It's no secret that digital payments in India have soared in the last few years, especially since the advent of UPI (unified payments interface). Retail digital payments have already jumped from $300 billion in 2017-18 to $3.6 trillion in the previous financial year (2023-24) and consulting firm Kearney expects that number to double to $7 trillion by 2029-30.
"This digital growth is fuelled by both macroeconomic tailwinds, such as robust population and GDP growth collectively leading to a strong consumer base, and a rapidly evolving consumption landscape supported by the availability of widespread affordable internet, government support in developing digital infrastructure and the growth of digital ecosystems," according to a study by Kearney and Amazon Pay.
But, the usage of digital payments differs a fair bit when it comes to online and offline, the study based on a survey spanning 120 cities, 6,000 consumers and 1,000 merchants, showed.
The study noted that 90 per cent of the respondents said they preferred digital payments when making online purchases. But, when it came to offline purchases, only 50 per cent indicated a preference for digital payments.
"Cash is still widely preferred for daily spend categories such as food and grocery, medical expenses, education fees and transportation," the study noted.
Especially, for transactions valued less than Rs 500, cash is still the most preferred mode of payment, it pointed.
Digital payments seem to be the go-to payment option for discretionary spending, where spending typically tends to be higher. According to the study, 85 per cent indicated a strong preference for digital payments for spending on things like electronics, clothes and footwear.
Convenience and speed were among the major reasons behind consumers opting for digital payments, but rewards too were a crucial incentive. Nearly half of the respondents favoured rewards for online purchases, the study noted.
But, there are concerns among consumers too that are holding back many from digital payments. Worries about double debit and financial fraud are prevalent. A little over half of the respondents surveyed also pointed to internet issues and hence preferred cash over digital payments.
UPI dominates the overall digital payments landscape with UPI accounting for 68 per cent of the $3.6 trillion in digital payments last year. In contrast, debit cards and credit cards accounted for just 2 per cent and 6 per cent respectively.
"The preference for a payment instrument is driven by the size and type of transaction. For example, a digital wallet is preferred for small transactions (less than Rs 1,000) and online purchases, while credit cards are preferred by a higher percentage of consumers for high-value (Rs 5,000 or more) offline and online purchases, such as electronics," it said.
Notably, it's the millennials (individuals aged between 25-43 years) and Gen X (44-59 year-olds) who are leading in the adoption of digital payments. Also, boomers (aged 60 and above), had higher usage of cards and wallets than the younger cohorts, according to the Kearney and Amazon Pay study.
"As digital payments evolve, consumer preferences are also evolving with a greater focus on faster simpler and more convenient methods, which will have a bearing on the next wave of growth, thus creating opportunities for easier, quicker, safer and smarter digital payment solutions," pointed Shashwat Sharma and Nidhi Tiwari, partners, financial services, Kearney.
The study also noted that BNPL (buy now pay later) stands out among emerging payment modes, with almost 87 per cent of respondents aware of it. But, its adoption was moderate, with only around 34 per cent of respondents using it. Also, interestingly, 52 per cent of those using BNPL said they used it for transactions less than Rs 5,000, while only 5 per cent used BNPL for transactions of Rs 50,000 or more.