That digital payments in India received a major fillip due to demonetization is well-known. Other than Paytm leapfrogging in terms of merchant and customer sign-ups post November 8, the big beneficiary has been the government-backed United Payments Interface (UPI). Developed by the National Payments Corporation of India (NPCI), UPI enables instant bank-to-bank money transfers and merchant payments through a simple mobile app. It launched in August last year, and its trajectory had been flat until demonetization, post which it grew dramatically.
UPI’s monthly transaction value shot up from $15 million before November 8 to $359 million by the end of the financial year (March 2017), according to the recently-released Mary Meeker Report. That is a 24 times increase in less than two quarters. Currently, a third of India’s mobile wallet transactions happen on UPI. This figure stood at less than five percent prior to demonetization.
Most of the country’s large banks, both public and private, have enabled UPI now. Many have launched separate UPI apps too. About three lakh UPI transactions were happening every day in May, according to the NPCI. ALSO READ: UPI now available offline via USSD-based mobile banking; here’s how it works
The expanding UPI ecosystem
“The UPI ecosystem now covers all public sector banks and major private banks. Now we are in the process of extending the service for co-operative bank customers,” Dilip Asbe, Chief Operating Officer of NPCI, said in a statement.
UPI’s merchant network is growing too. The top merchants include Paytm (also India’s largest mobile wallet), and PhonePe (that clocked 1 million UPI transactions in Flipkart’s recent Big 10 Sale). And the top five aggregators are BillDesk, Razorpay, CCAvenue, PayUmoney and Citrus Pay. The volume of transactions stood at over 7 million at the end of April, growing steadily from 6.2 million a month ago.
Recently, communications platform Truecaller launched its UPI-based mobile payment solution in partnership with ICICI Bank. Homegrown instant messaging app Hike is also reportedly testing an UPI-based payments service. Besides rising domestic adoption, foreign players like Samsung Pay have also integrated UPI in its app and the transactions are being facilitated by Axis Bank. Furthermore, there are talks of tech giants WhatsApp and Google rolling out peer-to-peer payments in India riding on the UPI platform. If that happens, UPI is estimated to reach 50-100 million users in a few years. ALSO READ: Paytm now lets you add money to wallet with UPI, here’s how it works
Government’s agility driving growth
UPI is the government’s pet project and one that was hailed as “the WhatsApp moment for Indian banking” by Aadhaar champion Nandan Nilekani. It is believed that UPI, like WhatsApp, can impact millions and inherently change the way things are done. In WhatsApp’s case it was communication, in UPI’s case it is payments.
To push its goal of turning India into a “cashless society”, the government has rolled out multiple UPI-based apps and services, most notable of them being the Bharat Interface for Money (BHIM) that launched in December. Currently, BHIM accounts for 40 percent of all UPI transactions — the highest among all UPI-enabled apps. About 20 million people have downloaded BHIM. “This is a success of enormous significance. Real-time sending and receiving money through a mobile application at such a scale on interoperable basis had not been attempted anywhere else in the world,” A P Hota, MD & CEO, NPCI, said in an earlier statement.
A new version of the BHIM app is due soon and that will have more regional language support, a split bills facility, and Bharat QR code integration. ALSO READ: BHIM app now integrated with UID; Aadhaar Pay service to be launched soon
Then there is Aadhar Pay or BHIM-Aadhar, an app aimed at encouraging merchants, especially in rural areas, to accept over-the-counter payments using customers’ biometric details only. Over 2o major banks have enabled Aadhar Pay transactions. And more are likely to come on board. However, Aadhar Pay uptick has been slow on the merchant side. Reports claim that the cost of authentication devices is prohibitive, thus deterring merchants from adopting them.
What needs further strengthening
Yes, UPI is growing but a few areas need beefing up.
Point of Sales (PoS) partnerships could be a shot in the arm for UPI. Given the low penetration of plastic cards in the country, UPI-enabled payments at offline stores will lead to faster adoption of the service. Currently, Paytm is the most widely-accepted digital currency at PoS terminals. ALSO READ: Paytm now allows users to pay vehicle ‘challan’ via its platform
UPI, of course, is thinking on those lines as its tie-up with Reliance Retail demonstrates. Over 200 Reliance Retail stores in Mumbai across various formats including Reliance Fresh, Reliance Trends, Reliance Digital, accept UPI-based payments. Customers can use any UPI-based app for their in-store purchases, including BHIM or any other bank promoted UPI-app.
Now, this model has to be replicated across outlets in other cities, as well as stores of other chains for UPI to truly become a formidable alternative to cash payments. Moreover, as the effects of demonetization wear off, and cash returns to the system, it is imperative for the government to sustain public interest in UPI-based transactions. Widening the merchant network, incentivising customers, and getting smaller banks on board are some ways to go about it.