Cards, Digital Wallets Dominating Cashless Payments Method
Introduction to India
An overview of India's currency, population and key statistics.
India's official currency is the rupee (symbol: ₹; code: INR), divided into 100 paisa. The Reserve Bank of India (RBI) is responsible for printing and distributing paper currency. There are circulating coins in denominations of ₹1, ₹3, ₹5, ₹10, and ₹20. Indian banknotes are available in denominations of ₹10, ₹20, ₹50, ₹100, ₹200, ₹500, and ₹2000.
India introduced its own digital currency called the "e-rupee" or "digital rupee" in 2022. This digital currency is a tokenised digital version of the Indian Rupee issued by the RBI as a central bank digital currency (CBDC). The digital rupee carries the same value and legitimacy as physical banknotes or coins.
According to United Nations data, India had an estimated population of 1,380,004,385 as of the middle of 2020. However, according to more-recent data by Worldometer the country's population has increased to 1,388,753,057 by 2021, with approximately 35% residing in urban areas, particularly in cities such as Mumbai, Delhi, and Bangalore. The median age of the population is 28.4 years.
Languages spoken in India
India has two recognised official languages – Hindi and English. Apart from these, the Constitution acknowledges 22 regional languages, which include Assamese, Bengali, Bodo, Dogri, Gujarati, Hindi, Kannada, Kashmiri, Konkani, Maithili, Malayalam, Manipuri (Meitei), Marathi, Nepali, Odia (Oriya), Punjabi, Sanskrit, Santali, Sindhi, Tamil, Telugu, and Urdu.
In 2020, India's gross domestic product declined by 6.60%. However, the International Monetary Fund (IMF) has projected the country's real GDP to expand by 9% in the 2021-22 and 2022-23 financial years. In 2022, India's real GDP expanded by 6.8% year on year, with an estimated nominal GDP growth rate of 19.5%.
As for 2023, the World Bank has revised its forecast for the country's GDP growth to 6.9%, citing robust economic activity. Moody's Investors Service has also raised its economic growth estimate for India to 5.5% in 2023 from an earlier projection of 4.8%. The RBI has meanwhile projected real GDP growth of 6.8% in 2023.
India posted a gross savings rate of 30.2% as of March 2022. However, in the 2020 financial year, the savings rate declined to 30.9% of GDP, the lowest in 15 years, from a peak of 34.6% in 2012. Household savings decreased to 18% of GDP in 2019 from 23% in 2012.
According to PPRO APAC, approximately 80% of the Indian population held bank accounts in 2020, while only a small fraction of 3% were credit card holders.
India's internet & mobile phone trends
In 2019, Statista reported that 54% of the population aged 20 to 39 had internet access, while only 14% of those aged 12 to 15 regularly went online. Datareportal revealed that India had 624 million internet users as of January 2021, with an internet penetration rate of 45%. Additionally, smartphone penetration stood at 36% by the end of 2020, according to the PPRO APAC report.
India has a total of 833 million active internet users as of July 2022, accounting for 59.28% of the population and making it the country with the second-largest number of active internet users in the world.
India's e-commerce stats
Based on IMF data, India had a GDP of $2.87 trillion in 2019 but it declined to $2.59 trillion in 2020 because of the coronavirus pandemic. However, as the economy started to recover, the country's GDP was projected to expand to approximately $2.83 trillion in 2021.
Summary of India's fiscal policy
India's fiscal policy serves as a guiding force for the government in determining the amount of spending required to support economic activity and the revenue needed to maintain a smooth-running economy.
The government's approach to fiscal strategy for growth appears to revolve around three key elements: protectionism through tariffs, incentives to boost production, and infrastructure projects to stimulate demand and attract private investment.
Notably, fiscal policy has changed since the onset of the pandemic. In the 2021 financial year, the fiscal deficit increased to 9.2% of GDP, double that of the previous year. During that period, the government implemented a comprehensive strategy encompassing increased expenditure on social assistance programs, including rural employment and food subsidies, guarantees for financing for small businesses, farmers, and non-banking financial firms, and capital expenditure on infrastructure.
India's fiscal deficit target for 2022/23 is at risk due to the ongoing disruptions caused by the pandemic. The deficit has widened more than expected, which highlights the ongoing risks posed by the economic impact of the pandemic.
In a monthly economic report last year, the Finance Ministry acknowledged that India faced challenges in managing its fiscal deficit in the near term due to various global factors. It also identified upside risks to the gross budget deficit, stemming from additional welfare and subsidy spending, as well as cuts in excise duty on fuel.
How people pay in India
An overview of how people in India choose to make payments.
Traditional payment methods
The primary traditional payment methods used in India.
