Apple Pay enters India: Can tap-to-pay find space in a UPI first market?

Apple Pay starts with Axis Bank credit cards as Apple bets on India's expanding card base and contactless payments, even as UPI remains the dominant way to pay

Apple Pay has entered India with support for Axis Bank Visa and Mastercard credit cards, bringing Apple's contactless payment system to iPhone, iPad and Apple Watch users in the country, with Mac support coming soon. The launch puts Apple Pay in a different position from its other major markets.

 

In India, consumers are already accustomed to using their phones for payments, but most of those transactions happen through the Unified Payments Interface (UPI) and QR codes rather than contactless cards. Apple is now trying to build a place for near-field communication (NFC)-based card payments within that existing behaviour.

Why Apple Pay is betting on India's credit-card market

Apple's initial rollout is focused on cards rather than UPI. Axis Bank is the first issuer, with eligible Visa and Mastercard credit cards supported on Apple Pay. Apple has said more bank partners are expected to be added.

 

 

The credit-card market provides a reason for Apple to start there. Reserve Bank of India (RBI) data showed 632.45 million credit-card payment transactions worth Rs 2.02 trillion in August. Transaction volume was up 28.1 per cent year-on-year, while transaction value rose 5.8 per cent.

The credit-card market is also expanding in scale, with the number of outstanding cards rising to 124.05 million in August from 112.34 million a year earlier, according to RBI data reported earlier by Business Standard.

 

"Credit card usage and NFC adoption are growing at double-digit rates, and the credit card base has nearly doubled since Covid to more than 120 million," said Tarun Pathak, research director, Counterpoint Research.

 

Apple Pay's initial rollout is limited to eligible Axis Bank Visa and Mastercard credit cards. Axis Bank had 16.23 million active credit cards, according to Prabhu Ram, head, Industry Intelligence Group, CyberMedia Research (CMR), against more than 122 million credit cards across India.

 

"Axis Bank, India's fourth-largest credit-card issuer with 16.23 million active cards, is a meaningful starting point. With India's credit-card base now above 122 million and contactless payments gaining traction, Apple Pay has a growing card ecosystem to tap into — even as UPI continues to underpin everyday payment," Ram said.

 

For Apple, the proposition is to put those cards inside a device that consumers already carry. The underlying payment instrument remains the credit card, while the iPhone or Apple Watch becomes the interface used at the terminal.

 

"The Apple Pay launch strengthens Apple's ecosystem in India and adds a services layer in what is now its third-largest iPhone market globally by volume," Pathak said.

 

The size of that addressable market will depend on how quickly other banks add support.

 

"The key thing to watch is how quickly other leading banks come on board, because that will decide how far the addressable base expands," Pathak said.

Apple Pay is not replacing UPI

The scale difference between the two payment systems is substantial.

 

As previously reported, UPI processed 24.51 billion transactions worth Rs 29.82 trillion in August. Credit-card spending, meanwhile, stood at Rs 2.02 trillion during the month.

 

"Apple Pay debuts in a digitally advanced payments market where UPI accounts for more than 80 per cent of digital-payment volume," Ram said.

 

This difference in transaction patterns is important for Apple.

 

It does not need to change the way consumers make every Rs 100 or Rs 200 payment to build a use case for Apple Pay. A consumer making a small payment to a neighbourhood merchant can continue to scan a QR code through UPI.

Apple Pay is aimed at transactions where contactless card acceptance is available. Users can authenticate on an iPhone or Apple Watch and tap the device against the terminal. Apple says its India launch covers in-store payments as well as payments in apps and on the web.

 

"UPI will continue to dominate everyday payments, but Apple Pay is positioned differently: a convenience- and privacy-led experience that removes OTP friction at checkout," Pathak said.

UPI is now moving into the same territory

The NFC payment market is not limited to cards anymore.

 

The National Payments Corporation of India (NPCI) introduced UPI Tap & Pay earlier this month, allowing users to make contactless UPI payments by tapping an NFC-enabled phone on a compatible NFC tag or terminal. The feature uses the existing UPI payment system but changes the physical interaction from scanning a QR code to tapping a device.

 

That brings UPI and Apple Pay closer together at the merchant terminal, even though the payment rails remain different.

 

For consumers, the physical action can look similar. The difference is what sits behind it. Apple Pay uses a credit card issued by a bank and routed through the card networks. UPI Tap & Pay moves money directly through the UPI ecosystem from a linked bank account.

 

This also changes the NFC proposition for Android users. Google Pay and Samsung's payment services already support NFC-based card payments in India, while their ecosystems also have UPI functionality.

 

Apple is entering that market with a card-first approach.

Apple Pay lands as UPI's payment economics change

The launch also comes just before a change in the economics of some UPI merchant payments.

 

From October 15, a 0.4 per cent Merchant Discount Rate (MDR) will apply to specified UPI person-to-merchant transactions above Rs 2,000. The government has said the charge will apply to merchants rather than consumers.

 

The change does not alter the economics of everyday low-value UPI payments. Transactions of Rs 2,000 or less remain outside the specified MDR framework, and consumers are not being asked to pay the new charge.

 

For larger merchant transactions, however, the change creates a different backdrop for UPI and cards. Credit-card payments already carry a merchant fee, with NPCI's latest FAQ putting standard credit-card MDR typically at 1.5-2.5 per cent, compared with 0.4 per cent for eligible UPI transactions under the new framework.

 

Credit cards, however, give consumers access to a line of credit and can offer rewards, cashback, discounts and interest-free credit periods. Those features can influence payment choices, particularly for larger purchases, while the higher MDR can represent the cost to merchants of accepting a payment instrument with those consumer benefits.

PSPs are central to Apple Pay's merchant reach

Apple's challenge is not limited to getting banks to support its service. The payment also needs to work at the merchant end.

 

Apple says it has worked with payment service providers (PSPs), including Cashfree, Juspay, Mswipe, Paytm, PayU, Pine Labs, Razorpay and Worldline, to bring Apple Pay to their merchant networks.

 

PayU is one of those partners and said it will support Apple Pay across its merchant network.

 

"PayU is proud to bring Apple Pay to lakhs of Indian merchants, enabling a new era of secure and seamless authentication solutions for digital payments. Beyond introducing this world-class innovation to India, PayU will also empower merchants navigate complex technical integration and compliance processes, reinforcing its commitment to providing advanced digital financial solutions to its customers," said Nikhil Mehta, senior vice-president, partnerships and business head, Growth Initiatives, Cross-Border Payments & Affordability, PayU.

 

"Through PayU's unified checkout, merchants can offer their consumers the flexibility of faster, safe, and more convenient payment option, thereby boosting conversion rates and driving business growth," Mehta added.

 

The role of PSPs matters because Apple does not need to create a separate merchant network for Apple Pay. Existing acquiring and payment infrastructure can support the service where terminals and merchant setups are enabled for contactless card payments.

 

The availability of those terminals will determine how often consumers can use Apple Pay outside online checkout.

Can NFC become a second payment habit

Apple Pay's immediate opportunity is in transactions where contactless card acceptance already exists. The question is whether consumers will start choosing a tap at those terminals instead of reaching for a QR code.

 

UPI Tap & Pay could make tapping more familiar, but it also gives consumers an NFC payment option that does not require a credit card. That puts Apple Pay in competition not only with physical cards, but with another phone-based payment method using the same basic interaction.

 

The adoption of Apple Pay will depend on how quickly banks add support, how widely contactless terminals are available and whether consumers see enough benefit in using a card through an iPhone.

 

"The key thing to watch is how quickly other leading banks come on board, because that will decide how far the addressable base expands," Pathak said.