How Indian banks are making $64 billion from a freebie

livemint.com:

Banks do try to impose some costs on high-volume users, and the government gives them money to promote low-value online transactions and make formal credit available to disadvantaged groups like street vendors. Yet, a lot of the lenders complain about being made to watch the swelling wave of online payments from the sidelines, rather than being allowed to ride it. Without a profit motive, how will India sustain an industry that — starting from nowhere seven years ago — has come to transact nearly $2 trillion of value annually? It appears that those concerns are overblown.

Even with a free public utility, India’s payment revenue swelled last year to $64 billion, behind only China, the U.S. and Brazil, and rivalling Japan, according to McKinsey & Co.’s latest global survey. The rising tide of online transactions has led to a surge in digital commerce.

That has, in turn, lifted other boats: Credit card usage has also expanded. Nor has the lack of a profit motive stifled innovation. New initiatives like pre-approved credit lines will supplement the original protocol that only allowed customers to debit bank accounts or wallet balances to pay someone.

Since last year, credit cards have also been allowed to be linked — but only if they are on India’s RuPay network. Visa Inc. and Mastercard Inc., which have grumbled about the country’s absence of a level playing field, would love to be included.

It’s a different story from other successful payment systems. While McKinsey expects instant payments, led by the Pix platform, to account for half of the growth in Brazil’s payment revenue from transactions through 2027, the comparable figure for India may not even be 10%. India’s profit from payments will expand because of sheer