In the span of just one month, India witnessed a staggering transformation in its payment landscape. Over 10 billion cashless transactions replaced the traditional sound of cash registers with digital audio confirmations. Remarkably, most of these transactions occurred online and instantly, with no associated costs.
However, a minor shift occurred in April, as customers now bear a maximum fee of 1.1% for bills exceeding 2,000 rupees ($24) when scanning QR codes from different platforms. Despite this development, India's payment revenue surged to an impressive $64 billion in the previous year. This figure puts India right behind China, the United States, and Brazil, and on par with Japan, according to McKinsey & Co.'s recent global survey.
The surge in online transactions has, in turn, propelled the digital commerce sector forward, resulting in an expansion of credit card usage as well. Moreover, the absence of a profit motive hasn't stifled innovation in the payment sector. New initiatives like pre-approved credit lines have supplemented the original protocol, which only allowed customers to debit bank accounts or wallet balances for payments. Last year, credit cards were permitted to be linked, but only if they were on India's RuPay network. Visa Inc. and Mastercard Inc. have expressed their eagerness to join the fray, despite concerns about India's uneven playing field in the payment industry.
This scenario stands in contrast to other successful payment systems. McKinsey predicts that instant payments, led by Brazil's Pix platform, will account for half of the growth in payment revenue from transactions in Brazil until 2027. In India, the comparable figure might not even reach 10%.
India's profit from payments is set to expand, primarily driven by sheer transaction volumes. Last year, a fifth of the country's 620 billion transactions were settled digitally. By 2027, this figure is projected to rise to 765 billion, with nearly two-thirds of these exchanges occurring online. Nimble fintech firms will aggressively explore new avenues opened by technology or regulatory changes.
The consulting firm McKinsey emphasizes that there is ample room for banks to pursue various use cases depending on their specific core competencies and strategic priorities. Initially, banks were hesitant to promote the shared network, fearing it would cannibalize their proprietary apps. However, they've now gained access to the world's fourth-largest pool of payment revenue, and this is just the beginning. New opportunities may arise in adjacent activities, from fees on cards to interest income on credit lines. For example, in the first two months of the last quarter, Paytm distributed $1.65 billion in loans on its platform on behalf of lenders, marking a 137% increase from the previous year.
While the instant-payment protocol has become wildly popular, it has only scratched the surface of its potential. The National Payments Corporation of India, the network's operator, is taking it global. This means there will be plenty of opportunities to earn fees and currency-exchange commissions when Indian tourists use their rupee wallets, funded by credit lines from local lenders, at shops overseas.
For India's banks, which have transformed a giveaway into a catalyst for last year's remarkable 38% revenue growth, it makes sense to maintain the status quo. The online payment system they offer is familiar, fast, and, most importantly, free.
