While digital payments including UPI, digital wallets and credit cards account for 90% of online payments, a recent study titled ‘How Urban India Pays’ reveals that cash remains the preferred mode of payment for offline purchases.
The report shows that more consumers preferred credit cards for high-value offline and online payments, particularly for discretionary spends such as electronics. More users, however, now opt for payments using UPI over cash for food and groceries, school/college fees, electronics, and clothes and footwear. UPI is now accepted in seven countries and anticipates expansion to nearly 20 countries by 2029.
Drivers such as convenience, faster and more efficient transactions, trustworthiness, rewards, better customer care, and a wider acceptance rate are attributed towards the growing willingness among consumers to adopt digital payment modes. Risks such as financial fraud, and sensitive data leaks, however, remain the biggest reasons for apprehension towards their usage.
Kearney, a global Management consulting firm with Amazon Pay conducted both online and offline surveys with over 6,000 consumers, and 1,000 merchants from various regions, income groups, ages and genders across 120 cities.
The report indicates that income level has the most significant impact on digital payment usage, followed by city category, age and gender. With a difference of only 10% between respondents from small towns and metro cities who made digital transactions, the study shows there remains immense scope for expansion in the smaller towns.
The Degree of Digital Payment Usage (DDPU) is a metric the study used to measure the extent of digital payment adoption among various demographic groups. Affluent consumers with the highest DDPU, tend to use multiple digital payment methods for nearly 80% of their transactions compared to consumers in the aspiring segment who use digital payments for almost 67% of their transactions.
The faster adoption of digital payments is spearheaded by those in the age group 25–59 years. Boomers too who are above 60 have higher card and wallet usage than the younger cohorts.
The study highlights that UPI dominates the online purchase segment with 53% of respondents using this as the preferred payment instrument and digital wallets make for only 14% and 8% of online and offline transactions respectively. Walmart-backed PhonePe and Google Pay together have a combined market share of over 86% of UPI transactions as of May 2024 with Amazon Pay securing the fifth position for processing 68.34 million UPI transactions in the same month.
The report also showed a positive adoption rate for street vendors (paan shops, fruit and flower sellers, food stalls, and kirana stores) and Indian merchants. Challenges for merchant adoption, however, are similar to the concerns raised by consumers, highlighting issues of financial fraud, limited connectivity, and trust.
