The digital revolution in India has paved the way for remarkable advancements in various sectors, with the financial landscape experiencing a paradigm shift. The growth of the Payment Gateway Market (especially those related to white-label payment gateway solutions) in India has been nothing short of spectacular, driven by increasing digitization, rising consumer demand for online services, and the success story of the Unified Payments Interface (UPI). In this blog, we'll explore the factors contributing to the phenomenal growth of the Indian Payment Gateway Market, delve into its segmentation, and unravel the unprecedented success of UPI.
The Surge in Digital Transactions
India has witnessed a monumental surge in digital transactions over the past few years. The government's push towards a cashless economy, coupled with a burgeoning smartphone user base and widespread internet accessibility, has fueled this transformative shift. As more businesses and consumers embrace online transactions, the demand for secure and efficient payment gateways has reached unprecedented levels.
Let us have a close look at some interesting statistics related to the Indian payment gateway market.
Ø The payment gateway market size in India is expected at US$1.21 billion in 2024 to US$2.66 billion by 2029, growing at a CAGR of 17.16% during the forecast period (2024-2029).
Ø The Indian eCommerce industry is expected to reach US$64 billion by 2020 and US$200 billion by 2026 to surpass the United States to become the second-largest eCommerce market (after China) in the world by 2034.
Ø The total transactions processed through the Indian Unified Payments Interface (UPI) crossed the mark of 100 billion in 2023 to reach 117.6 billion, a surge of approximately 60 percent YoY.
Ø The total value of UPI transactions zoomed over 40% year-on-year (YoY) to INR 182.84 Lakh Crore in 2023.
Ø The total value of UPI transactions surpassed the INR 18 Lakh Crore mark for the first time in December 2023.
Ø The average ticket size (ATS) for UPI Person-to-Merchant (P2M) transactions which was INR 885 in January 2022 has reduced to INR 653 in June 2023. This suggests that UPI is now being increasingly used for micro-transactions.
Ø In-store merchant categories such as grocery stores, restaurants, service stations, clothing stores, government services, pharmacies, and hospitals accounted for around 65 percent in terms of volume and nearly 50 percent of the total transaction value.
Ø The volume of UPI person-to-person (P2P) transactions grew from 18.62 billion transactions in H1’22 to 22.75 billion in H1’23 reflecting an increase of 23 percent while the value grew from INR 45.52 trillion to INR 63.99 trillion reflecting an increase of 41 percent.
Ø The volume of UPI person-to-merchant (P2M) transactions grew from 13.33 billion in H1’22 to 29.15 billion in H1’23 reflecting an increase of 119 percent while the value grew from INR 11.6 trillion to INR 19.18 trillion reflecting an increase of 72 percent.
Statistics Reflecting the Growth
The statistics paint a vivid picture of the Payment Gateway Market's exponential growth in India. According to a report by Statista, the digital payments transaction value in India is projected to reach USD 136 billion by 2024, a staggering increase from USD 48 billion in 2018. The compound annual growth rate (CAGR) for the Indian digital payments market is expected to be around 20.2% during the forecast period (2020-2025).
Segmentation of the Payment Gateway Market in India
To comprehend the dynamics of the Payment Gateway Market in India, it's essential to explore its segmentation, which is influenced by various factors, including transaction type, industry vertical, and geography.
1. Transaction Type
· Online: The majority of payment gateway transactions in India stem from online platforms, including eCommerce websites, online service providers, and mobile applications. The ease of making secure online payments has fueled the growth of this segment.
· POS (Point of Sale): With the proliferation of card payment terminals and the government's emphasis on promoting digital transactions at physical stores, the POS segment within payment gateways has witnessed substantial growth.
· Mobile Payments: The increasing reliance on smartphones has given rise to mobile payment gateways, allowing users to make transactions using their mobile devices securely.
2. Industry Vertical
· Retail: eCommerce has been a major catalyst for the growth of payment gateways. The retail sector, both online and offline, relies heavily on secure and efficient payment processing.
· Travel and Hospitality: The travel and hospitality industry has embraced digital payments, with customers booking flights, hotels, and experiences online. Payment gateways tailored for this sector have seen increased adoption.
· Healthcare: The healthcare industry has witnessed a shift towards digital payments, especially with the advent of telemedicine and online health services.
· Others: Payment gateways cater to a diverse range of industries, including education, utilities, and government services, further expanding their reach and impact.
3. Geography
· Urban Centers: The Payment Gateway Market is more mature and densely adopted in urban areas, where digital infrastructure is robust, and the population is tech-savvy.
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· Rural Areas: There is a growing focus on extending the reach of digital payments to rural areas, driven by government initiatives and the increasing penetration of smartphones.
The Phenomenon of UPI
Central to the success story of the Payment Gateway Market in India is the groundbreaking success of the Unified Payments Interface (UPI). Introduced by the National Payments Corporation of India (NPCI) in 2016, UPI has revolutionized the concepts of peer-to-peer and peer-to-merchant transactions.
1. Seamless Interoperability
UPI stands out for its seamless interoperability, allowing users to link multiple bank accounts to a single mobile application. This interoperability has facilitated effortless fund transfers between different banks, fostering financial inclusivity.
2. Proliferation of UPI Transactions
The adoption and growth of UPI transactions have been phenomenal. According to the Reserve Bank of India (RBI), UPI recorded the mark of 100 billion transactions in 2023 to close at approximately 118 billion. This marked a significant year-on-year increase, indicating the widespread acceptance of UPI for various financial activities.
3. Innovation and Integration
UPI has continually evolved with innovative features and integrations. From UPI-based mobile wallets to in-app payments, the versatility of UPI has played a pivotal role in its success, offering users a unified platform for diverse financial transactions.
4. Government Support and Initiatives
Government initiatives such as Digital India and demonetization have significantly contributed to the success of UPI. The push for a cashless economy, combined with user-friendly interfaces, has led to increased adoption across all sections of society.
5. Security and Trust
UPI's robust security features, including multi-factor authentication, have enhanced user trust. The convenience and security offered by UPI have led to its widespread acceptance, even among those previously skeptical of digital payment methods.
Future Trends and Opportunities
As the Payment Gateway Market in India continues to thrive, several trends and opportunities are expected to shape its future:
1. Contactless Payments
With the ongoing focus on hygiene and safety, contactless payment methods, including NFC-based transactions, are likely to gain traction.
2. Blockchain and Cryptocurrency Integration
The integration of blockchain technology and the potential incorporation of cryptocurrencies into payment gateways could redefine the future landscape, offering enhanced security and decentralization.
3. Enhanced User Experience
Innovations in user experience, including voice-activated payments, biometric authentication, and personalized recommendations, will contribute to the growth of the market.
4. Focus on Security Measures
As cyber threats evolve, payment gateways will prioritize advanced security measures, ensuring the protection of user data and transactions.
5. Expansion in Rural Areas
Efforts to extend the reach of digital payments to rural and semi-urban areas will present substantial opportunities for growth.
Conclusion
The Payment Gateway Market in India is at the forefront of the digital revolution, driven by factors such as increasing demand for an innovative white-label payment gateway solution, increasing digitization, government initiatives, and the unparalleled success of UPI. As the market continues to expand, businesses, consumers, and financial institutions stand to benefit from a more accessible, efficient, and secure financial ecosystem. The evolution of payment gateways reflects not only technological progress but also the dynamic changes in consumer behavior and the financial landscape of a rapidly advancing nation.
To find out how your business can leverage an innovative and future-proof white-label payment gateway solution, please feel free to contact us at ITIO Innovex.
