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India is expected to become in three years a nearly 50 per cent non-cash economy in consumption as digital tools like UPI help financial transactions, said a report on Thursday.
Household consumption is expected to reach more than $3 trillion by FY26, propelled by the upper-middle and high-income segments, according to consulting firm Bain & Company’s ‘The Future of India Retail Payments’ report.
“With the current technical and financial momentum, India is expected to become a nearly 50 per cent non-cash economy in consumption in the next three years with approximately 350–400 million digital consumers,” said Saurabh Trehan, partner and leader of the financial services (FS) practice at Bain & Company.
“This growth could be further propelled to 60–75 per cent in case of continued government incentives and higher traction for UPI 2.0, 123 Lite, credit on UPI, Central Bank Digital Currency (CBDC),” he said, referring to digital financial tools.
India’s household consumption reached an estimated $1.8–$1.9 trillion in FY22, with non-cash payment modes accounting for 30–35 per cent of total payments across channels. India is a "cash displacement market", with instruments like UPI (unified payments interface) and cards displacing cash gradually.
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UPI has seen an exponential growth in recent years, with total annualised transaction value reaching up to $1.7 trillion and its P2M (person to merchant) transactions reaching $380 billion (in FY23): almost twice the amount of credit cards. This growth is expected to continue at a CAGR of 40-50 per cent--the fastest among new payment modes, said the report. New innovations like credit on UPI, UPI 123 Pay, UPI Lite, and UPI coin vending machines are expected to further accelerate the adoption.
Credit card and buy now pay later (BNPL) transactions account for nearly 8 per cent of total consumption today. By FY26, this is expected to grow to around 12–13 per cent of consumption, driven by varied models of BNPL (low/no cost EMI, card/NBFC EMI, etc.).
Credit card spends in India are expected to grow approximately 2.5 times to reach around $270–$280 billion by FY26 from its current $100–$110 billion in FY22. This is largely led by card issuance to segments like new-to-credit (NTC) and new-to-credit-card (NTCC) customers, which are likely to account for 50–60 per cent of new issuances. It is expected that the number of credit cards in circulation will reach approximately 135–140 million by FY26.
CBDC, a non-interest-bearing digital currency, could be a "gamechanger" for low-ticket transactions, especially in semi-urban and rural areas with limited internet connectivity. Overcoming challenges such as KYC verification, offline access, security, cost, and compliance will play an important role in CBDC adoption, said the report.
Rakesh Pozhath, partner and leading member of FS practice, Bain & Company, said some of the regulatory changes have stabilised. These include restrictions on loading prepaid instruments (PPIs) with credit lines from non-banks, licencing requirements for payment aggregators and payment gateways, data localisation, and card tokenisation.
However, Pozhath said the most considerable alterations are the evolution of MDR (merchant discount rate) /interchange on UPI, digital data protection bill, and future of government subsidies which is aimed towards giving the consumers a more secure and safer digital payment experience.
