Merchant payments over the Unified Payments Interface (UPI) in India are expected to grow by 40 to 50 percent to reach $1 trillion by the fiscal year (FY) 2026, according to a report by Bain & Company. Greater awareness, increased merchant adoption of UPI, new payment capabilities such as UPI Lite and UPI 123 Pay, and the introduction of international payment lanes on the domestic payment railroad will drive this growth. The National Payments Corporation of India (NPCI) estimates that in March 2023 alone, merchant transactions worth nearly $40 billion were cleared through UPI. The industry has already surpassed a $500 billion payment run rate.
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UPI and Mobile Wallets to Account for 28% of India’s $3.2 Trillion Digital Payments Market in FY26:
UPI and mobile wallets will account for 28% of India's $3.2 trillion digital payments sector in fiscal year 26 (up from 11% in fiscal year 22). Meanwhile, cash will fall from 69% in FY22 to 48% in FY23 as all digital payment methods, including credit cards, debit cards, and buy now, pay later, increase. NPCI’s UPI has helped India lead the way in developing a non-cash economy and outpace many other emerging nations.
Credit Card Spending in India to Increase 2.5 Times to $280 Billion by FY26:
According to Bain & Company’s report, credit card spending in India is expected to increase 2.5 times to $280 billion by FY26 from a present level of roughly $100 billion. A considerable chunk of this growth will be accounted for by increased expenditure on newly issued credit cards. The Reserve Bank of India reports that 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 growth in new credit cards.
Government Payments and Subsidies to Decrease, Premium Merchants May Pay Specific MDR for UPI Payments:
Bain & Company has predicted that government payments and subsidies will decrease over the next three to five years, resulting in market forces controlling pricing for merchant payments. Premium merchants, for instance, may pay a specific Merchant Discount Rate (MDR) for UPI payments. Payment service providers will have developed alternative revenue streams by then. Initially positioned as online payment providers, providers such as Razorpay, Cashfree, and Paytm have all established offline operations as well, providing their users with an omnichannel payment experience.
Fintech and Banks Must Adapt to Remain Competitive in India’s Fintech Era:
As the fintech era progresses in India, banks themselves will need to adapt 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.
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