Big boost to digitisation: UPI transactions rise 13 times

Opinions differ on whether or not demonetisation was a success or a disaster, but there can be little doubt the government’s digitisation drive has been a huge success. It is, of course, true that the usage of debit and credit cards to pay retailers (or at Point of Sale, in jargon) was rising by leaps and bounds even before demonetisation—such usage jumped from Rs 114,207 crore in FY11 to Rs 399,589 crore in FY16 (pre-demonetisation) and to `919,035 crore in FY18. What has really taken off, apart from greater use of debit and credit cards at PoS outlets is the use of the National Payments Corporation of India’s (NPCI) Unified Payments Interface (UPI). Between August 2017 and August 2018 alone, the number of UPI transactions rose 18.8 times to 312 million, and the value of transactions rose 13.1 times to `54,212 crore. Indeed, on a monthly basis, the value of transactions is rising by 18-20%; they rose 18.3% in August over the previous month, 12.3% in July, 22.7% in June and 23.2% in May. All of this, it is interesting to note, has taken place even before WhatsApp’s payments took off since the issue of where the data has to be stored has still not been resolved.

NPCI does not give official data on how much of UPI transactions are made to merchants, but unofficial estimates are this is around 20-25%; the rest are peer-to-peer transfers. Had UPI not been available, the settling would have been done by either withdrawing cash from a bank/ATM or via cheques. If a fifth of all UPI transactions are made to merchants, or at PoS outlets, this means `8,167 crore of payments were made in June via UPI as compared to `94,199 crore via debit and credit cards. That is not a small achievement in such a short time, and when you add the `14,632 crore of transactions via wallets in June to this—once again, it is not clear how much this was peer-to-peer and how much to merchants—the number is even more impressive.

If the government wants UPI-based payments to continue to grow their share, it needs to ensure UPI commissions are kept to the minimum. Indeed, it can defray the costs for transactions below a certain size; if merchants don’t need to pay a commission, they will prefer using UPI solutions to debit/credit cards. Also, the government will have to ensure enough merchant establishments across the country have UPI-based QR codes of the sort that PayTM has ensured its merchant-users have. Once users can scan the QR code, it makes payments easier. UPI 2.0 allows more features to make payments to merchants easier, but PayTM-style QR codes are very convenient. Theoretically, banks can on-board merchants and get them to use UPI’s QR codes, but since banks offer both card-based solutions as well as UPI ones, it is not clear how aggressively they will push this. And if UPI solutions, such as BHIM, learn from PayTM and allow more payments such as for utilities and start giving attractive cashbacks—like on movie tickets—this will make UPI 2.0 even more attractive.