India’s digital payments landscape has witnessed exponential growth over the last decade, aided by government policies, technology inventions and changing consumer preferences. The value and volume of transactions via electronic payment modes have skyrocketed as cashless transactions get ingrained across user segments. Unified Payments Interface (UPI), FASTag toll payments, credit cards and prepaid payment instruments (PPIs) have been the flagbearers of this encouraging growth story.

The PwC Indian Payments Handbook 2023-2028 offers insightful perspectives into recent developments across payment instruments and highlights innovations that will spur future expansion. Let’s dive deeper into the key trends transforming user payment behaviour and the strategic roadmap for achieving sustainable growth.

Robust Growth Across Payment Instruments

Digital payment transaction value grew 58% YoY in FY 2022–23, according to RBI data, reiterating Indian consumers’ trust with cashless modes. UPI strengthened its leadership position, registering over 80% growth to account for 75% of retail digital payment volume pie. This ubiquitous platform is poised to contribute 90% of retail digital payments by FY 2026–27 through continuous enhancement of its rails.

FASTag toll payments under the National Electronic Toll Collection (NETC) program saw a 30% rise in volume and 47% jump in value terms in FY 2022–23 as road infrastructure upgrades expanded. Credit card transactions increased by 30% in volume and 47% in value, indicating urban India’s shift towards flexible financing options and rewards that cards offer. However, debit cards faced a modest single-digit decline in volume and value amid the wallet and UPI euphoria.

Cloud Adoption Revving Up Processing Speed

As digital payment processing peaks to new highs, financial institutions are migrating storage and infrastructure to the cloud to leverage its flexibility, efficiency and analytics capabilities. Cloud-based payment systems enable real-time visibility into huge data volumes, faster decision making through AI/ML algorithms and rapid scalability to manage spikes in traffic. Secure data access controls, robust internet connectivity, disaster recovery mechanisms and clear accountability of service providers are imperative to harness cloud’s full potential while minimizing risks.

Battling Fraud with Vigilance and Education

While India still fares better on payment fraud metrics compared to global averages, the increasing penetration of electronic payments has given rise to counterfeit merchants, phishing and ransomware attacks – mostly on UPI – requiring prompt redressal. Over half of reported incidents fall under platform fraud arising from fake discounts. Beyond monitoring systems upgradation, the RBI is focusing on consumer education programs, testing AI-based fraud prevention solutions and tightening risk management norms to rein in the menace. Fintechs and banks are also investing in surveillance mechanisms for early detection and threat isolation.

Disruptive Potential of CBDCs and Offline Payments

Central bank digital currencies (CBDCs) are transforming the future of money by tokenizing fiat currency into digital form combined with blockchain’s benefits. Pilots are underway in both retail and wholesale CBDCs to first solidify technological feasibility and ambient infrastructure before full-scale production launch. Offline digital payments using applications like UPI123Pay are also primed to expand adoption in remote towns/villages with poor internet connectivity via innovative peer-to-peer transaction mechanisms minus dependence on network availability unlocks a vast untapped customer base for service providers.

Conversational Commerce Set to Become Mainstream

Advances in voice recognition, AI and vernacular language support are ushering conversational, intuitive payment modes for the masses. UPI integrated with search giants can enable speech-based online bill payments. Smart speakers may drive contactless digital transactions through verbal commands and biometrics. As multilingual chatbots with payment integration permeate the Indian market, consumers across the spectrum stand to benefit.

Account Aggregator Easing Credit Access

The account aggregator framework for data sharing with consent is a bold RBI move to foster credit penetration amongst the unserved and underserved citizens and micro-enterprises. By letting institutions securely access consumer financial data history from banks and fintechs to augment underwriting decisions, flow-based lending models can flourish – uplifting income levels and fulfilling growth potential.

The Pivotal Role of Fintechs

Fintechs have played a seminal role in revolutionizing India’s payments landscape through continuous innovation across processes, customer experience and revenue models. Salient contributions include:

• Onboarding small merchants and subprime individuals into the formal financial ecosystem
• Driving adoption of QR and mobile-based contactless payments – making transactions seamless
• Leveraging video KYC and alternative credit evaluation models using machine learning to deepen access

However, inconsistent profitability, reducing funding amidst uncertainties and some known governance lapses have dented faith. Long-term orientation balanced with risk management is imperative for sustenance.

Surfing Over Key Industry Challenges

Despite the encouraging progress, few concerns remain top-of-mind:

• Geographical penetration continues to be concentrated around metro/tier-1 regions - focused efforts to target hinterlands can reveal the true potential
• With mounting losses and unclear revenue models, profitability is still a question mark – achieving optimal scale efficiency is key
• The percentage of India’s tech-savvy population acquainted with transacting digitally still hovers near 25-30% - integrated awareness building programs can accelerate adoption

The Road Ahead – Conscious, Collaborative, Inclusive Growth

In summary, India’s at an inflection point with digital payments adoption gaining immense traction across user personas aided by infrastructure upgrades and innovative platforms. But continued success hinges on conscious policy directives, close public-private partnerships, transparent governance and deepening financial access to the remotest districts through digital channels in an equitable, secure manner. Sustaining volume growth while keeping user interests at the core will cement India’s leadership position on the global payments map in the decade ahead.