India’s mobile payments revolution: innovations, challenges and the road ahead

India’s journey towards becoming a cashless economy has been nothing short of transformative. Spearheaded by innovations like the Unified Payments Interface (UPI), digital wallets, and payment gateways, mobile payments have reshaped how millions transact daily. With India’s digital payments market projected to reach $10 trillion annually by 2026, fuelled by increased smartphone penetration, affordable internet, and fintech advancements leading to the next decade promising both immense opportunities and significant challenges.

The UPI Revolution and Beyond

India’s UPI system, developed by the National Payments Corporation of India (NPCI), has revolutionized domestic payments. In December 2024, UPI recorded 16.73 billion transactions (Source: NPCI), becoming the backbone of peer-to-peer (P2P) and merchant transactions alike. Its open architecture, interoperability, and seamless user experience have democratized payments, encouraging adoption among small merchants and rural users.

Emerging Innovations:

o Voice-enabled Payments: Voice-enabled payments are gaining traction globally, with players like Amazon Alexa and Google Assistant integrating payment features into their ecosystems. These platforms allow users to perform tasks such as bill payments, purchases, and fund transfers using simple voice commands. In India, this innovation is evolving further through vernacular language support and AI-driven technologies like Hello! UPI, making voice-enabled payments accessible to rural and non-tech- savvy users. “Hello! UPI” feature enables users to make voice-enabled UPI payments and some Banks / Apps are already offering this feature. Initiatives like these ensure financial inclusivity and bridge digital literacy gaps, helping India stay at the forefront of this growing trend.

o Wearables and IoT Integration: The integration of wearable technology and IoT (Internet of Things) is transforming digital payments by enabling contactless, instant transactions. Devices like smartwatches, fitness bands, and NFC-enabled smart rings equipped with Near-Field Communication (NFC) technology enable users to tap and pay without physical cards or smartphones. Globally, brands like Apple (Apple Watch), Samsung (Galaxy Watch), and fintech players like Garmin Pay and Fitbit Pay have already introduced contactless payment options through wearables.

In India, some of the leading banks and payment providers have launched NFC- enabled wearables, allowing users to link their accounts and make payments with a single tap. The Indian wearable payments market is poised for exponential growth, driven by a tech-savvy younger demographic, increasing adoption of smart devices, and partnerships between banks and fintech companies. Moving forward, wearable payment innovations will extend to IoT devices, including connected cars and home appliances, enabling seamless payments for services like fuel, tolls, or groceries.

o Cross-border UPI Expansion: India’s UPI system has redefined domestic payments and is poised to reshape international transactions. The National Payments Corporation of India(NPCI), through its international arm, NPCI International Payments Ltd (NIPL), has been actively forging partnerships to globalize UPI. Notable initiatives including:

o Singapore: The linkage between UPI and Singapore's PayNow enables users to perform cross-border transfers seamlessly between India and Singapore.

o United Arab Emirates (UAE): Collaborations with entities like Network International have facilitated UPI acceptance across various point-of-sale terminals in the UAE, allowing Indian tourists and NRIs to make local payments using UPI.

o Europe: NIPL has signed a Memorandum of Understanding (MoU) with Eurobank in Greece to enhance cross-border payments using UPI infrastructure, aiming to revolutionize international money transfers.

o Africa and South America: NPCI is engaging with several countries to assist in establishing digital payment systems modeled on UPI. Agreements have been signed with the central banks of Peru and Namibia, with plans to launch similar systems by late 2026 or early 2027.

These strategic collaborations underscore NIPL's commitment to extending UPI's reach globally, promoting efficient and secure digital payment solutions across borders. The expansion into cross-border payments offers several significant user benefits:

o Cost-effective Remittances: Traditional remittance channels often incur high fees, making cross-border UPI a game-changer by offering low-cost, real-time money transfers. For instance, Indian expatriates in Singapore can seamlessly send funds to family members via the UPI-PayNow linkage.

o Tourism Payments: Indian tourists can now use UPI apps like PhonePe and Paytm for purchases abroad, eliminating the need for currency exchange or additional forex fees, as seen in UAE collaborations.

o Ease of Trade Transactions: By reducing reliance on SWIFT or other expensive forex solutions, UPI-based systems simplify transactions for small businesses and traders. Furthermore, fintech companies and Payment Service Providers (PSPs) like PhonePe and Paytm are actively working on expanding their digital platforms to serve Indian users abroad. This international expansion aligns with India’s goal of boosting remittance inflows and solidifying its reputation as a digital payments innovator.

These innovations—voice-enabled payments, wearable technology, and cross-border UPI— highlight India’s evolving mobile payments ecosystem. By learning from global pioneers and investing in localized solutions, India is poised to drive the next wave of digital payments, making financial services more accessible, efficient, and future-ready.

