A year that saw UPI turning the undisputed payments champion
As of November 2021, the Unified Payments Interface had seen its transaction value surge 103% over 2020. And that steady clip is likely to continue into 2022.
By Priyanka Iyer
December 24, 2021 / 09:47 AM IST
When the Unified Payments Interface (UPI) was launched in 2016, little did anyone know that it would account for over 50 percent of retail payments in India in just five years.
While India looked towards digital payment modes right after the demonetisation of Rs 500 and Rs 1,000 bills in 2016, it was the pandemic in 2020 that brought a large chunk of new users onto digital platforms amid the nationwide lockdown.
Pandemic push
In 2021, the second year of the pandemic, with the second wave of Covid-19 way worse than anything India had seen earlier, people began switching to digital transactions more than ever before. Monthly UPI transaction values took four years to breach the Rs 3 lakh crore mark in August 2020. Barely 14 months later, in October, that number more than doubled and crossed the Rs 7 lakh crore mark.
Once the habit set in, many Indians have only used online payments for transactions. QR codes for UPI payments are no longer the preserve of restaurants and bigger establishments but can be seen even in tiny roadside stalls.
The year began with the monthly UPI transaction value at Rs 4 lakh crore. And with barely a week left for 2021 to end, that value has nearly doubled to
Rs 7.5 lakh crore (
over $100 billion).
But the party is not yet over for UPI.
Bigger days ahead
Despite having a vast population on board, the scope for adoption of digital modes of payment still remains wide in India and that growth will be driven by UPI as more and more Indians use their smartphones to access financial services.
“The pace of digitisation will continue to pick up. The number of unique customers is growing, we have more than one-and-a-half billion debit and credit cards; mobile phone and internet penetration is growing. All this will increase digital payment adoption,” says Akash Sinha, co-founder, and CEO of payments gateway Cashfree.
Growth in numbers
As of November 2021, UPI has already seen a growth of 81 percent in overall volumes over 2020. Transaction values in 2021 have grown by 103 percent.
In 2020, UPI clocked 18.87 billion transactions valued at Rs 31 lakh crore. This year has already seen 34.18 billion transactions amounting to Rs 63.2 lakh crore.
According to estimates by Jefferies, in the financial year 2022 (FY22), India will see a total of $2.16 trillion worth of digital payments. UPI is expected to make up close to 50 percent of that, followed by Immediate Payment Service (IMPS) at 25 percent.
Credit, debit card payments losing pace
For credit and debit card payments, while the market continues to grow, that growth is not as aggressive. Per Reserve Bank of India (RBI) data as of October 2021, 174 crore credit card transactions worth Rs 7.04 lakh crore were executed by Indians.
That is 20 percent growth in the number of transactions and 44 percent growth in amounts transacted over the same period in 2020.
For debit cards, the growth was much lower. While transaction values saw 20 percent growth in the period between January and October 2021 over the same period last year, the number of transactions was in fact marginally lower — by 0.87 percent — this year.
The year also saw a setback for card transactions after the
RBI barred Mastercard from issuing new cards after the card network failed to meet the regulator’s data storage norms. For a while, India’s largest private sector bank, HDFC Bank, was also barred from issuing new credit cards in 2021. That ban was
lifted by the RBI in August.
While the Mastercard ban opened the market up for incumbents Visa and RuPay, card issuance suffered until banks had switched to Visa and resumed issuing them.
What does 2022 have in store ?
After facing multiple obstacles this year, 2022 looks even more challenging for card payments. The RBI’s new guidelines for payment gateways (PGs) and payment aggregators (PAs) state that PAs and merchants shall not store card credentials of customers in their database.
While it is a relief that RBI has decided to
extend the deadline for these norms by six months to June 30, 2022, in case customers or the ecosystem are not ready to
tokenise cards (i.e., encrypt card data into token numbers to be used for transactions) even by then, there could be widespread disruptions. And that may push more people to switch to UPI.
“A lot of customers are not prepared for tokenisation. When the norms are implemented, UPI will take more market share in overall payments, at least till things settle down,” said Suresh Ganapathy, Associate Director at Macquarie Capital.
However, data shows that customers still continue to rely on debit card, IMPS and NEFT transactions for high-value amounts. A large share of UPI transactions is in fact for small-ticket payments.
Vivek Iyer, Partner and Leader - Financial Services Risk Advisory at Grant Thornton Bharat, expects the older demographic to continue using debit and credit cards as they associate them with increased security.
“But, cards will continue to lose share, given that UPI is replacing not just cards but cash and also bringing new customers into the market. Customer experience is at the heart of UPI-based apps. For example, the time taken to remove cash from a wallet is 20 percent more than the time taken for a UPI payment to go through,” Iyer explained.
As things stand, the National Payments Corporation of India (NPCI), the umbrella entity that handles UPI, RuPay, Bharat Bill Pay etc, is aiming for UPI transactions worth
$1 billion per day in the next two to three years' time.
NPCI is also said to be working on using UPI for credit and Buy Now Pay Later (BNPL) transactions. With the drastic rise in customers accessing small-ticket credit through the BNPL model, this use case could lead to a further boost in UPI usage.
After the RBI’s decisions to look into the charges on cards and to hike the UPI transaction limit on Initial Public Offerings to Rs 5 lakh, NPCI CEO Dilip Asbe tweeted: “1 billion a day, not very far.”
Come December 31, 2022, those words may well have come true.
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