India’s digital payments space is booming. On Thursday, the Reserve Bank of India said it proposed to introduce a pre-paid instrument with a spending limit of 10,000. Last week, SBI Cards filed papers for an IPO. Mint looks at what’s driving India’s payments ecosystem.

Why is a credit card firm floating an IPO?

The initial public offering (IPO) of SBI Cards, India’s second largest card issuer, comes amid a massive spurt in digital payment transactions, fuelled by innovative offerings by financial institutions. India’s population is dominated by millennials, who are driving the consumption that companies, such as SBI Cards, Zomato and Uber, and e-tailers bank upon for their revenues. The young may not be buying houses or cars, but they are spending a lot on clothes, movies and small purchases. The promoters of SBI Cards feel this is just the right time to encash on their investments and use the proceeds for other purposes.

Graphic by Paras Jain/Mint
Graphic by Paras Jain/Mint

What is behind the rise in digital payments?

Steps taken by the Centre and the banking regulator, especially in the last three years, to launch innovative payments options, and a shift in consumer preferences have boosted online payments. The Jan Dhan, Aadhaar and Mobile (JAM) trinity, demonetization, the GST roll-out, and the launch of the Unified Payments Interface have been key drivers behind the rapid growth in digital payments. Besides, rise in internet usage, smartphone penetration, affordable data rates, a host of payments apps, booming e-commerce, and hassle-free online payments have also contributed to the rise.

Who are the top users of digital payments?

Increasing indebtedness and the ability to quickly adopt technology has prompted millennials to use credit cards, almost doubling their share from 19% in FY15 to 35% in FY19. The boom in unsecured loans, including digital wallets, according to Crisil Research, is expected to reach 14.4 trillion by FY24, primarily driven by millennials.

What will drive growth of digital payments?

A young population armed with discretionary income, cheaper smartphones and data connectivity, and new-to-credit customers with access to multilingual interfaces on their phones, besides improved online security, will help digital payments. Shift in consumer behaviour towards digital has also been influenced by formalization of the economy. With an institutional push to develop payments infrastructure and setting up of point-of-sale counters, the masses are finding it more attractive.

What’s the impact on e-commerce services?

The rapid growth in e-commerce has led to stiff competition among banks, digital wallets, fintech firms, tech startups, as well as majors, such as Amazon, Google and Apple. Credit card companies offer cashbacks, reward points and discounts to customers based on spending habits, which make it a popular and convenient choice. Many players are now increasingly tying up with consumer brands to offer credit cards to attract more customers. In FY19, credit cards accounted for 30-35% of overall e-commerce payments value.

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