Cash is still popular in India, particularly for small transactions. However, its use has declined recently as electronic payment methods have become more widespread. According to a central bank survey, about 54% of participants preferred making cash payments.
Visa is a global payment technology company that offers electronic payment solutions through Visa-branded credit, debit, or prepaid cards. Some popular Visa cards in India include Cashback SBI, Axis Bank ACE, and Flipkart Axis Bank.
Mastercard is a global payment and technology company that processes payments between retailers' banks and card-issuing banks. Lenders that offer Mastercard credit cards in India include HDFC Bank and ICICI Bank.
Alternative payment methods (APMs)
The top APMs used in India
Apple Pay, a mobile payment service from Apple Inc., enables users to make in-person, online, and in-app payments. It replaces chip and PIN transactions at contactless terminals.
PayPal is a widely used online payment platform that allows customers to pay with their PayPal account balances, credit cards, or bank accounts. Shoppers use PayPal to make online purchases and securely send or receive money.
PhonePe is a Karnataka-based digital payments and financial services company founded by Sameer Nigam, Rahul Chari, and Burzin Engineer in December 2015. Today, PhonePe is used by one in four Indians to send money, recharge, pay bills, and easily access various financial services.
Paytm, a well-known Indian mobile payment and financial services company, offers a digital wallet that allows users to store funds and make fast and convenient payments. Paytm also provides various financial products, including banking, insurance, and investment options.
Google Pay is an online payment system and digital wallet platform developed by US-based technology giant Google to facilitate in-app and tap-to-pay purchases on mobile devices. It allows users to make payments using Android phones, tablets, or watches and is accepted at various stores in India.
How to accept payments in India
A guide to accepting payments in India.
How to accept payments online in India
Before accepting online payments, you must determine which methods you prefer. Then, you can choose a payment gateway provider, a service that authorises and processes online payments with their specific system.
Although there are plenty of payment gateway options in India, the general process for online payments typically involves an acquirer, issuer, retailer, and cardholder in the following steps:
The cardholder initiates a payment by presenting their payment card to the retailer to purchase goods or services.
The retailer sends the payment details to their acquirer (payment processors such as Worldpay or Global Payments), who processes the payment request and sends it to the payment scheme (such as Mastercard or Visa).
The payment scheme sends the payment request to the issuer (such as a bank or licensed issuer) who issued the card to the cardholder.
The issuer checks if the cardholder has enough funds to complete the transaction and approves or declines the payment request. if the payment is approved, the issuer sends an authorisation code to the payment scheme.
The payment scheme sends the authorisation code to the acquirer, who then sends it to the retailer, completing the transaction.
How long does an international payment from India take?
The processing time for payments may vary depending on the method and the recipient's bank. For instance, online money transfers through platforms like PayPal and Wise can be quick and convenient for sending money to multiple destinations.
Bank debit/credit cards: International payments with bank debit or credit cards may take a few minutes to a few hours, depending on bank processing times.
Online money transfers: Platforms like PayPal can process international payments within minutes to hours, depending on the service and destination country.
SWIFT/wire transfers: Traditional bank-to-bank transfers via SWIFT or wire may take one to five business days or longer, depending on the destination country, intermediary banks, and transaction requirements.
Merchant fees for online payments in India can vary depending on the payment method and the merchant services provider used. Here are some examples of typical merchant fees for online payments in India:
Credit and debit cards: Merchant fees for accepting credit and debit card payments online can range between 1.9% to 3.5% of the transaction amount. But it varies depending on the type of card used and the merchant services provider.
PayPal: For domestic payments, PayPal charges a fee equivalent to 2.5% of the transaction value, along with a fixed fee of ₹3. As for international online payments and invoices, PayPal charges a fee of 4.4% and a fixed fee that varies based on the currency received.
Bank transfers: Bank transfer fees can vary depending on the bank used, with some banks charging a flat fee per transaction and others charging a percentage of the transaction amount.
Other fees surrounding online payments in India include charges incurred by merchants, payment processors, and financial institutions involved in the payment processing chain. Below are some common fees:
Interchange fees: Interchange fees are charges paid by merchants' banks to cardholders' banks to cover the costs of processing card transactions. These fees are usually based on a percentage of the transaction value and can vary depending on the type of card used and the merchant's industry.
Payment gateway fees: Payment gateway providers charge a fee for processing transactions on their platform, which may be a percentage of the transaction value or a flat fee per transaction.
Cross-border fees: If a merchant accepts payments from customers outside the country, they may be subject to additional fees for cross-border transactions, including currency conversion fees and international processing fees.
