With the maturation of the Unified Payments Interface (UPI) and the rapid penetration of mobile technology, India has become the global leader in digital payments in recent years.
And it was a self-directed transformation: Indian government policy and enthusiastic participation from the private sector have accelerated the country’s digital payments evolution and created one of the largest and fastest-growing cashless economies. Having experienced year-over-year transaction volume growth of 56% from 2022-2023, digital payments are now expected to quadruple in India by 2027.
With such an economically, socially and geographically diverse country and a significant rural population with almost no credit card culture, how did India emerge as a worldwide leader in fintech and digital payments? What are the implications for businesses – specifically travel brands – operating in this rich marketplace? And does meeting the needs of the Indian market open new opportunities for payments in other areas of the world?
UPI: a catalyst for digital payment adoption
With 1.4 billion residents (about 18% of the world’s population) and rapid economic growth, India is one of the largest and most important markets for global businesses. Digital payments have emerged as a simple way to meet the financial service needs of Indian residents while breaking down the barriers of traditional banking and promoting financial inclusion across the country.
Digital payments’ meteoric rise can be traced back to the emergence of UPI, which was launched in 2016 by the National Payments Corporation of India (NPCI), an umbrella organization for all retail payment systems in the country, set up by the Reserve Bank of India (RBI) and Indian Banks’ Association. UPI allows individuals to transfer funds instantly and securely between bank accounts using a mobile device and a unique ID – often through a fintech app. Payments are direct, meaning they don’t pass through a third-party processor. And, unlike some digital payment protocols, UPI is open, meaning transfers can occur between any two banks.
Merchants can easily accept UPI payments by providing a QR code at checkout or by sharing their virtual payment address (UPI ID). No account information beyond this ID is required, which has helped build trust amongst the Indian population.
According to The Economist, UPI has signed up 260 million users; in 2022 alone, it processed over $1 trillion in transactions – or about a third of India’s GDP. Last year, NPCI even introduced ways of paying with UPI from a feature phone (or a phone with no mobile connectivity), opening up the world of digital transactions to the roughly 53% of Indians without a smartphone. This all points to UPI being a decisive factor in India’s emergence as a leader in cashless payments.
However, as more of the country’s residents adopt mobile technology, the potential for other fintech innovations like buy-now-pay-later (BNPL) to take hold will only increase. Currently, online BNPL (versus the offline variant of check-out financing) only accounts for 20-25% of total BNPL gross merchandise value; that number is expected to almost double by 2026.
For domestic and international companies doing business in India, adapting and understanding the country’s payment market, which is expected to reach US$8 billion by 2023, is vital. E-commerce is also climbing rapidly and consistently, experiencing double-digit growth in recent years, with some estimates putting it at US$350 billion by 2030. Transaction volumes in retail digital payments, including e-commerce, are expected to grow by four times by FY 2026–27, according to PwC. This is due, again, to the increase in mobile connectivity and the increased availability of disposable income. With a young, digitally savvy population (over half are under 25), the market opportunity for companies offering alternative payment methods cannot be understated.
Airlines, travel brands and digital payments in India
As the Indian market rapidly shifts towards digital payments, it becomes imperative that airlines and other travel brands operating in the region adapt their payment systems to cater to evolving consumer preferences. By offering a wide array of alternative payment options, for example, airlines can ensure a seamless and user-friendly booking experience for Indian customers who might prefer to use Paytm (India’s market-leading digital payment platform) or the check-out financing version of BNPL. Only by partnering with a payment partner like UATP that can support multiple payment methods could an airline satisfy this use case.
Given the diverse customer base in India, travel brands must consider various payment methods, including those facilitated by UPI (a wide array of consumer-facing fintech platforms, including Paytm, which has over 350 million users), as well as card-based mobile wallets and BNPL services. For many, if not most companies, developing acceptance capabilities for every payment method used by a significant segment of the Indian population isn’t feasible. Instead, airlines and travel brands wanting to serve this high-growth market must partner with a payment solutions provider that offers built-in support for various alternative payment methods, including those commonly utilized on the Indian continent.
It pays to partner with the right firm
Travel brands that identify the right payment partner and embrace the Indian approach to digital payments stand to gain a greater competitive advantage and potentially capture a significant market share, particularly as the country’s middle class expands and air travel becomes more accessible to a larger segment of the population.
One of the critical factors influencing the adoption of digital payments is customer trust and security. Airlines and travel must prioritize data protection and reassure customers that their financial information is safe and secure. Implementing robust cybersecurity measures, encryption protocols and complying with industry standards can bolster customer confidence and encourage more people to opt for digital payments.
As India’s digital payment landscape rapidly evolves, the market opportunity for alternative payment options is vast. The success of UPI has highlighted the shift towards digital transactions – and travel brands must adapt accordingly to capitalize on this trend. Understanding and adapting to India’s digital payments landscape can help travel brands better compete in other global regions that are already emulating India’s approach to open payments protocols, like Brazil and its Pix platform, or those that are poised to improve their digital payments infrastructure, like the US with its upcoming FedNow service.
By offering diverse and secure payment methods, airlines and travel brands can ensure customer satisfaction, foster loyalty, and gain a competitive edge in the dynamic Indian market and beyond. Embracing the digital payment revolution is not just an option but a strategic necessity for airlines and travel brands seeking long-term success in the country.
Written by:
Carolina Lopez
Managing Director, AFP Partnerships
UATP
