From Cash to Clicks: The Surging Trend of Mobile Wallet Payments in India

Fintech has evolved in India, changing how financial services work by using technology. India has witnessed exponential increase in adoption of digital payments, driven by a large proportion of youth in its population. While cash is still important, large number of people have already migrated to digital ways to do their transactions. The introduction of systems like UPI, e-wallets, and mobile banking have made online payments simpler. UPI started in 2016, lets people instantly send money between bank accounts and has become popular due to its unique features. In February 2024, UPI also expanded to Sri Lanka, Mauritius, and the UAE. India also plans to introduce it in countries like Singapore and France soon.

Rise of digital transactions over the years

Source: press information bureau

Digital payments in India increased to reach 13,462 crore transactions in 2023 from 2,071 crore transactions in 2018. Additionally, the value of Digital Payments in India increased with CAGR of 11.2%, reaching US$ 40.1 trillion (Rs. 3,344 lakh crore) in 2023.

Digital transactions include:

• Credit/Debit Cards
• Mobile Wallets (e.g. Amazon Pay)
• Internet Banking
• Payment Apps (e.g., BHIM)
• Point of sale (PoS) Terminals

In this blog, we will discuss how mobile wallets have evolved as one of the significant modes of digital transactions.

Similar to a traditional wallet, a mobile wallet (also known as an e-wallet) operates entirely online. Users can keep money in it to make purchases, exactly like they would with cash in a physical wallet. Since it does not require user to carry cash or credit cards, transactions are safer and easier when using mobile apps, which are the main method of access. In financial terms, digital wallets are a type of prepaid payment method. It let an Individual to buy things and send money which is stored in the wallet. This value can be loaded through various means such as cash, bank accounts, credit cards, or other Prepaid Payment Infrastructure (PPIs).

Although options for PPI-based digital payments have been available in India since 2002, their usage was initially limited to gift cards, forex cards, and meal reimbursements. However, the introduction of digital wallets has significantly boosted the country's adoption of digital payments through prepaid instruments in the country.

Exploring the surging trend of Mobile wallet payments in India

Mobile wallet payments in India increased at a CAGR of 72.1% to US$ 2.5 trillion (Rs. 202.8 lakh crore) between 2019 to 2023, as per data published in Business standard.

Source: News source (Business standard)

The exponential increase can be attributed to the government’s constant efforts for promoting digital payments in our day-to-day life like online shopping and physical purchase from supermarkets, grocery stores, and street vendors.

RBI’s regulation further aided the increasing adoption of mobile wallets as a medium of digital payments. In March 2022, the Reserve Bank of India (RBI) mandated that all prepaid payment methods, including wallets, be compliant with UPI. Recently, on 5th April 2024, RBI further stated that Mobile wallet can be used by UPI to spend the money on third party applications. For example, if you have money in your PhonePe wallet, you can use it on another UPI app like Paytm, which added more convenience for customers to adopt Mobile wallets.

The surge in mobile payments is driven by the following factors

• The Surge of Smartphone Usage

The surge in smartphone usage has significantly fueled the growth of mobile payments, especially mobile wallet adoption. The widespread availability and convenience of smartphones have empowered consumers to effortlessly conduct transactions by simply tapping their devices. As of September 2023, India has over 931 million smartphone users, with projections indicating a surge to over 1.1 billion by 2025.

• Contactless  and Convenience Payments

Mobile payments offer a convenient and hygienic way to make transactions anytime, anywhere, eliminating the need to carry physical cash or cards. This has been particularly accelerated by the COVID-19 pandemic, as contactless payment methods, facilitated by mobile wallets, provide a safe and touch-free way to pay.

• Biometric Authentication for Enhanced Security

As mobile transactions rise, so security concern arrises. Biometric authentication methods like fingerprint scanning and facial recognition have emerged to address these concerns, providing a safer and more user-friendly option compared to passwords and PINs. These technologies streamline the authentication process and bolster security for mobile payments, driving growth in mobile wallet usage.

• Mobile Wallets Becoming Multi-Functional

Mobile wallets like Apple Pay, Google Pay, and Samsung Pay are expanding their capabilities beyond basic payment functions. They now include extra features like loyalty programs, tickets, and boarding passes, making them essential tools for everyday transactions.

• The Rise of Mobile Point-of-Sale (mPOS) Systems

Mobile Point-of-Sale (mPOS) systems are becoming increasingly popular, particularly among small and medium-sized businesses. These systems turn smartphones and tablets into portable cash registers, enabling merchants to accept payments anywhere. This enhances the flexibility and convenience of sales transactions.

