With a population of over 1.4 billion, India – the world’s most populous country – has immense potential to set benchmarks in fintech as part of its broader economic development.
The country’s journey from a cash-dominated economy to a digital leader began to take shape in 2016, a pivotal year for India’s financial arena.
In 2016, two key events changed India’s approach to digital finance. Up until then, an estimated 96 per cent of transactions in the country were conducted in cash.
The first event was the introduction of the Unified Payments Interface (UPI) by the National Payments Corporation of India (NPCI), a nonprofit organisation backed by India’s central bank and leading banks. UPI enabled users to use their phones as virtual debit cards, allowing secure, instant transfers between almost 600 banks and fintechs without the need for bank details or transaction fees.
The second event was the government’s sudden demonetisation of the 1,000 and 500 rupee notes in November 2016. By invalidating these high-denomination bills, the government aimed to reduce illicit cash flows, which accelerated the adoption of digital payments across the country.
Many traditional cash-only vendors began accepting digital payments, preparing India for the global shift toward digital finance, a move that proved essential when Covid accelerated the need for cashless transactions.
Accelerating financial inclusion
Though demonetisation was abrupt, it accelerated digitalisation in India, with a significant impact on financial inclusion. In 2014, only 53 per cent of adults in India had bank accounts, but by 2021, this figure had risen to 78 per cent. Digital payment transactions have also surged, growing by 76 per cent in volume and 91 per cent in value by 2022.
A pan-India survey showed that 42 per cent of respondents have used digital payments, reflecting widespread acceptance and usage. Additionally, digital payment acceptance points have expanded from 170 million to 361 million, reflecting deeper integration of digital infrastructure across the country.
The Indian government and the Reserve Bank of India (RBI) continue to support this shift with various initiatives. For instance, the RBI has set up the National Centre for Financial Education and is expanding Centres for Financial Literacy (CFLs) nationwide to promote financial awareness across demographics.
The RBI’s ‘Payments Vision 2025’ aims to further increase financial inclusion and digital payments, setting ambitious goals:
- Triple digital payment transactions
- Achieve a 50 per cent compound annual growth rate (CAGR) in mobile-based transactions,
- Boost prepaid payment instrument (PPI) transactions by 150 per cent,
- Expand card acceptance infrastructure to 25 million points by 2025
India’s digital finance initiatives align with the broader ‘Digital India’ vision, a government programme to create a digitally empowered society and knowledge economy. Digital India spans multiple government departments, bringing various initiatives under a comprehensive framework.
Among its nine pillars are universal mobile connectivity, e-governance, and providing access to information for all. Projects like the Bharat Interface for Money (BHIM) app, powered by UPI, have been developed under this programme, offering direct bank-to-bank payments using just a mobile number or payment address. making transactions straightforward and accessible.
India today
As an emerging economy, India is currently classified as a low-income country, with a GDP per capita of just over $2,700.
India’s fintech market reached $584 billion in 2022, with projections showing it could grow to $1.5trillion by 2025. Analysts estimate the total addressable market will hit $1.3trillion by 2025, while assets under management and revenue are on track to reach $1trillion by 2030.
India’s payments sector could see transaction volumes soar to $100trillion, generating around $50billion in revenue by 2030. UPI, which initially saw only one million transactions, has grown exponentially, surpassing 10 billion transactions. In May 2023, UPI recorded its highest volume at 14.03 billion transactions. UPI daily transactions could reach one billion by 2025.
India’s digital lending market reached $270billion in 2022 and likely grew to $350billion last year.
India’s insurtech sector is the second largest in the Asia-Pacific (APAC) region and is projected to grow 15-fold, reaching $88.4billion by 2030, positioning India as one of the world’s fastest-growing insurance markets. Wealthtech is also expected to grow significantly, projected to reach $237billion by 2030, driven by an increasing number of retail investors.
India is also experimenting with a central bank digital currency (CBDC) called the digital rupee, which launched in 2022. The CBDC pilot programme now has over five million users and includes participation from 16 banks.
Moving forward
India’s fintech ecosystem includes at least 17 unicorns and over 10,200 registered fintech companies, making it the world’s third-largest fintech hub after China and the United States. Notable players include payment solutions providers Paytm, BharatPe and Razorpay, as well as insurtech firm Acko.
India’s vast market and emerging economy status provide a strong foundation for continued fintech growth, positioning it as a global player in financial technology and digital finance.