Merchant discount rate: A processing fee that merchants are charged for transactions made using credit or debit cards. This fee generally falls within the range of 1% to 3% of the total transaction amount.
Security challenges of online payments in India
The risk of cyber-attacks is growing as India increasingly relies on digital payment systems, particularly the unified payment interface and mobile wallets. As a result, threats such as identity spoofing, malware injection, distributed denial of service, and man-in-the-middle attacks are becoming more prevalent.
To protect oneself, taking precautions when making online payments, such as using strong passwords and enabling two-factor authentication, avoiding public Wi-Fi networks for transactions, and being vigilant against phishing scams, is crucial.
In India, banks, payment processors, and fintech companies can adopt various measures to address the security challenges associated with online payments. One approach is to form partnerships to leverage each other's strengths and expertise.
For instance, banks can provide the reliability of established banking infrastructure and regulatory credibility. At the same time, fintech companies can offer the flexibility to innovate and the agility to develop customised solutions for specific customer segments. Additionally, investing in digital transformation and the Internet of Things can facilitate the development of secure financial products.
Key sectors & industries in India
An overview of India's market.
India's top 10 industries by revenue
The top 10 industries by revenue in India, according to Business Insider India and Statista, are:
The textile industry, one of the oldest in the country, has been a significant contributor to the economy. It contributes about 2% of the country's GDP and is expected to reach a worth of $190 billion by 2025-2026. The industry generates raw materials such as silk, wool, and jute, providing employment opportunities nationwide.
India has pioneered providing generic drugs globally and holds a significant position in the global pharmaceutical market. The country's strong research and development sector has been a key factor in the pharmaceutical industry's success. India's pharmaceutical industry was expected to grow by a whopping 754% between 2017 and 2060.
The information technology and information technology-enabled services sector has shaped the Indian economy in recent decades. It encompasses software development and management, software consulting, online services, and business process outsourcing. This sector accounted for 7.4% of GDP in the 2022 financial year and has significantly influenced India's socioeconomic growth.
The Indian automobile industry has been a prime contributor to the country's economic growth and technological advancement. It is expected to reach $300 billion by 2026 and become the third-largest automobile market by volume. The industry faced challenges during the lockdown period with production shutdowns and reduced consumer demand, but with government support, it could recover quickly.
The petrochemical industry in India is diverse, encompassing bulk chemicals, agriproducts and petrochemicals, polymers, and fertilisers. The industry is worth $178 billion and projected to reach $300 billion by 2025.
The engineering industry has been steadily growing due to increased investment in infrastructure, industrial manufacturing, consumer durables, and the automobile industry. It is the largest sector in the Indian industry, comprising 27% of the total factories and representing 63% of foreign collaborations.
The financial services sector has seen significant growth, with an anticipated market size of $83.48 billion by 2025. This sector includes commercial banks, insurance establishments, non-banking financial companies, and more. Top companies in this sector include TATA Capital Financial Services Ltd, Aditya Birla Finance Ltd, and Bajaj Finance Ltd.
The fast-moving consumer goods (FMCG) sector is expected to double to $70 billion by 2025. Household and personal care items alone contribute 50% of FMCG sales in India. Demand for FMCG products has also grown rapidly in both urban and rural populations.
With the largest population aged five to 24, India's education and training sector has immense growth potential. The "Study in India" project saw a 146% increase in applications in 2021, and the sector allows 100% foreign direct investment through the automatic route. Data show that the education sector is en route to reaching $225 billion by 2025.
India is known for being a pioneer in producing hot beverages such as tea and coffee. The country produces about 3% of global output in coffee and is the world's second-largest tea producer and among the top five tea exporters. The compound annual growth rate of instant coffee alone has seen a 4% increase over the past decade.
According to the Ministry of Commerce and Industry, India's combined merchandise and services exports were estimated to have grown by 16.11% between April and December 2022 compared with the corresponding period in the previous year.
Despite the global economic downturn, India's domestic demand remained stable, resulting in an estimated growth of 25.55% in overall imports between April and December 2022 compared with the corresponding period in the previous year.
In 2021, India's major exports included refined petroleum, pearls and precious stones, iron and steel, packaged medicines, gold and jewellery.
Regulation in India
The regulatory environment of India.
Summary of the regulatory environment in India
To maintain fairness and operational smoothness in business ventures in India, entrepreneurs are required to comply with a range of laws and regulations, which include:
Company law: This includes regulations governing companies' formation, operation, and dissolution.
Employment law: This includes regulations governing employment contracts, working conditions, and employee rights.
Product liability law: This includes regulations governing the legal liabilities and responsibilities of manufacturers, sellers, distributors, and other parties involved in the production and sale of goods.
