The integration of payment gateway has become one of the most critical aspects of any business in every industry. It allows collecting money through the customer's preferred bank without compromising on sensitive data.

- With the increasing internet penetration and awareness about the ease of online transactions, consumers are changing their preferences for making payments online. The hurdle free transactions generate confidence among the users for switching to online transactions. This rapid adoption of the online method of payment is fueling the payment gateway market growth in India.

- For instance, according to TRAI, the total internet subscriber in the country as in September 2019 is 687.62 million, and according to the RBI, the mobile payment transaction volume increased by about USD 10 billion in 2018, owing to increasing internet penetration and smartphones in the country.

- The payment gateway market in India is boosted by an increase in digital payment trends in India. Government initiatives are helping enhance the digital payment space and put emphasis on moving toward a cashless economy. For instance, the Digital India program is a flagship program of the Government of India with a vision to transform India into a digitally empowered society.

- Demonetization was a massive currency culling exercise taken up by the government in November 2016, which made 86% of the currency in circulation invalid. The step was taken to fight against black money, terror financing, and counterfeit currency. This was a major driving force for the adoption of different payment gateways in the country.

- For instance, just during the week of demonetization, Paytm started seeing a 200 percent increase in downloads and a ten-fold increase in the addition of money in the wallet right on the night of demonetization. A year later, the Paytm merchant base had swollen to 5 million from around 800,000 a year before. ​

- According to the National Payments Corporation of India, Unified Payments Interface (UPI), transactions will see a boost due to the outbreak of Covid-19. The umbrella organization for operating retail payments and settlement systems in India said that the relevance of UPI would grow in the 'phygital' world, combining the physical and digital space, in a post-COVID world.

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Key Market Trends

Growing E-Commerce Transactions to Drive Market Growth

- The rise in e-commerce transactions is increasing the adoption of various payment gateways in India. According to the Indian Brand Equity Foundation, the Indian e-commerce industry has been on an upward growth trajectory and is expected to surpass the United States to become the second-largest e-commerce market in the world by 2034. The e-commerce market is expected to reach USD 64 billion by 2020 and USD 200 billion by 2026.

- Various government regulations are boosting the e-commerce industry in the country. In India, 100% FDI is permitted in B2B e-commerce. As per new guidelines on FDI in e-commerce, 100% FDI under automatic route is permitted in the marketplace model of e-commerce.

- As merchants and users avoid crowding in shops and neighborhood stores due to coronavirus pandemic, merchants will start taking and managing orders digitally, while requesting for payments online remotely. Flipkart-owned PhonePe, as well as Google Pay, allowed users to identify neighborhood stores in a customer’s locality, digitally, which were open and delivering, while allowing users to pay them through their respective apps. According to the RBI, UPI transactions for the month of April 2020 stood at an excess of INR 1511 billion for retail payments.

- New vendors are entering the e-commerce space, which will boost the use of various payment gateways in the country. In May 2020, Reliance Industries launched an online extension of its grocery business under JioMart brand across 200 cities. Products offered on JioMart include fruits and vegetables, dairy and baked goods, staples, snacks and branded foods, beverages, and personal and home care.

Favourable Government Initiatives and Regulatory Standards to Boost the Market Growth

- The RBI’s March 2020 guidelines on Payment Aggregators (PAs) and Payment Gateways (PGs) are crucial to drive the growth of payment gateways in India. The new guidelines besides protecting customer funds (as per the RBI’s 2009 Directions for Electronic Payment Transactions involving Intermediaries), also express recognition of PAs as authorized entities and grant flexibility and control with operations and funds management.

- Under the new norms of RBI, for the escrow account, neither loans nor earning interest is permissible. The PA’s operations will constitute designated payment systems. Interest can be earned over a ‘core portion,’ computed on the basis of the average daily outstanding balance and transferred to a separate account, thus creating a new avenue of income for the PA.

- Also, to boost payments through home-grown real-time payment systems, the government announced the exemption of Merchant Discount Rate (MDR) charges on transactions done via UPI and RuPay payment modes.

- Besides, NPCI is planning to collaborate with the income tax department of India to enable tax payments using UPI. All these initiatives are expected to increase the adoption of payment gateways in India.

Competitive Landscape

The India Payment Gateway market is moderately competitive in nature. The companies operating in the market are executing mergers and acquisitions, strategic partnerships to gain market share. Major players include Paytm, PayPal India Private Limited, CCAvenue, among others. Few recent developments are:

- April 2020 - Paytm Payments Bank partnered with Mastercard to issue virtual and physical debit cards. The deal will see the Paytm Payments Bank beta customers issued with cards in an initial rollout, followed by its entire user base in short order.

- February 2020 - Whatsapp is planning to launch its payment gateway Whatsapp Pay in India in a phased manner as the company has got a nod from the National Payments Corporation of India for the same. The rollout will allow the messaging app to grow its payment services using the government's UPI scheme.

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