Digital payments in India are likely to witness robust growth over the next 5 years at a compound annual growth rate (CAGR) of 52%, according to the draft red herring prospectus of SBI Card. From FY14 to FY19 digital payments transactions, in terms of volume, grew at a 49% CAGR.
According to CRISIL Research, digital payments in India, in terms of value, is expected to more than double to ₹4,055.0 trillion in FY24 from Rs. 1,630.0 trillion in FY19, translating into a five-year CAGR of 20%. Here’s a look at the key factors that are driving India’s digital growth story:
Government initiatives:Regulatory initiatives including financial inclusion, Aadhaar, and the unveiling of the Unified Payments Interface have spurred growth digital payments. Introduced in 2016, UPI has been a crucial contributor to the Indian digital payments market. UPI facilitates instant fund transfer between two bank accounts on a mobile platform, without requiring any detail of the beneficiary’s bank account. UPI transactions, in value terms, crossed ₹5 billion, while Aadhaar-enabled payments system (AEPS) recorded over ₹250 million worth of transactions in FY19.
E-wallets: E-wallets like Paytm, Mobikwik, gained popularity post demonetisation in November 2016. Digital prepaid wallet operators have gained widespread traction in recent times and have been able to build a substantial consumer base. Starting with basic services like online recharge and bill payments, these firms provide convenience to its customers. With rapid development of multiple use cases for merchants and customers, e-wallet firms have targeted varying customer profiles. Mobile wallet transactions crossed ₹18,39,020 million mark in FY19.
Point of Sale (POS) penetration: As more cards have been issued, there has been a growth in the acceptance infrastructure as well. While the POS infrastructure in India has more than doubled over the past five years to 3.7 million in fiscal 2019 from 1.1 million in fiscal 2014, it remains weak in terms of availability. According to a report by the Reserve Bank of India (RBI), acceptance infrastructure, particularly POS terminals, as a percentage of the total number of debit and credit cards is low. Hence there is a need to increase the penetration of acceptance infrastructure in the country. RBI also expects to have 5.0 million active POS by the end of 2021.
Credit cards: The number of credit cards issued stood at 47.0 million in FY19, having grown at a CAGR of 20% over the last five years, and is expected to grow by 25% year-on-year in FY20, SBI Cards said in the draft IPO document. While the draft prospectus forecasts a robust growth for card volumes, the annual average spends per card is expected to grow just 1% year-on-year in FY20 compared with a healthy 12% growth during FY14-19.