Digital Payments Driving the Growth Engine of the Digital Economy

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The digital economy refers to economic activity enabled by billions of daily online interactions among people, businesses, devices, data, and processes. It is growing at a phenomenal pace. Annual smartphone shipments have more than doubled since 2010, reaching 1.2 billion in 2023. Meanwhile, Internet of Things (IoT) devices are projected to rise 2.5 times from 2023 levels to a staggering 39 billion by 2029 (Wikipedia, July 2025).

This rapid expansion provided productivity, efficiency, cost reduction, and automated operations and services to industries. One of the largest outcomes of this transformation is the digitisation of payments.

Key Takeaways

Digital payments are a core driver of India’s fast-growing digital economy.
India leads at the forefront with about 46% of all digital payment transactions.
It is retail payments dominated by UPI with an 80% share of the market.
Platforms like UPI and ONDC are really transforming commerce across all spectrums.
Cashless transactions are gaining momentum, bolstered by fintech and policy reforms.

What Are Digital Payments?

Digital payments refer to those transactions conducted via the net-digitalised platforms. These include UPI, mobile wallets, NEFT, IMPS, debit and credit cards, and contactless payments.

The Role of Digital Payments in Economic Growth

Digital payments are among the biggest growth drivers in the digital economy. The shocking demonetization of CR 500 and CR 1000 currency notes in 2016 gave a huge push to the first leg of the digital payment revolution, creating explosive growth during the Covid-19 pandemic. This momentum does not seem to die out as consumers and businesses favor more contactless and pain-free transactions.

Here are certain advantages offered by digital payments:

Quick settlements
Higher security
Reduced transaction costs
Convenience and expanded reach for businesses

Dynamic payment ecosystems in India continue to change and evolve very fast. Thanks to better Internet services and a growing smartphone user base, the country really stands tall as one of the hottest payment hubs the world has ever seen. Over 1 billion mobile connections and 250+ million smartphone users lay an excellent foundation for digital payments to prosper, in combination with innovation and infrastructure support.

“According to Boston Consulting Group and BCG‑PhonePe, India’s digital payments market—$3 trillion today—is expected to reach $10 trillion by 2026, capturing ~65% of total payment volume.”

India’s Digital Payments Landscape

According to the Reserve Bank of India (RBI), India is said to account for 46% of the entire digital payment systems around the world, justifying the place of India as a leader of the space. UPI transactions now account for almost 80% of digital payments within India. It is indeed astonishing when we consider numbers from just 162 crore transactions in 2012-13 to 14,726 crore in 2023-24 (up to February) – a growth of nearly 91 times.

Source: Times of India

According to a Times of India report dated April 2025, here are more examples of this boom:

PoS terminal installations grew by 26%, reaching 8.5 million as of December 2023.
The private sector banks are poised to be leaders in PoS terminal share with about 73%.
UPI QR code payments grew by 57%.
There was an increase of 45% in tag issuances for electronic toll collection, meaning highways are getting digitised at a higher rate.

Source: Business Today

Did You Know?
UPI now makes up 80% of all retail digital payments in India. By March 2025, it saw over 12.1 billion transactions. This shows a 35% year‑on‑year growth.

Innovative Platforms Driving Change

The digital payments market is at an inflection point: valued at $3 trillion in 2024, it’s projected to hit $10 trillion by 2026 — meaning nearly 65% of all payments will be cashless

UPI: A Game-Changer in Domestic and Global Payments

In India, the Unified Payments Interface (UPI) has completely transformed money transfers. With over 300 million merchants onboard, UPI supports real-time and secure transactions across mobile platforms. PhonePe has launched UPI on feature phones via GSPay, bringing millions of non‑smartphone users into the digital payments ecosystem.

The reduction in MDR charges for UPI payments has helped to reduce costs for merchants, and this, in turn, expedited the QR expansion among very small and MSME merchants. UPI is expected to drive domestic and international growth, and it has started picking up pace in countries such as the UAE, Singapore, and across Europe, putting India on the world map as a digital payments giant. Innoviti, one of the largest integrated payment technology providers in India, said. Today, UPI APIs enable businesses to make vendor payments, reimbursements, and payroll settlements faster and more transparently.

Source: Arxiv

Did You Know?
Studies show 75% of users report spending more with UPI, citing its intangible nature that reduces “spending guilt.”

ONDC: Reinventing Digital Commerce

Disruptive business ideas have been invented before. Now an initiative tries to be the next digital leap by India: Open Network for Digital Commerce–that summarises ONDC’s purpose. It opens the marketplace to small retailers, local shopkeepers, or any independent seller who wants to connect directly with buyers via the Internet, thereby removing the monopolistic meeting point between large e-commerce platforms.

According to Shireesh Joshi, Chief Business Officer, ONDC, the network is not here to battle other platforms like Amazon, Zomato, or Flipkart. The purpose is to provide alternative cost-effective and open channels for buyers and sellers. These institutions include the Quality Council of India, SIDBI, NABARD, and some big banks. ONDC is wielding an ecosystem that balances fair price and competitive access.

Enabling Seamless Commerce: Payment Gateways

Payment gateways provide for swift and secured payments-ranging from online bookings, and school fees, to recurring subscription billing. They are crucial for decreasing cart abandonment and elevating conversion rates for digital businesses.

Future Outlook: Towards a Cashless Society

The digital rupee of India is under the pilot stage, attempting to do away with cash in online payments. Leading organisations are conducting trials, and a mass launch is foreseen in 1-2 years’ time.

The future of digital payments is shaping a society that may one day function entirely without cash. With improving infrastructure and financial awareness, digital payments are expected to be the norm for transactions.

India’s fintech scenario, including payment providers, banks, and startups, is evolving rapidly to cater to the differentiated needs of its large populace. This momentum is bound to pick up further with enhancement in digital trust and accessibility.

Is Your Business Ready to Leverage Digital Payments for Scalable Growth?

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