Digital payments in India: a growth factor

India is experiencing incredible economic growth, which is also evident in the retail sector. This also includes consumption, shopping and travelling. From 2018 to 2024, digital retail payments rose from USD 300 billion to USD 3.6 trillion. Observers expect this figure to rise to USD 7 trillion by the 2030 financial year.

This positive development in consumption and purchasing power is also accompanied by a greater number of retail payments. The study* How Urban India Pays by Kearney in collaboration with Amazon Pay looked at the attitudes, preferences and needs of consumers and retailers.

The report is based on extensive research and provides valuable insights into India's digital payments landscape. These insights will influence the next wave of growth and create opportunities for simpler, safer and smarter digital payment solutions.

The use of digital payments in India is measured using the Degree of Digital Payment Usage (DDPU) metric. The DDPU is made up of three factors: the frequency of digital transactions, the variety of digital payment offers and the acceptance of new digital payment methods.

The results of the study provide a clearer picture of how consumers in India pay and why they favour certain payment methods.

Consumers across all age groups are increasingly opting for digital payments for their purchases, both online and offline. 90% of respondents prefer digital payments for online purchases. For offline purchases, around 50% prefer to use digital payment methods.

Millennials (25-43 years) and Gen X (44-59 years) are the pioneers in the use of digital payments. Older generations such as baby boomers (60+ years) use their cards and digital wallets more frequently than younger age groups.

Why do consumers use digital payment methods? In the survey, they stated that they appreciate the convenience, speed and rewards. However, concerns about double debits, financial fraud and internet connectivity could hinder the growth of these payment methods.

Indian cities and towns are at different stages of development for digital payments. Consumers in the largest metropolises and in large and medium-sized cities (with a population between 1.5 and 5 million) report that around 75 percent of their payment transactions are made digitally. In small cities with fewer than 500,000 inhabitants, this proportion is as high as 65 percent.

Another factor in the use of digital payment methods is the potential in the retail sector. The more and better retailers offer digital payment options and expand this infrastructure, the more likely they are to be used. Here, the six largest metropolises show both a high DDPU and strong retail potential. In some large and medium-sized cities, the DDPU exceeds the retail potential.

New digital payment methods such as "Buy Now, Pay Later", wearable payments and payments with voice assistants are becoming increasingly important.

69 percent of the total transaction volume of the Indian merchants surveyed consists of digital payment methods. And even street vendors such as paan shops, fruit and flower vendors, food stalls and kirana shops report that 46 per cent of their payments are digital.

According to UPI (30-32%), digital wallets (8-13%) are the dominant digital payment method. Online and omnichannel merchants said they receive 12-14% of their payments by card, compared to around 5% for offline merchants.

For offline purchases, the size of the transaction plays a decisive role in the choice of digital payment method. Offline merchants favour digital payments for larger transactions, especially cards, online banking and BNPL. For smaller amounts, however, cash is predominantly used. In contrast, online merchants receive a relatively even mix of payment methods, regardless of transaction value. Smaller businesses tend to receive more cash transactions; the larger the merchant, the more important online banking becomes as a payment method.

Smaller merchants in particular express concerns about digital payments: they fear the risks of financial fraud or unstable internet connections. In addition, around 40% of merchants stated that they are reluctant to accept online payments because they prefer cash payments and need more confidence in new technologies.

Across all merchant types, convenience (>55% of respondents), trust and security (>43% of respondents) and transaction tracking (>43% of respondents) of digital payments are valued. In addition, 63% of merchants say they accept digital payments for small value transactions to prevent customers from switching to competitors that accept digital payments.

In the survey, around 42% of merchants said they could benefit from greater confidence in technology and better knowledge of how to avoid losing money through errors. 39% expressed interest in simplified payment applications for smoother processing.

Along with economic growth and increasing purchasing power in India, the infrastructure for digital payments should be expanded and merchants strengthened. Key players such as payment providers, the government and service providers must work together to expand the use of digital payments.

The focus should be on five key areas: financial education to promote awareness of digital payments, creating user-friendly processes, improving digital infrastructure, minimising fraud risks and expanding access to credit-based payment methods. These measures can increase the acceptance of digital payments among consumers and merchants.

* The study involved detailed primary research with more than 6,000 consumers through an online survey and over 1,000 retailers through offline and online methods in 120 cities. Different regions, income groups, city types, age groups and genders were taken into account.

Sources: Kearney article, Kearney study results