How UPI has evolved over four years

Four years since banks began uploading their Unified Payments Interface-enabled apps on Google Play Store, the government’s flagship digital payment platform has gained traction and has become even more popular in the current Covid-19 pandemic, where contactless payments have largely become the norm.

Launched as a pilot on April 11, 2016, banks started uploading their UPI-enabled Apps on Google Play store from August 25, 2016.

Starting out with just 21 live banks, by July 2020, UPI had 164 live banks and processed 149.7 crore transactions amounting to ₹2.9-lakh crore.

“In less than four years since its launch in 2016, the Unified Payments Interface (UPI) has grown in volume terms to eclipse all other payment modes,” the Reserve Bank of India in its Annual Report 2019-20 said.

Preferred choice

Bankers say UPI is often the most preferred choice for small ticket online transactions.

“In our experience, customers prefer using UPI for small ticket online transactions or for e-commerce transactions, followed by wallets and cards. The preference is also driven by the availability of credit,” said Ritesh Pai, Chief Digital Officer, YES Bank, adding that individuals also use credit cards and Pay Later options, in case they have access to credit.

“Easy interface, two factor authentication and interoperability have made UPI attractive to customers, especially in Tier I and II cities,” noted another bank executive, who did not wish to be named.

A recent report by RedSeer consulting noted that Indian consumers are becoming more digitally mature, especially in Bharat (Tier 2+ cities) while the pandemic too has led to increasing digital wallet share.

“This has directly led to increased use case for mobile payment modes (both UPI and wallets) due to seamless integration with online platforms,” it said, adding that mobile payments (UPI and wallets) are expected to be nearly 50 per cent in terms of number of transactions.

The RBI, along with the government and National Payments Corporation of India, is now working to expand the reach of UPI and RuPay globally, apart from Bhutan, Singapore and prospectively in South Korea and UAE. To this end, the NPCI has also launched its subsidiary- NPIL.

Similarly, Google LLC had earlier cited UPI as an example to the United States Federal Reserve for its proposed FedNow — a new interbank gross settlement service.

Merchant Discount Regime

However, the zero Merchant Discount Rate regime, introduced from January 1 this year on a number of specified electronic transactions, is seen as a challenge for expanding UPI payments as it impacts revenue streams.

Abhishek Chauhan, Head for India Consulting Business at RedSeer, and co-author of the report said, “It will be tough for standalone business models to sustain in this market, especially since monetisation potential is limited, post MDR removal earlier this year.”

Terming UPI as the country’s biggest technology product contribution to the world, Ashneer Grover, Founder and CEO, BharatPe, however, said, “It will be the case study for zero MDR model on payments.”

Pai of YES Bank also noted that the announcements around zero MDR have prompted banks to look beyond the obvious revenue streams, to justify the commercial viability of the investments in this technology and infrastructure intensive payment system. “At Yes Bank, while we are aiming to adapt to the evolving landscape, we are also confident that we will innovate and explore more revenue generating use cases over this payment rails,” he said.

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