments industry might have just reached an inflection point where digital, real-time payments become not just a safeguard, but also a way of life.

Find out more about India’s real-time payments opportunity with our “Prime Time for Real-Time” interactive country profile.

Principal Product Manager, Real-Time & Digital Payments

Somya is an experienced Product Manager whose expertise in the digital payments domain includes immediate payments, cards, point of sale (POS), mobile wallets, mobile banking and QR code-based payment solutions. As Principal Product Manager at ACI Worldwide, Somya leads the solution strategy and go-to-market for various Real-Time and Digital Payment initiatives within ACI.