On over 6 billion separate occasions within a single month, the familiar sound of cash registers in India was replaced by digital audio confirmations on a sound box. Beyond that, there were instances where individuals exchanged payments directly, resulting in more than 10 billion cashless transactions in August. These transactions were exclusively online, instantaneous, and mostly incurred no costs. However, since April, customers using mobile wallets to settle bills exceeding 2,000 rupees ($24) may face a maximum 1.1% fee, but only if they scan a different platform’s quick-response code. This fee is transferred from the merchant to their QR code provider—such as PhonePe owned by Amazon.com Inc. or the domestic service Paytm—for integrating with Alphabet Inc.’s Google Pay.
In contrast, the Unified Payments Interface, a standardized protocol for money transfers between accounts at different banks, remains free for regular use. Some banks may attempt to impose costs on high-volume users, and the government provides incentives to encourage low-value online transactions and extend formal credit to disadvantaged groups, including street vendors. Nevertheless, many lenders express concerns about being relegated to the sidelines and not actively participating in the flourishing wave of online payments. The absence of a profit motive raises questions about the sustainability of an industry that, within just seven years, has evolved to transact nearly $2 trillion in value annually.
The concerns seem to be overstated. Even with a freely accessible public utility, India witnessed a significant growth in payment revenue, reaching $64 billion last year. This positioned the country behind only China, the U.S., and Brazil, and in close competition with Japan, according to McKinsey & Co.’s recent global survey. The upsurge in online transactions has spurred digital commerce, subsequently boosting the usage of credit cards. Contrary to expectations, the absence of a profit motive has not hindered innovation. Recent initiatives, such as pre-approved credit lines, complement the original protocol that allowed customers to debit bank accounts or wallet balances for payments. Since the past year, credit cards can also be linked, but only if they belong to India’s RuPay network. Despite concerns expressed by Visa Inc. and Mastercard Inc. about the lack of a level playing field, both are eager to be included.
This scenario differs from other successful payment systems. McKinsey anticipates that instant payments, led by Brazil’s Pix platform, will contribute to half of the growth in payment revenue from transactions in Brazil through 2027. In contrast, the comparable figure for India may not even reach 10%. India’s profit from payments is expected to expand primarily due to sheer transaction volumes. Last year, a fifth of the country’s 620 billion transactions were settled digitally. Projections for 2027 estimate a rise to 765 billion transactions, with almost two-thirds of these occurring online. Agile fintech firms are actively exploring new opportunities arising from technological advancements or regulatory changes. McKinsey highlights that there is considerable room for banks to pursue various use cases based on their specific core competencies and strategic priorities.
Originally, banks were hesitant to promote the shared network, fearing that it might undercut their proprietary apps. While these concerns were valid, the consequence has been a transformation where banks, by relinquishing their exclusive positions, have gained entry to the world’s fourth-largest payment revenue pool. However, this is just the beginning. New possibilities may unfold in adjacent activities, spanning from fees on cards to interest income on credit lines. In the initial two months of the last quarter, Paytm facilitated the distribution of $1.65 billion in loans on its platform on behalf of lenders, reflecting a 137% surge from the previous year. This indicates a shift towards diversification into additional financial services beyond conventional payment functions.