Growth of Digital Payment Systems in India

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India-Briefing-The growth of Digital Payments Systems in India (2)

In line with government reforms, Prime Minister Narendra Modi has pushed Indians to adopt cashless transactions, giving the digital payments sector a significant boost.

The sector is experiencing an unprecedented jump in growth since November 2016, when the government demonetized high currency bills (Rs 500 and 1000) – which represented 86 percent of India’s cash in circulation. By February 2017, digital wallet companies had shown a growth of 271 percent for a total value of US$2.8 billion (Rs 191 crore).


Prior to the sudden developments in 2016 enabling the massive disruption in India’s payments landscape, a Google-BCG Report estimated that India’s digital payments industry would grow to US$500 billion by 2020, contributing to 15 percent of the country’s GDP. An important driver of this growth is India’s vast smartphone user base – the second largest in the world.

What are digital payments?

Digital payments refer to electornic consumer transactions, which include payments for goods and services that are made over the internet, mobile payments at point-of-sale (PoS) via smartphone applications (apps), and peer-to-peer transfers between private users.

Digital Payments India 1


Major new digital payment modes in India

Online or mobile wallets

  • Online wallets are used via the internet and through smartphone applications.
  • Money can be stored on the app via recharge by debit or credit cards or netbanking.
  • Consumer wallet limit is US$ 311 (Rs 20,000) per month or US$1,554 (Rs 100,000) per month after KYC. The merchant wallet limit is US$777 (Rs 50,000) per month after self-declaration, and US$1,554 (Rs 100,000) after KYC verification.
  • Facilitates P2P fund transfers.

Prepaid credit cards

  • Pre-loaded to individual’s bank account. It is similar to a gift card; customers can make purchases using funds available on the card – and not on borrowed credit from the bank.
  • Can be recharged like a mobile phone recharge, up to a prescribed limit.

Debit/RuPay cards

  • These are linked to an individual’s bank account.
  • Can be used at shops, ATMs, online wallets, micro-ATMs, and for e-commerce purchases.
  • Debit cards have overtaken credit cards in India. In December 2015, there were more than 630 million debit cards as compared to 22.75 million credit cards.



  • Stands for Unstructured Supplementary Service Data based mobile banking.
  • Linked to merchant’s bank account and used via mobile phone on GSM network for payments up to US$77.68 (Rs 5,000) per day per customer.


  • The United Payments Interface (UPI) envisages to be a system that powers multiple bank accounts onto a single mobile application platform (of any participating bank).
  • Merges multiple banking features, ensures seamless fund routing, and merchant payments.
  • Facilitates P2P fund transfers.

Challenges facing the digital payments sector in India

challenges to a cashless economy

India’s digital payments future

Besides private actors like Paytm, Mobikwik, and FreeCharge, the Indian government has been aggressively pushing several digital payment applications, including the Aadhaar Payment app, the UPI app, and the Bharat Interface for Money (BHIM) app developed by the National Payments Corporation of India (NPCI).

The new apps aim to ease the transfer of funds across India, especially in rural communities, and more importantly, seek to facilitate a behavioral change towards the greater adoption of cashless services. As such, the digital payments industry is fast becoming a highly attractive destination for foreign investors keen to establish a foothold in India.

Multiple factors and parallel institutional and behavioral trends seem to be powering India’s transition towards a less-cash economy. The rapid penetration of smartphones and spread of internet connectivity on mobiles, digital payment services provided by non-banking institutions and the rise of the fintech sector, consumer expectations of one-touch payments, and progress in regulatory governance and tax breaks, have altogether shaped India’s payments landscape in favor of digital solutions.

Investment appeal in digital payments india

Editor’s Note: This article is adapted from the report “India’s Digital Payments Future” that was published in February 2017.


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