From Cash to Clicks: The Unstoppable Rise of Digital Payments in India
August 22, 2023
Read Time 5 MIN
India's digitization journey has revolutionized multiple sectors and transformed the lives of its citizens. With a particular focus on digital payments, India has ushered in a new era of financial accessibility, convenience, and security. However, while impressive strides have been made, India's digital payment ecosystem represents a colossal market with vast potential, teeming with opportunities for innovative fintech startups and tech giants alike. Recognizing this, the Indian government is actively fostering an environment conducive to growth, focusing on initiatives aimed at digital literacy, cybersecurity, and regulatory frameworks. The evolution of this sector will undeniably play a crucial role in defining the trajectory of India's broader digitization journey, driving economic growth, and creating a more inclusive financial landscape.
Remember when Cash was King?
India's informal economy is estimated to be a staggering 43.1%1 of the nation's GDP PPP (purchasing power parity), which translates to approximately $4,272 billion. Until recently, cash was king, accounting for 72% of all consumer purchase spending in 2017. However, that dynamic has decisively shifted in favor of digital payments—and this shift is in large part to the government’s efforts to digitize its economy.
India’s Market Share of Payment Methods at Point of Sale (POS)
| Characteristic | 2017 | 2019 | 2020 | 2021 | 2022 |
| E-wallet, Digital/mobile wallet | 6% | 5% | 22% | 25% | 35% |
| Cash | 72% | 71% | 34% | 37% | 27% |
| Debit | 11% | 12% | 20% | 18% | 19% |
| Credit card (incl. "charge card" since 2021)* | 9% | 12% | 12% | 18% | 17% |
Source: Statista, Market share of cash, credit cards, and other payment methods at point of sale (POS) in India in 2017, 2019, 2020, 2021, and 2022: https://www.statista.com/statistics/1296697/preferred-payment-methods-india/.
The Government’s Effort to Formalize the Economy
The government has encouraged the introduction of payment acceptance systems in an effort to formalize more of the economy and increase tax compliance. It recently instituted policies to reduce the supply of cash and set standards to make it easy for third-party mobile wallets to connect with bank accounts and transfer money between parties, referred to as Unified Payments Interface (or UPI) wallets.
Through the establishment of UPI, third-party mobile wallets can now seamlessly connect with bank accounts and facilitate money transfers. The interoperability of the UPI system has further accelerated digital payments, with payment apps facilitating billions of transactions monthly. With the highest digital payments adoption rate of 87% among the public compared to the global average of 64%, India has gained the third place in digital payments, after US and China, attesting to India’s untapped market.2
India UPI Monthly Transactions
Source: National Payments Corporation of India (NPCI).
A closer look at the government's initiative reveals strategies aimed at formalizing the economy and promoting digital payments to enhance financial inclusion, transparency, and economic growth. Noteworthy steps include the demonetization in 2016 aimed at curbing corruption, the introduction of the Goods and Services Tax (GST) in 2017 for streamlined tax compliance, the Direct Benefit Transfer (DBT) system to eliminate subsidy leakages, and the Jan Dhan Yojana in 2014 for financial inclusion. Furthermore, the Aadhaar biometric identification system has significantly contributed to enhancing the efficiency and effectiveness of various government schemes and services.
Companies Capitalizing on Digital Payments Opportunities
Several businesses in India are capitalizing on the enormous potential offered by digital payments, and Tata Consultancy Services (TCS) is at the forefront. As a leading global IT services, consulting, and business solutions organization, TCS has been instrumental in leveraging its technology prowess to make a significant impact in the digital payments realm.
Notably, TCS's Merchant Solutions have been revolutionizing how businesses accept digital payments. The firm provides comprehensive solutions, including point-of-sale (POS) systems, mobile payment acceptance, and e-commerce payment integration. This initiative not only streamlines businesses' payment processes but also elevates customer experience by providing them with more flexible payment options.
Furthermore, TCS has showcased its expertise in developing Mobile Wallet Solutions. These platforms have been pivotal in promoting digital payments, as they allow customers to transact using their smartphones. From peer-to-peer transfers and bill payments to mobile recharges and banking services, TCS's mobile wallet solutions serve as an all-in-one digital payments hub.
Another significant player making waves in the digital payments landscape is Bharti Airtel Ltd, commonly known as Airtel. As one of India's largest telecommunications companies, Airtel has expanded beyond its core business and established a strong foothold in the digital payments sector.
Airtel's foray into digital payments started with the introduction of Airtel Payments Bank. This venture allows customers to open a savings account with minimal documentation and transact directly through a mobile app, making money transfers, bill payments, and recharges a breeze.
To further its commitment to digital payments, Airtel introduced the Airtel Money Wallet, a digital wallet service that enables users to store money digitally and make payments for a vast array of services. Whether it's paying bills, recharging mobile plans, booking tickets, or shopping at partner merchants, the Airtel Money Wallet has it covered.
Recognizing the widespread adoption of the Unified Payments Interface (UPI), Airtel integrated its payment services with the UPI platform. This strategic move allows users to link their Airtel Payments Bank accounts and execute seamless peer-to-peer transactions. With UPI, Airtel's customers can send and receive money with ease, and also make payments to merchants.
The ingenuity and dynamism shown by companies like TCS and Airtel highlights the exciting opportunities in India's digital payments landscape.
Investing in India with VanEck
India's audacious leap from a cash-centric economy to a pioneering digital payments powerhouse is revolutionizing the financial landscape. India is rapidly transforming into an investment hub that can’t be overlooked with its booming digital sector, combined with a strong equity market drawing global attention and fueling this interest.
VanEck Digital India ETF (DGIN) offers exposure to companies involved in the digitization of the Indian economy.
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IMPORTANT DISCLOSURES
1 Source: https://www.worldeconomics.com/Informal-Economy/India.aspx.
2 Impact of the Budget 2023: Hastening the PACE of Digital Revolution.
* Tata Consultancy Services Ltd. (TCS IN) comprised 6.84% of DGIN’s NAV as of 8/21/2023.
* Bharti Airtel comprised 6.32% of DGIN’s NAV as of 8/21/2023.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
An investment in the Fund may be subject to risks which include, but are not limited to, special risk considerations of investing in Indian issuers, equity securities, small- and medium-capitalization companies, communication services sector, information technology sector, emerging market issuers, foreign securities, foreign currency, cash transactions, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and index- related concentration risks, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Small- and medium capitalization companies may be subject to elevated risks. Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2023 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Securities Corporation.
Related Funds
IMPORTANT DISCLOSURES
1 Source: https://www.worldeconomics.com/Informal-Economy/India.aspx.
2 Impact of the Budget 2023: Hastening the PACE of Digital Revolution.
* Tata Consultancy Services Ltd. (TCS IN) comprised 6.84% of DGIN’s NAV as of 8/21/2023.
* Bharti Airtel comprised 6.32% of DGIN’s NAV as of 8/21/2023.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
An investment in the Fund may be subject to risks which include, but are not limited to, special risk considerations of investing in Indian issuers, equity securities, small- and medium-capitalization companies, communication services sector, information technology sector, emerging market issuers, foreign securities, foreign currency, cash transactions, market, operational, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount and liquidity of fund shares, non-diversified and index- related concentration risks, all of which may adversely affect the Fund. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks. Small- and medium capitalization companies may be subject to elevated risks. Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2023 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Securities Corporation.