Retail lending market expected to touch USD 1 trillion and MSME lending market to touch USD 600 billion by FY 2026

Indian 500 rupee notes lie on the cashier counter of a branch of HDFC Bank in Mumbai
Indian 500 Rupee notes. (Image: MeelBijendra/Gitika)

Mumbai, September 15 (Meel Bijendra) – Several developments over the past few years have helped shape India’s payments landscape, be it innovation in mobile payments infrastructure, continued regulatory support, or government initiatives to increase consumer and merchant acceptance.

Given the growing shift towards a cashless economy and users’ preference for transactions via smartphones, mobile payments are growing rapidly. This has been further boosted by the growth of mobile commerce and services.

As a result, Unique online transaction users transacting for services like online banking, mobile top-up, in-store payments, etc. are expected to grow from 250-300 million in FY2021 to 700-750 million by FY2026.

The penetration of non-cash payment methods is low in India compared to other countries.

The value of card transactions (credit cards + debit cards) remains around 7% of GDP in FY2023, which is lower than developed countries whose penetration is more than 30%+ of GDP. Including mobile payments like UPI (P2M only), the ratio is c.18%.

Economists estimate digital payments TAM in India to be US$650 billion in FY23 (merchant payments only; cards + UPI), growing at a CAGR of 41% from FY17.

They estimate India’s payments TAM to grow at 23% CAGR over FY 22-30E to reach US$2.3 trillion by FY30E. By fiscal year 2026, the retail lending market is expected to be worth US$1 trillion, and the MSME lending market is expected to be worth US$600 billion.

In such traditional financial services products, India has opportunities for growth aided by technology and increasing digitalization to increase access and reach.

Industry research estimates the total BNPL market in India at US$3 billion in FY2021, of which US$2 billion was through online channels, while the remaining US$1 billion was through offline channels.

They estimate the BNPL industry to grow at 65% CAGR over FY21-26E and reach US$35 billion (about 14% of credit spend) by FY2026E. Economists estimate that out of the US$35 billion, online channels will account for US$24 billion and the remaining US$11 billion will be through offline channels.