Digital payments make a comeback in FY22 on wholesale participation

After a year of Covid-led downturn, aggregate digital payments bounced back in FY22, reaching nearly 72 billion transactions, from 44 billion in the previous financial year, riding on the return of wholesale payments.

This was after consumption gathered pace in response to lifting of pandemic-era curbs on movement of goods and services. As the economy opened up and capacity utilisation of companies improved, large-value credit transfers rose in FY22 after declining for two consecutive years in 2019-20 and 2020-21, showed data from the Reserve Bank of India’s (RBI) annual report released on 27 May.

Funds transferred through the Real Time Gross Settlement (RTGS) facility, typically used by businesses, stood at ₹1,287 trillion in 2021-22, up 22% from the previous financial year. In volume terms, it was up 31% in FY22 to 208 million transactions. However, retail payments did not seem to be affected by the pandemic and continued to grow in FY20 and FY21. In 2021-22, retail payments grew 26% by value to ₹524 trillion.

“My sense is that a significant impact of Covid-19 was seen in the wholesale payments segment, which has now subsided and large payments have grown last fiscal. Irrespective of the pandemic, retail payments continued to grow, both in number of transactions and in value,” said Navin Surya, chairman, Fintech Convergence Council. 

Formed in 2018, the Fintech Convergence Council represents various regulated financial service providers and fintech companies. Surya pointed out that while there was a dip in paper-based instruments like cheque in the last couple of years, some of it has started to come back after Covid-19.

“On a whole, it is good to see that the domestic payments systems are more or less back to pre-Covid levels,” he said.

Although wholesale digital payments suffered a setback during Covid-19, the pandemic induced a shift towards digital payments in general and especially for individuals. As per a survey by the National Payments Corporation of India (NPCI), cited by RBI in its annual report, around one-third of surveyed households transacted digitally for the first time during the lockdown. Households that had prior experience with digital payments but had abandoned them for reasons such as difficulty in use, lack of internet access, fraud and overspending, were most likely to re-adopt them during the pandemic, it said.

Other experts said that while retail UPI is a significant contributor to retail digital payments, there are other factors at play as well.

“The larger contribution to the surge of digital payments is the opening up of entertainment venues, and the increase in travel leading to increasing flight, train, bus and hotel bookings, apart from the e-commerce,” said Vishwas Patel, executive director at fintech Infibeam Avenues Ltd.

Such type of mass consumption increases the use of credit cards, he said.

Patel added that a significant improvement in the underlying payment infrastructure along with continuous education and regulatory interventions by RBI and the government to improve safety along with convenience for consumers using digital payments. 

Like several other experts tracking the sector, Patel also believes there is a huge headway for the digital payments industry to grow in India.

In fact, a recent report by PwC India pointed out that with unified payments interface (UPI) leading the way, the digital payments ecosystem in India will also be driven by buy-now-pay-later (BNPL), digital currency, corporate payments and offline payments. The report titled “The Indian Payments Handbook 2021-26”, said domestic digital payments grew at a compound annual growth rate (CAGR) of 23% by volume and is likely to touch 217 billion in transactions by FY26.