A guide to alternative payment methods in India

Looking specifically at cards, Visa is the most popular payment card, with a 48% market share [1]. Mastercard has 28% and American Express 1%. The remaining 23% is made up of cards issued by local schemes. Even in the card market, merchants cannot rely on simply falling back on Western payment models. Failure to support local card schemes will prevent merchants reaching those consumers who use those payment methods. 

The future of Indian payments gives every appearance of being even more digitised than the present. Over the five years to 2022, the volume of digital payments grew by 50% [4]. One of the reasons for this has been strong institutional support the Reserve Bank of India. And this shows no signs of changing. In June 2022, the central bank unveiled a new series of initiatives designed to promote the growth of e-payments and their availability to all of India’s citizens [5]. 

The Indian e-commerce market

In 2022, the Indian e-commerce market was worth US$83 billion [1]. This is forecasts to increase to US$150 billion by 2026 [1]. The average Indian online shopper spends around US$60 a year with e-commerce merchants [1]. The most popular online purchase categories are electronics and media (bought by 34% of online shoppers), fashion (27%) and personal care (24%) [1]. 

Just over a quarter of all the online purchases Indians make are cross border [1]. The total value of this commerce is US$18 billion [1]. The most popular online shopping destinations outside India are the United States (accounting for 21% of all cross-border purchases), Australia (14$) and China (11%) [1]. 

A recent report by Bain estimated that by 2027, there would be more online shoppers in India than there are in the United States [6]. Between 2021 and 2027, Bain analysts expect the number of online shoppers in the country to increase from 190 million to 450 million [6]. 

The Indian online grocery market is expected to grow by 57% between 2022 and 2024, reaching a value of US$18 billion [7]. Nor is grocery the online section that’s booming. Between 2022 and 2025, the size of the online fashion market is expected to almost double, to US$43 billion [8].  Online sales of electronics are expected to increase by nearly 15% a year between 2022 and 2027, rising to a value of US$24 billion a year [9]. 

Asked why they shopped online, Indians told a 2022 survey that they were looking for cashback offers (50% of respondents) and product discounts (46%) [10]. Since COVID, the older generation has been coming online in ever greater numbers. The majority of new e-commerce users are now over 45 years old [11] And almost half of new shoppers are women [11]. 

Indian e-commerce: enabling and limiting factors

Eighty-three percent of Indian adults have a bank account [1].  But just 3% have a credit card [1]. Two things instantly stand out about these statistics. In some markets, it might be feasible, if not equitable or fair, to ignore the 17% of the adult population that doesn’t have a bank account. In India, this means giving up on the commerce of over 176 million people. That’s a lot of lost opportunity. 

Looking at e-commerce today, Indians pay for 28% of all online purchases using a credit card [1]. But just 3% of Indian adults actually have a credit card. This almost certainly means that a very small number of wealthy consumers are overrepresented among the e-commerce user base. As more Indians shop online, the proportion who don’t have a card and need another way to pay will grow. 

India is 44^th out of 160 countries in the World Bank’s Global Logistical Performance [12]. This puts India in front of many other emerging economies. There is also a major public and private effort underway to improve the country’s logistics infrastructure. In September 2022, the Indian government launched its New Logistics Policy. 

Among other things, the government has promised to work with the private sector to bring the average costs of logistics down from 14% of GDP to single figures [13]. This should help to reduce delivery costs across all sectors, including e-commerce. 

In the meantime, the private e-commerce retail logistics sector is already growing at a rate of 24% a year and is expected to do so until at least 2026 [14]. This is a faster the e-commerce market, which will grow by an annual average of 16% during the same time period [1]. This should mean significant and increasing extra capacity within the system over the next half decade. 

Footnotes:

1. Original PPRO research
2. https://techcrunch.com/2022/08/24/india-american-express
3. https://techcrunch.com/2022/06/16/india-lifts-ban-on-mastercard
4. https://www.imf.org/en/News/Articles/2022/10/26/cf-how-indias-central-bank-helped-spur-a-digital-payments-boom
5. https://thefintechtimes.com/reserve-bank-of-india-pushes-digital-payment-capabilities-with-latest-payment-vision
6. https://economictimes.indiatimes.com/tech/technology/ecommerce-user-base-in-india-to-outpace-us-in-two-years-bain-report/articleshow/94767324.cms
7. https://www.forbesindia.com/article/brand-connect/the-changing-trajectory-of-ecommerce-in-india/79447/1
8. https://www.statista.com/statistics/1294150/india-online-fashion-market-size-in-d2c-sector
9. https://www.statista.com/outlook/dmo/ecommerce/electronics/india
10. https://www.indianretailer.com/article/whats-hot/retail-trends/50-pc-of-indians-are-motivated-to-buy-online-for-value-for-money-deals.a8003
11. https://www.bcg.com/publications/2022/e-commerce-in-india-ten-things-you-should-know
12. https://lpi.worldbank.org/international/global
13. https://economictimes.indiatimes.com/small-biz/sme-sector/national-logistics-policy-indias-new-policy-framework-to-be-globally-competitive/articleshow/94292753.cms
14. https://www.indianretailer.com/article/technology/whats-hot/indian-e-commerce-retail-logistics-market-to-be-worth-6-3-bn-in-fy26.a8069