However, competitive challenges remain:

o Global Standards and Interoperability: Aligning UPI with international payment standards (like ISO 20022) is critical for widespread adoption.

o Regulatory Hurdles:Different countries have varying data localization and compliance requirements, which could slow adoption.

o Market Competition: UPI must compete with entrenched global systems like PayPal, Visa Direct, and Western Union, which dominate cross-border payments.

o Digital Wallets and PSPs: Adapting to Change While UPI dominates instant transfers, Payment Service Providers (PSPs) like PhonePe, Paytm, and Google Pay have revolutionized the payments ecosystem. These platforms primarily facilitate UPI transactions but also offer digital wallets to cater to specific customer needs. While digital wallets remain relevant, the introduction of mandatory Know Your Customer (KYC) regulations by the RBI has caused wallet adoption to slow down.

Nevertheless, Wallets remain relevant in:

o Transit Systems: Metro cards, toll payments, and parking fees thrive in closed-loop wallet systems.
o Small Merchants: Digital wallets provide instant settlements without bank delays.
o Subscription Payments: Simplified recurring payments for OTT platforms and microservices.

By integrating financial services such as micro-insurance, bill payments, and short-term lending, wallets are transforming into comprehensive financial super apps.

Payment Gateways: Powering E-commerce Growth

Payment gateways are essential infrastructure in digital commerce, acting as intermediaries that authorize and process online transactions. They enable secure payment flows between customers, merchants, and financial institutions by encrypting sensitive data such as card details or bank information.

The payment gateway ecosystem supports multiple modes of digital payments, including:

o UPI transactions
o Debit/Credit cards
o Net banking
o Wallets

Leading players like Razorpay, PayU, CCAvenue, and Paytm Payment Gateway have enabled businesses—small and large—to go digital seamlessly. By providing plug-and-play payment solutions, these platforms support merchants with:

o Multi-channel Integration:Unified payment gateways work across websites, mobile apps, and QR codes to maximize convenience.

o Transaction Security: Gateways implement advanced PCI-DSS compliance, tokenization, and fraud detection tools to ensure secure payments. PCI-DSS compliance ensures that payment platforms meet globally accepted standards for storing, processing, and transmitting cardholder data securely. Meanwhile, tokenization safeguards sensitive card details by replacing them with secure, randomly generated tokens, reducing exposure to fraud.

o Scalability: They handle high transaction volumes during e-commerce peaks like festive sales. The rise of e-commerce— currently valued at approximately $75 billion (Source: IBEF 2023 Report) and projected to reach $350 billion by 2030—has made payment gateways indispensable. In summary, while PSPs like PhonePe and Paytm create end-to-end payment ecosystems for consumers, payment gateways serve as the technological backbone for e-commerce, ensuringseamless, secure, and scalable payment experiences. Together, these advancements are fuelling India’s digital commerce revolution.

Challenges Hindering the Growth

o Cybersecurity Threats: With the surge in digital transactions, India faces increasing cyber fraud and phishing attacks. Strengthening security protocols, adopting tokenization, and educating users will be critical.

o Global Competition: While India’s digital payments market is dominated by domestic players like PhonePe, Google Pay, and Paytm, however, the entry of global tech giants such as Apple Pay, Amazon Pay, and WhatsApp Pay even with limited success so far, represents a competitive challenge that demands domestic players remain agile and innovative.

o Rural Digital Literacy and Infrastructure: While urban India leads the charge, rural adoption remains fragmented due to limited digital literacy, patchy network infrastructure, and device affordability. Bridging this gap is essential for achieving true financial inclusion.

What Lies Ahead

To sustain its leadership in mobile payments, India must address challenges while embracing innovation. One key area is expanding fintech inclusion in rural India. Efforts like offline UPI, simplified user interfaces, and digital literacy programs will empower rural users, enabling them to participate in the digital economy.

Further, by embracing innovations like voice payments and wearables and addressing challenges like cybersecurity, rural infrastructure, and global competition, and the nation is poised to solidify its leadership in the cashless economy, inspiring global benchmarks in digital payments.

At the same time, leveraging emerging technologies like AI and blockchain will enhance security, streamline transactions, and foster trust. AI-powered solutions, such as real-time fraud detection and automated customer support, will play a crucial role in tackling cybersecurity risks and improving user trust. Blockchain technology, on the other hand, can enhance transparency and security in payment systems while enabling cost-effective cross-border transactions, addressing both domestic and global challenges.

Collaborative efforts between banks, fintechs, and regulators will be essential to building a resilient, inclusive, and globally competitive payments ecosystem. Initiatives such as regulatory sandboxes by the RBI can encourage innovation, while ensuring safety and compliance. India’s mobile payments journey is not just transforming domestic transactions - it is setting a benchmark for other emerging economies worldwide.

This article is authored by Kanwar Dang, Assistant General Manager, Digital Banking, ICICI Bank. All views expressed are personal.