India Payments Research

India’s United Payments Interface (UPI) payments rail is the most successful initiative of its kind. Domestically, UPI has achieved a dominance that no other payments rail is likely to surpass. According to a report by PwC, it is projected that daily UPI transactions will reach 1 billion by FY 2026-27, representing approximately 90% of India's non-cash transactions. 2024 started with UPI transactions processed in January reaching a record high of INR 18.41 trillion. Given UPI's success, India has sought to expand its footprint internationally and in the past few years it has become available in a number of countries from the United Arab Emirates and Bhutan to the UK and France. Yet questions remain about whether UPI can serve as a foundational platform for digital payments outside of India.

It increasingly appears that India’s fintech unicorn Paytm has a way forward from the regulatory pressure it is facing, but the company will have to part ways with its payments bank and restructure accordingly. To that end, India's Financial Intelligence Unit (FIU) on March 1 imposed a penalty of 54.9 million rupees (US$662,565) on Paytm Payments Bank for violations in reporting illegal money routed through its accounts. Given that Paytm overall has a market capitalization of almost US$3.3 billion, the fine itself is manageable, but the loss of its payments bank will require that the company rejig its operations to remain competitive.

Both Razorpay and Paytm are Indian fintech unicorns that have at different times struggled with  mercurial regulators, but that’s about where the similarities end. Razorpay has focused only on the B2B segment, while Paytm has tried to gain a foothold in both retail and non-retail payments. While both companies have relied heavily on venture capital investment, Razorpay has very little, if any exposure, to China in this regard, while Ant Group’s stake in Paytm is coming under increasing scrutiny. With Paytm’s payments bank in mortal danger and Razorpay preparing to move its domicile from the U.S. to India while planning an IPO, the two fintech unicorns are both at inflection points. However, just one of them is ascendant.

The Reserve Bank of India’s (RBI) harsh crackdown on Paytm has shaken up the subcontinent’s fintech sector. If Paytm were to lose its payments bank due to the RBI’s directives, not only would the future of India’s largest fintech look more uncertain, there also could be unpredictable knock-on effects that reverberated throughout the industry. While the RBI’s move initially appeared to be abrupt, recent media reports suggest that the regulator had issued multiple warnings to the company over dealings between its payments bank and its payments app over the past two years that were not heeded. 

Long a cornerstone of the business of Indian fintech giant Paytm, the company’s payments bank may have entered its twilight. While the Reserve Bank of India (RBI) has previously barred the payments bank from onboarding new customers, this new directive issued on January 31 is more comprehensive and foreboding. It appears the payments bank will no longer be operational after February 29, with just a few exceptions. India's central bank said it took the action due to "persistent non-compliances and continued material supervisory concerns in the bank” –  which it did not specify.

India’s most prominent fintech unicorn has steadily improved its financials in recent years in a push to reach profitability sooner rather than later. In the October to December period, Paytm posted an operating profit – which the company defines as core profit before cost of employee stock options – for the fifth consecutive quarter. The figure was 2.19 billion rupees, a significant improvement over 310 million rupees during the same period a year earlier. Consolidated revenue, meanwhile, increased 38% to 28.5 billion rupees, with its payments business contributing 61% to the total. Despite these solid numbers, the company could face some headwinds in the months ahead.

We recently wrote about how Google Pay has defied the odds in India, a crucial fintech market where both American tech and credit card giants have struggled to carve out a niche. The Google Pay app continues to hold a roughly 35% market share of the paramount homegrown payments rail United Payments Interface (UPI) in India, while WhatsApp Pay and Amazon Pay each have less than 1% and PayPal is absent altogether.

One of the most promising segments of digital financial services in India is remittances. Unlike traditional banking, it is not completely dominated by incumbents, and the massive Indian diaspora population ensures that demand will be robust for years to come. 2023 was another big year for Indian remittances – though not as big as 2022.

Big Tech considers India an important market when it comes to search, social media, messaging and e-commerce. Fintech, however, is another story.

After a long moment in the sun, buy now, pay later (BNPL) has lost some of its luster. That’s not to say it will fade away. Far from it. In fact, many deep-pocketed fintechs and prominent incumbents in advanced economies have introduced the service because consumers like interest-free installment payments. However, pure-play BNPL firms that are essentially one-trick, loss-making ponies are in varying degrees of trouble. In the case of India’s ZestMoney, once a high flyer in the subcontinent’s erstwhile red-hot BNPL segment, the trouble seems to be terminal – and the company will reportedly throw in the towel at the end of this month.

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