Revolutionises commerce and empowers small businesses

By Nidhi Tiwari and Nivedita Sinha

The evolution of the digital payments ecosystem has helped fuel India’s digital transformation with digital transactions increasing nearly 5x over the past six years. In fact, more than 40 percent of all payments in the country are now digital. UPI, which dominates the digital payments landscape, is being used by about 30 crore consumers and more than five crore merchants, according to the Reserve Bank of India. This shift to digital payments is particularly empowering for small businesses—an essential component in India’s pursuit of a $5 trillion GDP—by fostering inclusivity and helping them transcend physical boundaries. For instance, an artisan or wholesaler in Varanasi can now seamlessly sell brocade sarees to customers in Bangalore via WhatsApp, list products on Amazon, and supply to large brands simultaneously. Similarly, a street vendor who is migrating from a remote village to the vibrant city of Mumbai can sell chaat and send money back home with just a click. Change Is Coming From All Directions According to ‘How Urban India Pays’, a new report by Kearney in collaboration with Amazon Pay, street vendors with average monthly revenue of Rs 10,000 to 40,000—including paan shops, fruit and flower sellers, food stalls, and Kirana stores—are increasingly shifting to digital payments, with nearly half of their transactions now being cashless. The shift is seen from both the merchant and the consumer side. For example, a customer in a metro city said, “I installed and used UPI for the first time at the insistence of a street-side pani-puri vendor in Bangalore, who said he no longer keeps change,” reflecting small merchants’ preference for digital payments. And according to the report, 63 percent of merchants accept digital payments for transactions under Rs 1,000 to avoid losing customers to competitors who offer these digital options. Innovative moves from industry players, such as revolutionizing merchant onboarding, have expanded merchants’ reach and adoption. Government and financial institution innovations, including mini QR codes, card acceptance devices that cost a third of what traditional point-of-sale terminals cost, the National Common Mobility Card, and the indigenous card-based payment solution RuPay, which provides debit and credit card access to customers of all types of banks, have also accelerated the country’s adoption of digital payments. Growth, convenience, safety, and efficiency are among the top benefits Digital payments have enabled boundless growth for small businesses, effectively eliminating geographic barriers and expanding merchant access to consumers across India and beyond through quick and easy online transfers. According to the report, merchants prefer digital payments primarily because of the convenience (55 percent of respondents), followed by trust and safety along with the ability to track transactions (43 percent each). Digital modes also improve safety and efficiency thanks to the ability to deposit funds directly into bank accounts, eliminating the need for handling cash. This enables faster fund transfers and reduces disruption to business with fewer bank visits. For migrant merchants and vendors, this eases the process of sending money back to their families. Digital payment methods such as credit cards, debit cards, and UPI have streamlined transaction reconciliation, making it easier for merchants to identify and resolve discrepancies. This greatly improves efficiency, especially for small businesses. This adoption journey has also given many merchants access to credit scores and formal banking system, improving their inclusion in the formal economy. The Path Ahead India’s digital payment sector is on a remarkable growth trajectory, driven by the enthusiasm of businesses and consumers alike. However, sustaining and even accelerating this momentum will require a coordinated effort from all stakeholders, including government bodies, regulatory agencies, banks, NBFCs, and fintech companies, to enhance consumer and business awareness, build trust, and fuel penetration. Although adoption rates have surged, there is room to expand digital payments in smaller towns and among small to mid-size merchants. However, merchants are still concerned about financial fraud and unreliable Internet. The extent of such concerns varies depending on the type of business and the geographic region. For example, more respondents cited unreliable Internet as a concern in the East–Northeast compared with the rest of India. Prioritizing areas such as tapping into street commerce, developing user-friendly interfaces, upgrading technology in underserved regions, and bolstering security measures to reduce cyber fraud will be crucial. Growth can be accelerated by innovation and the embrace of emerging digital payment methods, including co-branded cards, buy now, pay later (BNPL) schemes, and wearable and voice-based payment technologies. India is steadily establishing itself as a global leader in digital payments as consumers continue to experiment with and embrace new technologies and as businesses remain open and receptive to this evolving landscape. (The authors, Nidhi Tiwari, Partner, Kearney, India and Nivedita Sinha, Principal, Kearney, India.) Views are personal and do not represent the stand of this publication.