• Gen Z Leading the Mobile Payment Revolution 

Younger generation are particularly drawn to the convenience of mobile payments. They are known for their comfort with technology, readily adopts mobile peer-to-peer (P2P) transfers. eMarketer predicts that 80.4% of new users embracing mobile P2P transfers from 2023 to 2027 will be from this generation. This suggests a notable change in how future generations manage money, with mobile payments becoming a more integral part of their daily life. financial routines.

How UPI Lite is driving faster Mobile Wallet adoption

UPI LITE is the largest wallet payment solution launched in March 2022, that utilizes the reliable National Payments Corporation of India (NPCI) Common Library (CL) app to handle small transactions under Rs. 500 (US$ 5.99). It operates within the existing UPI framework on mobile phones to ensure consistency, compliance, and system acceptance. It aims to offer a user-friendly experience for low-value transactions without relying on Remitter bank's core banking systems in real-time, while also ensuring sufficient risk management measures.

Many mobile wallet apps, including Paytm, PhonePe, Amazon Pay, and Google Pay, now offer UPI functionality, allowing users to make payment directly from online wallet.

Initiatives to tackle existing challenges

• Increasing risk of cyber-attacks: Cyber-attacks are becoming more frequent and sophisticated in line with the growing popularity of mobile wallets. Mobile payment apps are regularly targeted by hackers and scammers, which discloses critical data and causes financial losses. Secure and reliable mobile wallet solutions are becoming more and more necessary because of the expanding threat landscape, which highlights the significance of strong security protocols and user knowledge. There was a significant increase in the number of complaints concerning cybercrime from 9.7 lakh in 2022 to 11.5 lakh in 2023. Of these allegations, financial fraud accounted for nearly 60%. From January to October 2023, financial scams of US$ 668 million (about Rs. 5,574 crore) were reported. Government is planning to implement several measures to tackle the increasing problem of cyber fraud in the financial sector. These measures include blocking the unique mobile device identifier (IMEI) and imposing limits on withdrawals from suspicious accounts.
• Accessibility issues in rural areas: In numerous rural parts of India, there's a shortage of dependable internet connection and access to electricity, making it tough for individuals to use digital payment services. Without a stable network, completing online transactions becomes a challenge. Adding to this difficulty they rely on feature phones instead of smartphones to access bank accounts. These devices are often old and may fail or run out of battery power when needed the most. Government launched a new 24-hour TV channel called 'DigiShala' to educate millions of citizens about digital payments. The aim is to encourage people to incorporate digital payment methods into their daily lives.
• Low digital literacy: In some communities, especially among the older generation or those with fewer resources, people might not know how to use digital payment platforms well. This lack of know-how can make it hard for them to start using digital transactions. They might feel nervous or unsure about using these new technologies. Government is helping with various schemes such as Pradhan Mantri Gramin Digital Saksharta Abhiyan (PMGDISHA).

Government Initiatives

• Demonetization

Demonetization in India led to an accelerated adoption of digital payments as people turned to electronic transactions due to cash shortages. This helped in the growth of digital wallets, mobile banking, and online payment platforms, fostering a more cashless economy and promoting financial inclusion.

• Digital India mission

The Digital India initiative was launched which aims to transform the country by promoting digital infrastructure and connectivity. This has led to the rise of mobile wallets, UPI-based transactions, and online banking, empowering citizens with convenient, secure, and efficient digital payment options, thus fostering financial inclusion and economic growth.

• BHIM App

The government introduced the Bharat Interface for Money (BHIM) app, a mobile payment app based on UPI. BHIM makes it easy and safe to do digital transactions, letting users send and get money using their phones.

• Financial Inclusion

The government is working to include more people in the financial system through digital transactions. Programs like the Pradhan Mantri Jan Dhan Yojana (PMJDY) are helping everyone get access to banking services, so they can join in digital transactions.

Road ahead

The transition from cash to clicks, fuelled by the growing popularity of mobile wallet payments in the country, illustrates India’s revolutionary path towards a digital economy. With a few taps on their smartphones, consumers may transact anytime, anywhere, with mobile wallets, which have become a popular, efficient, safe, and secure substitute for traditional payment methods.

GlobalData's findings indicate that the value of mobile wallet transactions in India expanded at a strong compound annual growth rate (CAGR) of 72.1% to reach US$ 2.5 trillion from 2019 to 2023. Furthermore, mobile wallet payments in India are expected to expand at a CAGR of 18.3% to more than US$ 6.3 trillion (Rs. 531 lakh crore) between 2024 and 2028.