Digital Payments and Digital Wallets: New Technologies in 2026
Digital payments and digital wallets have evolved dramatically in India since 2022, with UPI dominating transactions and new technologies like SoftPOS and AI-driven features enhancing security and convenience.
Digital wallets now primarily leverage UPI for seamless P2P, merchant payments, and credit lines, processing 21.63 billion transactions worth Rs.27.97 lakh crore in December 2025 alone—a 29% YoY volume surge. Proximity wallets have advanced with SoftPOS, turning smartphones into POS terminals for small merchants, projected to surge over 1000% by 2028. Remote wallets include embedded finance, BNPL, and AI personalization for subscriptions and loyalty optimization.
Digital Payments: New Technologies in 2026
- Credit-on-UPI: Pre-approved credit lines via UPI apps bridge the credit gap for 420 million users, enabling instant loans and BNPL without traditional cards.
- UPI Lite and UPI123Pay: Low-value, feature-phone-compatible options boost rural inclusion, targeting 1 billion daily transactions.
- AI Fraud Detection and Tokenization: Real-time AI monitors transactions; mature tokenization secures NFC taps and cross-border remittances.
- Blockchain and Biometrics: Wallets add crypto support, facial recognition, and super-app features like investments.
Advanced 2026 Features
- Invisible Payments: AI auto-detects bills (e.g., scans restaurant receipts) and pays via wallet-linked UPI.
- Embedded Finance: Wallets bundle loans and investments; super-apps like Paytm hit 500 million MAUs.
- Global UPI: East Asia pilots for remittances; tokenised cards for Apple Pay integration.
- Sustainability: Green wallets track carbon footprints of spending.
Most Used Digital Wallets in India
PhonePe, Google Pay, and Paytm command 95% of UPI volume, with the mobile wallet market eyeing USD 51.75 billion by FY2033 at 13.2% CAGR. Retail/e-commerce drives 50%+ share, fueled by cashback and QR expansion.
How Digital Wallets Work
Digital wallets store payment credentials securely on smartphones or cloud servers, enabling transactions via apps like PhonePe or Google Pay. Users link bank accounts or UPI IDs; authentication uses biometrics (fingerprint/face ID) or MPIN, generating tokenized virtual cards for NFC taps or QR scans—data never exposes real card details. Funds transfer instantly via NPCI rails: the sender’s bank debits, and the receiver credits in seconds, with AI monitoring for fraud in real-time.
Core Technologies Powering Them
UPI 2.0+ forms the backbone, supporting conversational payments (“Pay Rs.500 to cab”) and cross-border links with Singapore. NFC/QR for proximity; SoftPOS turns any Android phone into a merchant terminal via software, slashing hardware costs by 90% for kirana stores. Blockchain adds crypto wallets (e.g., Paytm’s pilots); AI/ML personalizes offers; tokenization complies with RBI’s data security mandates.
User Growth Surge Explained
India’s digital payments users hit 950 million in 2025, up 25% YoY, powered by Jio’s feature phones enabling UPI123Pay (sound-based, no internet). Tier-2/3 cities contribute 60% growth via 500 million new banked users; government schemes like PMJDY onboarded 200 million more. Cashback, zero-fee UPI, and 5G speeds boosted adoption—80% of retail is now digital, with wallets at 50% market share.
Top Used Payment Apps Comparison
| Wallet | Tech Stack | User Base (2025) | Growth |
|---|---|---|---|
| PhonePe | UPI Lite, SoftPOS, AI | 550M | Rural credit lines |
| Google Pay | Tokenization, BNPL | 450M | E-commerce dominance |
| Paytm | Blockchain, biometrics | 400M | Bill payments, loans |
| Amazon Pay | NFC, loyalty points | 100M | Shopping integrations |
Security and Challenges in Digital Payments
RBI mandates two-factor authentication and Rs.5,000 daily limits for wallets; AI blocks 99% of fraud attempts. Challenges include cyber threats (addressed by NPCI’s AI grid) and the digital divide, mitigated by offline UPI.
FAQ
Users link bank accounts, authenticate with MPIN/biometrics, and pay via QR scan or NFC; funds move instantly through NPCI’s UPI infrastructure.
UPI 2.0, SoftPOS (phone-as-terminal), AI fraud detection, tokenization, and biometrics ensure secure, contactless payments.
PhonePe, Google Pay, and Paytm lead with 95% UPI share, offering credit lines and BNPL.
No—UPI is the rail for payments; wallets like PhonePe use it but add features like cashback and loans.
