The Expansion of India's Payment System

India’s payment system has grown phenomenally over the past decade by coming long way starting from a small-scale wallet owned by payment companies to Super Apps which are acting like an entire ecosystem which can act as alternative to cash economy one day.

Payment wallets or e-wallets are nothing but software applications or online platforms that store users' payment information, allowing them to make electronic transactions without the need for physical cash or cards. These wallets enable users to make payments for goods and services, transfer money to others, and pay bills through a mobile phone or computer. They basically act as Prepaid Payment Instrument (PPI). India's first digital wallet was Oxigen which was launched in 2004 and Mobikwik wallet is the one which got widely adopted, allowing users to add money to a digital wallet and use it for various online transactions, including mobile recharges, bill payments, and shopping. It played a pioneering role in India’s digital payment landscape, paving the way for other wallet services like Paytm, which gained significant popularity after the government’s demonetization policy in 2016.

Looking at evolution of payment systems worldwide, it all started in 1994, when an American financial institution Stanford Federal Credit Union made history by launching online banking services for its customers and immediately after that, an event took place - the first online purchase. It was a pizza from Pizza Hut! This simple transaction paved the way for digital transformation. One significant player in the evolution of digital payments was PayPal , established in the late 1990s, PayPal became a global payment service provider, introducing innovative features like mobile payment apps and payments via email addresses. UPI in India streamlined digital payments by enabling instant and secure transactions between bank accounts, transforming how Indians handle their finances. Today, UPI wallets, like Paytm, Amazon Pay, PhonePe , and FreeCharge, have captured the Indian digital wallet market. Wallets got push due to various factors such as widespread smartphone adoption in the 90s, e-commerce growth which boosted the wallet apps growth indirectly, consumer’s need for convenience, recently even pandemic also had a positive effect in the adoption of wallets.

The digital wallet apps have transformed the payments landscape a lot. There has been global financial inclusion because of apps like Paypal, Alipay and WeChat. They have been able to expand into other services such as wealth management, insurance, lending and credit scoring. Today, because of payment systems like UPI, QR code payments have become easy and hassle-free. Cross-border payments have also become easy today owing to these digital apps, UPI is accepted by UAE, Singapore, Bhutan, Nepal and in future there are chances for collaboration with UK, US and Canada as well. There are some innovative integrations also taking place like Crypto integration with the payment app itself wherein the apps like Cash app are giving access to bitcoins to average consumers. Consumers are able to get more benefits day by day as Apps have given more flexibility in terms of “Buy Now Pay Later (BNPL)” options.

If we look at some of the statistics related to wallet apps in India, wallets have 350 million users in total. UPI transaction record 10.58 billion transactions with transaction value of USD 190 Billion. The Indian digital payments market is projected to reach $10 trillion by 2026, driven largely by UPI and mobile wallet usage. UPI accounts for more than 75% of the total digital transaction volume in India.

Today wallets have evolved into Super Apps. A Super App is consolidation of multiple apps for customers to use and support a business ecosystem. A Super App is like a Swiss army knife with a range of component tools (miniapps) that the user can use and remove as needed. Super Apps are trending because users, especially the younger generation born in the age of smartphones, demand mobile-first experiences that are powerful and easy to use. Amazon, Reliance Jio and Tata Neu are Super Apps with Tata Neu having Neu Coins which can completely change the cash-based economy.

Overall, Indian wallets have played a great role in transforming the country's payment ecosystem, advancing financial inclusion, and supporting the overall growth of the digital economy. This would help the economy deal with the black money indirectly and future of wallets is filled with opportunities as they can give wider services such as integration with digital currency, vertical expansion of Super App, AI-integrated hyper-customization, etc.

Sources: Gartner.com, Fintechforhealth.com, NTTDATA.