Digital payments sector in India to reach $10 trillion by 2026

13 April 2023 4 min. read

India’s sector for digital payments could increase dramatically from $3 trillion in 2022 to $10 trillion in 2026. While there are still some obstacles in the way of further adoption of digital payment services, the potential for growth is clear.

India’s market for digital payments is now at an inflection point and is expected to more than triple by 2026, according to a study from strategy consulting firm Boston Consulting Group in conjunction with PhonePe. By value, nearly 65% of all payments in India will be digital by 2026, as compared to 40% today.

Expanding merchant acceptance, digitisation of value chains, and establishment of financial services marketplace in underpenetrated segments are the primary factors that will spur the rapid growth of digital payments in India.

Exhibit 1 - 2021 Digital Payment Transactions of ~USD 3 Tn

Over the past years, India’s Unified Payments Interface – a payment system (developed by the National Payments Corporation of India) that allows users to link more than one bank account in a single smartphone app and make transfers – has gained significant adoption. Going forward, the technology will remain a major engine for growth.

Mostly used in India but also available in several other Asian countries, Unified Payments Interface is a platform for inter-bank peer-to-peer and person-to-merchant transactions. The technology enables users to pay and send money with services like Google Pay, PhonePe and other payments providers.

The platform has seen incredible growth, increasing from 5 billion transactions in 2019 to about 46 billion transactions in 2022; accounting for more than 60% of non-cash transaction volumes last year. The Unified Payments Interface is regulated by the Reserve Bank of India.

Exhibit 3 - UPI Adoption Expected to Rise

While the Unified Payments Interface (UPI) has revolutionised digital payments with interoperability and mandates, other rails such as the Bharat Bill Payment System (BBPS) have made the onerous task of bill payments a thing of the past, and the National Electronic Toll Collection (NETC) has digitised toll collections across the country.

Moreover, QR code standardisation has played an equally pivotal role to simplify merchant acceptance infrastructure providing uniform user experience for users and merchants alike, said the Boston Consulting Group report.

As a result of the improving merchant infrastructure, “we expect that merchant payments will soon outpace person-to-person fund transfers,” said Prateek Roongta, managing director and partner at Boston Consulting Group.

Exhibit 4 - Digital Merchant Payments' Share Growing Sharply

Geographical differences

Tier 1 and Tier 2 cities enjoy the highest penetration of digital payments, with a major share of digital savvy users, easy access to information on the use of digital payments, and a ubiquitous presence of a digital payment infrastructure at retailers. Unsurprisingly, bigger cities use digital payments more than smaller cities (Tier 3 and beyond) and in rural areas, penetration is significantly lower.

Across India’s states, the use of digital payments is uneven, mostly matching inequalities in wealth and access to infrastructure. Digital payment platforms are used far more in southern states like Maharashtra, Telangana, Andhra, Pradesh, and Karnataka.

Digital Transaction Penetration has Grown Unevenly Across States; Higher Penetration in Southern and Western India


“India is set to become a digital payment economy as source of payments invert. By 2026, non-cash payments will constitute nearly 65% of all payments, meaning that 2 out of 3 transactions (by value) will be digital,” said Roongta.

For the digital payments market to reach the expected $10 trillion mark, several issues must be addressed. Fraud and black market money remain an issue for users that are increasingly vulnerable to theft and regulators. Other obstacles include simplifying digital onboarding, reducing the strain on tech infrastructure of banks, and strengthening the country’s digital infrastructure.