Did you know that studies have shown that over 93% of Indian population used digital wallets frequently in the past year, unlike their global counterparts? In fact, nearly 20% of the diaspora became first-time digital wallet users in the last year itself. With the Indian mobile wallet market estimated to grow at a burgeoning CAGR of 52.21% by 2023, it's time for us to sit up and take notice.
This large-scale adoption of digital payment methods points toward a tectonic shift in the Indian financial sector - respondents are increasingly choosing the convenience and safety of e-wallets over cash and card transactions, opening up the market for old and new players alike. 46.8% of people choose UPI as their most preferred digital payment mode, followed by net banking and wallets, both at 21%. This shift is expected to expedite as the e-commerce market in India flourishes due to increased rural penetration.
Leading the country from the forefront, as is the case with every technological revolution, our metro and tier-1 cities continue to be the torchbearers in digital payments with 52% of the urban population aware of what digital payments are. Surveys also show that 49% of them intend to use mobile wallets in the near future. In both cases, there exists a clear chasm between digital wallet adoption in Mumbai and Delhi compared to other cities. Public awareness about digital payments in Mumbai and Delhi is at 67% and 69% respectively while intent to use is at 64% and 74%. The most common transaction conducted by users is that of mobile recharge followed by online shopping and travel booking.
Paytm and Gpay, India's leading digital payments apps lead the way with a 65% combined market share followed by PhonePe with 24% market share. The trends here also clearly point toward an increase in trust in the digital payment ecosystem with more than half of all UPI transactions exceeding Rs. 200 in value.
Even though currently, digital wallet payments lag behind cash as the preferred mode of payment in-store, it is projected to overtake cash by 2023 itself. Studies show that digital payments will account for 30.8% of the total PoS transaction value. The PoS market itself is bound to grow at a rate of 28.8% by 2025.
Indians are beginning to fundamentally change the way they shop. Bolstered by the pandemic lockdown, people are now looking for a much more convenient and safer payment solution. This fact was also corroborated by Phil Pomford, General Manager APAC, Worldplay Merchant Solutions at FIS when he pointed out that a compelling value proposition that maximizes customer experience will be well-positioned to capitalize on the dramatic growth of the Indian e-commerce market.
The Indian e-commerce market will grow at an exponential pace of 41% CAGR during the 2018-2023 period. The flourishing e-commerce sector is a major driving factor for mobile wallets. Using digital wallets to pay online is a convenient, pain-free option that also gives the customer more control and security. Additionally, many e-commerce platforms partner with digital wallet providers to offer curated discounts and deals, which will attract even more users.
Mobile wallets directly tie into Internet and smartphone accessibility. According to TRAI, there are over a billion mobile phone subscribers in India. Similarly, the IAMAI-Kantar ICUBE 2020 report states that India will have 900 million Internet users by 2025. Combined together, mobile Internet penetration and an increasing smartphone user base are expected to aid in the growth of digital wallets.
Offered by leading platforms such as Gpay, Near-Field Communication or NFC is responsible for the largest chunk of the digital wallets market. This contactless technology witnessed high growth because of its ease, encryption, and security. NFC is followed closely by QR codes, digital, and text-based payments.
Currently, South India leads the pack in the mobile wallet market due to the high adoption of Internet banking in the region. But, it's the Northern and Western regions of India that offer the most growth capabilities for the forecast period. As more and more rural users turn to the Internet and smartphones, these areas will witness rapid growth in mobile wallet payments. These are densely populated regions that spell out significant opportunities for the Indian mobile wallet market.
Paytm, Gpay, and PhonePe take up the lion’s share of the market. Even though WhatsApp has just entered the market and currently holds a minuscule share, its rapid growth rate of 18% MoM shows promise. The rise in numbers can also be seen by the fact that the month of December clocked the highest total UPI transaction value ever at a massive INR 8.26 lakh crore.
With intense competition marring the Indian e-commerce space, companies are focusing more on customer experience as a differentiating factor. It is here that digital wallets and other payment solutions play a key role. With the convergence of physical and digital commerce, customers have begun to expect smarter, seamless ways to pay that does not hamper their overall shopping experience. Integrating digital wallets into e-commerce as well as brick-and-mortar stores will go a long way in improving customer experience. The convenience of making instant payments without the obvious hassles of cash apart from increased security make digital wallets an attractive option. As more and more stores integrate digital payment solutions to attract customers, adoption of digital wallets within the Indian population is expected to rise.
Instead of looking at digital payments solutions as competition, financial institutions are tapping into the entire ecosystem to boost their own bottom lines. Financial service providers have introduced a range of products and services to cater to the new demands of the Indian populace. Prepaid public transit cards and MSME payroll cards by leading banks and fintech, and other forms of prepaid cards are expected to touch a market value of $105.43 billion by 2026.
India boasts 70 million daily digital transactions with mobile wallets accounting for 45.4% of all e-commerce transactions. When shrunk down to the regional level, mobile wallets increased their market share to a whopping 68.5% showing clear favour in the minds of regional consumers.
Innovative products, curated customer experiences, and accessibility are the primary drivers behind success in this sector. Financial institutions and e-commerce platforms need to proactively build strategies that are centred around digital payments if they want to compete.
In March 2022, UPI payments recorded their highest - ever number of transactions at 5.04 billion. This was preceded, in 2021, by the highest payments volume ever - INR 83.45 lakh crore. This trajectory is expected to continue in the near future at an unprecedented CAGR of 27%.
In conclusion, digital wallet payments are expected to continue their meteoric rise in the near future, driven primarily by:
Simply put, digital payments are here to stay, as espoused by the facts, trends, and market news given above.
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