Intellectual property law: This includes regulations governing copyrights, patents, and trademarks.
Competition law: This includes regulations governing competition and antitrust matters to promote fair competition.
Consumer protection law: This includes regulations governing the rights of consumers, product safety, and advertising standards.
Data protection law: This includes regulations concerning the collection, use, and storage of personal data.
These regulations are enforced by various regulatory bodies and commissions, including the Ministry of Corporate Affairs, the Ministry of Labour and Employment, the Ministry of Consumer Affairs, the Food and Public Distribution, Financial Services Regulatory Authority, the Office of the Controller General of Patents, Designs and Trade Marks, the Data Protection Authority of India, and the Competition Commission of India.
How card payments are regulated in India
In India, the regulation of card payments falls under the purview of the RBI, which mandates that only card issuers and card networks can store card data for transactions processed through licensed payment service providers. The central bank also requires payment aggregators to use network tokens for payment processing instead of the actual credit/debit card number, as per their guidelines.
Do I need a licence to do business in India?
Yes. To start a business in India, you must obtain various licenses and permits depending on factors such as the type of business, location, and number of workers.
For example, the Ministry of Corporate Affairs oversees the registration of different types of businesses, including limited liability partnerships, one-person companies, private limited companies, and public limited companies.
Payment solutions in India
An overview of how to accept payments from customers in India.
Payment gateways and providers in India
APEXX, a leading payment technology company headquartered in London, offers a comprehensive solution for merchants in India seeking to accept payments from multiple providers. Recognising the importance of accommodating diverse payment methods to meet customer preferences and enhance their overall experience, businesses may require a seamless and efficient payment processing solution.
APEXX's Payment Orchestration Layer (POL) platform is a centralised hub connecting various payment providers, including banks, acquirers, and alternative payment methods. Through APEXX POL, businesses can effortlessly manage multiple payment options via a single platform, streamlining their payment processing operations.
One of the key features of APEXX POL is its intelligent routing capability, which automatically selects the optimal payment provider for each transaction based on cost, currency, and risk assessment. This ensures businesses save on transaction fees and reduce the risk of failed payments.
Integrating APEXX POL into existing payment systems is made easy through the availability of APIs and pre-built plugins, enabling seamless integration with various e-commerce websites and point-of-sale systems.
As a trusted payment provider, APEXX is committed to delivering innovative payment solutions that meet the evolving needs of businesses in India and beyond. With its comprehensive payment orchestration capabilities, APEXX empowers businesses to manage multiple payment options effectively, optimise payment processing, and enhance customer satisfaction.
Cheapest payment solutions in India
To reduce fees in their payment stacks, merchants in India can implement the following strategies:
Negotiate fees: Merchants should negotiate with their payment providers for better rates, which can include transaction fees, interchange fees, and monthly fees.
Choose a suitable payment provider: Merchants should research and compare different payment providers to select the one that offers competitive rates and low fees.
Use alternative payment methods: Merchants can reduce fees by using alternative payment methods such as e-wallets or bank transfers instead of traditional card payments.
Prevent chargebacks: To avoid chargebacks and additional fees, merchants can offer clear product descriptions, prompt customer complaint resolution, and refunds when necessary.
Implement fraud prevention measures: Merchants should adopt fraud prevention measures to prevent fraudulent transactions, which can lead to chargebacks and additional fees.
Monitor payment processing fees: Merchants should keep a close eye on their payment processing fees and use payment analytics tools to track their expenses and identify areas where they can reduce costs.
Merchants can also consider using payment aggregators such as APEXX, which allow them to accept multiple payment methods through a single platform, reducing the need for multiple payment providers and lowering costs.
BNPL in India
India's buy now, pay later (BNPL) industry is expected to see significant growth, with payments projected to increase by 22.9% annually, reaching $14,289.4 million in 2023. This growth can be attributed to the rising adoption of e-commerce and increased penetration in Tier II and Tier III cities.
Fintech firms such as LazyPay, ZestMoney, and KreditBee have experienced high demand for their BNPL services, with significant loan disbursements during the festive season. Pine Labs, a leading fintech firm, has also witnessed a surge in the use of BNPL services for offline payments, with plans to expand its presence in Tier III and Tier IV cities.
The travel industry has emerged as a key focus for BNPL providers in India, with strategic alliances being forged with travel-based platforms. For example, CASHe and IRCTC, the online travel platform, have launched a travel now, pay later service, while SanKash, a firm specialising in travel-related BNPL services, has recorded a significant increase in travel loans.
Merchants can integrate with different BNPL providers in India using APEXX. This allows them to provide BNPL choices to customers and effectively handle their payment stacks.