Correct Answer :   $1 trillion

Merchant payments on Unified Payments Interface (UPI) are expected to reach $1 trillion by FY26, driven by a growth rate of 40 to 50%, said Bain and Company in the Future of India Retail Payments report published on Thursday.

* The growth in merchant payments will be driven by increased awareness, growth in merchant acceptance of UPI, new payment features like UPI Lite and UPI 123 Pay along with opening up of international payment corridors on the domestic payment railroad.

* According to data from the National Payments Corporation of India, around $40 billion worth of merchant transactions were settled through UPI in March 2023 alone. So the sector is already hitting a $500 billion payment run rate.

* Overall, the share of UPI and mobile wallets in the $3.2 trillion digital payments pie is set to grow to 28% in FY26 from 11% in FY22. As all the digital payment modes including credit cards, debit cards and buy now, pay later grow, cash will go down to 48% compared to 69% in FY22.

* According to Bain & Company’s report, credit card spending in India is expected to increase 2.5 times to $280 billion by FY26 from a present level of roughly $100 billion.

* An increase in spending on newly issued credit cards will account for a significant portion of this gain. The Reserve Bank of India reports that there were 85 million credit cards in circulation as of March 2023.

* Tier-2 sites, new fintech and consumer tech partnerships for co-branded cards, and an overall opening up of supply will be the sources of growth in new credit cards.

Government Payments and Subsidies to Decrease, Premium Merchants May Pay Specific MDR for UPI Payments :

* Bain & Company has predicted that government payments and subsidies will decrease over the next three to five years, resulting in market forces controlling pricing for merchant payments.

* Premium merchants, for instance, may pay a specific Merchant Discount Rate (MDR) for UPI payments.

* Payment service providers will have developed alternative revenue streams by then. Providers like Razorpay, Cashfree, and Paytm, which were initially positioned as online payment providers, have all established their offline operations as well, providing their users with an omnichannel payment experience.


Fintech and Banks Must Adapt to Remain Competitive in India’s Fintech Era :

* As the fintech era progresses in India, banks themselves will need to adapt to remain competitive.

* Banks will need to investigate full-stack merchant solutions and increase the number of credit card holders by adding new consumers. The research advised “commercializing partnerships with a select group of non-banks to expand the reach and improve capabilities.”

* To hasten go-to-market, fintech themselves must develop compliance departments, increase income diversification, and fortify their relationships with banks and NBFCs...

Source : Economic Times