According to Bain and Company’s Future of India Retail Payments report, which was released on Thursday, merchant payments over the Unified Payments Interface are anticipated to expand by 40 to 50 percent to $1 trillion by FY26.
The increase in merchant payments will be fueled by greater awareness, improved merchant adoption of UPI, new payment capabilities like UPI Lite and UPI 123 Pay, as well as the introduction of international payment lanes on the domestic payment railroad.
The National Payments Corporation of India estimates that in March 2023 alone, merchant transactions worth almost $40 billion were cleared through UPI. Consequently, the industry has already surpassed a $500 billion payment run rate.
UPI and mobile wallets will collectively account for 28% of the $3.2 trillion digital payments market in FY26, up from 11% in FY22. Cash will drop to 48% from 69% in FY22 as all digital payment methods, including credit cards, debit cards, and buy now, pay later, increase.
UPI, a game-changer by NPCI, has helped India lead the way in developing a non-cash economy and outpace many other emerging nations, according to Rakesh Pozhath, partner and senior member of Bain & Company’s financial services practice.
According to the estimate, credit card spending will increase 2.5 times to $280 billion by FY26 from a present level of roughly $100 billion. An increase in spending on newly issued credit cards will account for a sizable portion of this gain.
According to information from the Reserve Bank of India, there were 85 million credit cards in circulation as of March 2023.
Tier-2 sites, new fintech and consumer tech partnerships for co-branded cards, and an overall opening up of supply will be the sources of the growth in new credit cards.
Bain & Company has predicted that government payments and subsidies will decrease over the next three to five years. This will ultimately result in market forces controlling pricing for merchant payments. Premium merchants, for instance, may pay a specific MDR for UPI (Unified Payments Interface) payments. The suppliers of payment services will have developed alternative revenue streams by then.
Providers like Razorpay, Cashfree, and Paytm, which were initially positioned as online payment providers, have all established their offline operations as well, providing their users with an omnichannel payment experience.
Banks themselves will need to adapt as the fintech era progresses in order to remain competitive. Banks will need to investigate full-stack merchant solutions and increase the number of credit card holders by adding new consumers.
The research advised “commercializing partnerships with a select group of non-banks to expand the reach and improve capabilities.”
To hasten go-to-market, fintech themselves must develop compliance departments, increase income diversification, and fortify their relationships with banks and NBFCs.
