How Are Digital Payments Doing In FY 23–24?
Digital payments have taken the world by storm, transforming the way we transact. What once seemed like a distant concept has now become the new norm, deeply ingrained in our daily lives and business operations. Digital payments are becoming more popular with each passing year. With their convenience, effectiveness, and security, digital payments are revolutionising how we conduct transactions and business.
India's achievements in the ecosystem of digital payments are inspiring. Previously reliant on cash transactions, the nation has quickly adopted digital transformation, establishing itself as a global leader in the adoption and development of digital payment systems. Some of the key elements that propelled the adoption of digital payments to unprecedented levels include the COVID pandemic's outbreak and the launch of the Bharat Interface for Money-Unified Payments Interface (BHIM-UPI). Over 91 billion digital payment transactions have reportedly been made in 2023 to date, according to a report.
India and Singapore have successfully connected their digital payment systems, UPI and PayNow, as a testament to UPI's success. The news about Singapore comes after the early 2022 revelation that Nepal would also use India's UPI system, with Bhutan having done so in 2021.
This article delves into the ways digital payments are reshaping economies, fostering financial inclusion, and driving unparalleled convenience for individuals and businesses in FY 2023–24.
The following trends in digital payments will be visible worldwide in FY 2023–2024:
a) Biometric authentication: With the increasing trend and risk of identity theft and fraud, biometric authentication can become a reliable and secure option for all digital payment transactions. Further biometric authentication also helps reduce the cost of authenticating a digital payment transaction.
b) CBDC (Central Bank Digital Currency): Like India, we will see the central banks of various developed countries and economies pilot and launch their own digital currencies in 2023. Digital currency, like the e-Rupee in India, is issued in the form of a digital token that represents legal tender. It is being issued in the same denominations as the fiat currency (modern paper currencies). According to a Juniper Research prediction, the total annual value of transactions involving central bank digital currency (CBDC) will surpass USD 213 billion by 2030, up from USD 100 million in 2023.
c) Gen Z: More specifically, the teen population of the Gen Z segment is a more tech-savvy or tech-exposed generation. This generation is ready to experiment, wants instant gratification, and will raise the demand for digital payment systems in 2023.
d) Tokenization: The size of the worldwide tokenization market was estimated at USD 2.03 billion in 2021, and it is anticipated to increase at a CAGR of 24.09 per cent from 2022 to 2030. The years 2023 and 2024 will witness more and more cards getting tokenized, introducing customers to a more secure and reliable payment experience wherein a 16-digit card will get tokenized into a unique code that varies every time a transaction takes place.
e) Merchant Acceptance: According to forecasts, there will be more than 5.2 billion digital wallet users worldwide in 2026, up from 3.4 billion in 2022, a significant increase of more than 53 per cent. Many businesses are switching to more sophisticated electronic payment solutions. Currently, 93 per cent of picture deposits are made by companies, and 71 per cent of those businesses also accept digital payments. In addition, 17 per cent of deposited checks are now image deposits. We will have more and more merchants accept digital payments by deploying QR codes, M-PoS, and contactless payments like TapNpay using NFC (near-field communication technology).
f) Mobile wallets: A Juniper Research report indicates, increased convenience, security, and the growing cross-channel payment capabilities on smartphones will cause the number of mobile contactless transactions to increase from 26 billion in 2021 to 49 billion in 2023. Mobile Payments will continue to play a pivotal role in making cashless transactions possible. Newer use cases will emerge for mobile wallets in the next 2 years; wallets will be interoperable; and new use cases like mass transit, employee benefits, expense management, corporate gifting, rewards and recognition, banking for teenagers, etc. will grow over 3X in the next 2 years.
g) BNPL (Buy Now, Pay Later): This has scaled because of its affordability and easy repayment process in most cases using Standing Instructions (SI). Customers find BNPL to be a convenient payment option, increasing merchant sales and allowing lenders to offer small-ticket loans with simple repayment terms while earning interest income. Research shows that the buy now, pay later market in India will reach USD 15 billion in 2026.
h) Fraud and risk management: With the increase in digital payments, we will see an increase in fraudulent transactions. Modern RBA (risk-based authentication) will be used by banks and payment companies to detect and prevent fraudulent transactions while facilitating digital payments. In 2023, we will see more tech service providers offering fraud and risk management solutions to banks and payment companies.
Conclusion
As we progress into FY23–24, digital payments remain at the forefront of economic transformation. The strategic adoption of digital payment solutions enhances security, fosters innovation, promotes financial inclusion, and drives economic growth. As India continues its journey towards a cashless economy where digital payments are at the core, its experience serves as a valuable lesson for countries worldwide seeking to embrace the digital payment revolution and unlock the vast benefits it offers.
