Indians used UPI to transact 9.36 billion transactions totaling Rs. 10.2 trillion in Q1 2022. Lets look into how UPI moved on to reach where it is today.
Above is the number of transactions that took place YoY through UPI.
Initially, when the infrastructure of UPI was being laid out, its value proposition was Faster and Convenient payments in comparison to other available alternatives like NEFT, RTGS, Debit/ Credit Cards and Cheques.
While UPI was a significant value add in comparison to NEFT, RTGS and Cheques which are comparatively slower and less user friendly, Its value add was barely enough when compared to IMPS (Note — UPI is built on IMPS infrastructure) and Debit/ Credit Cards which were equally fast and comparatively user friendly.
So what brought UPI where it stands today?
Let’s understand it by a series of questions :
Cash is the most convenient transacting medium, why get into these complex processes?
Over and above all the existing factors that have pushed online payments adoption, here are few of the current times:
Situational push:
Estimates reflect 78% of the transactions used to happen in cash (Source). Post 8th November, 2016, the day when currency denominations were banned, it had and still continues to have an impact on the majority of the population. While the attempt to take out fake currencies in circulation , weed out corruption and account for unaccounted income was the primary motive, the after effects surpassed estimates. Most of the people who remained unaffected were those who used online payment services as their primary source of transactions.
Online count of transactions of 1085 cr transactions worth Rs. 1393 L cr in 2016 to 5554 cr transactions of Rs. 3000 L cr. in 2022. (Source)
Everything online:
E-commerce leader Amazon India recorded a two-fold jump in its customer base from tier 2 and 3 cities during the first 36 hours of its festive season sale. (Source)
E-commerce adoption has been on a boom due to the rapid adoption of smartphones, easy and affordable access to technology, and the convenience of shopping from anywhere, at any time. It is expected to reach $ 120 Bn by 2026 as per estimates (Source). This further calls for alternatives where payments happen with similar ease.
We do need online transactions, but there are already existing online payment alternatives — NEFT, RTGS and others. Why a new one?
Mass adoption!
More ease:
What’s the A/C no. and IFSC code of your neighbor? What’s their mobile number?
The latter is convenient as it is easy to access from the phone directory.
While the details required to transfer money require at minimum bank account number and IFSC code, it was made significantly easier with the introduction of MMID i.e. Mobile Money Identifier.
It introduced an additional layer of ease — (A/C no. + IFSC code = 7 digit MMID) which further got linked to the users mobile number. Now, to transfer money payer only requires the associated mobile number of the payee. (Know more)
Transacting with PPIs/ Mobile Wallets is even easier, but why UPI?
It remains true that mobile wallets were the actual innovators of easy transactions, but they had their own limitations:
Choice — ease tradeoff:
While PSPs i.e Payment Service Providers like Paytm, PhonePe and others captured these markets, no single psp holder captured the majority of the market.
Data Source — Inc 42, Designed by Author
This created a limitation in the payment infrastructure as one could only send payments to those who used the wallet of the same PSP provider. UPI eliminated that all by bringing standardization to the process and became the successor of the already existing landscape.
Lack of Trust:
Trusting PSPs with our own money that recently came into the payments landscape is difficult. There is a need for a trusted body that can surpass the barrier of trust amongst users and lead to mass adoption. UPI is backed by RBI and runs on the trusted infrastructure of NPCI, which accurately fills this gap.
Know more about PSPs, PPIs and Mobile Wallets in our previous blogs: Cracking customer retention through PPIs — Part 1, Part 2 and Part 3.
Above reasons have helped UPI capture a major chunk of the payments landscape.
But there still exists a challenge to address.
Merchants!
What about merchants who have avoided online transactions with all the other available alternatives?
In addition to users already onboarded on the UPI platform due to the above given factors, following are the factors that played a major role in adoption amongst merchants:
Cost of Infrastructure:
Debit/credit cards require POS machines to transact, which cost massively high thus have kept small merchants away.
But how much does a QR sticker cost?
The massive reduction in owning an online payment gateway has attracted small merchants to onboard the platform.
Although this sums it up, anything else?
Additional features:
Can you request money through Debit/Credit Cards, NEFT, RTGS and other available alternatives?
You can through UPI
Can you create payment Mandates through Cheques, NEFT, RTGS and other available alternatives?
You can through UPI
And a lot more…
UPI has been a breakthrough in the Indian Payments Infrastructure, which was supported by a lot of factors that played right.
Understanding the success of UPI can help track emerging megatrends and if possible onboarding their growth at early stages.
Open Network for Digital Commerce…?
Interesting times ahead…
