Market Walk

UPI Transactions – How UPI cornered a lion’s share of the digital payment market?

Today the use of UPI transactions for making purchases, ecommerce, making money transfers and even to apply for IPOs have become very common. The Unified Payment Interface (UPI) is a lot of digital capabilities wrapped in a pack. The real story is how it has grown.

How UPI captured the market?

When we talk of UPI interface providers, the 3 major names that come to mind are G-Pay, Phone Pe and Paytm. All these are backed by formidable names. While G-Pay is backed by Google, and Phone Pe by Wal-Mart, Paytm is backed by Softbank and Berkshire Hathaway. It is a lot simpler. Transferring funds is about remember a simple email or scan and pay. It is a lot easier using mobiles and also more secure than using credit cards and debit cards in public places.

Some of the numbers are staggering. In FY18, the share of UPI in digital modes of payment was just about 9%. By the end of FY21, this share had grown to a whopping 73%. In the first 7 months of FY22, the UPI share of digital payments has gone up to 80%. During this same period, the share of credit cards and debit cards combined are just 10%. The proliferation of smart phones as well as much reasonably priced bandwidth made UPI a must-have. In addition, the COVID pandemic and the lock-down made UPI a much more convenient form of payments. All these contributed in a big way to the rapid rise of UPI in India.

Kotak makes a smart point

One of the most respected names in India banking, Uday Kotak, has warned that banks must give more focus on how the Fintech companies are slowly dominating the payment ecosystem just on the strength of their technology. The banks had been complacent about payment systems for too long. Uday Kotak has rightly said that unless banks really rethink their value proposition to their customers, they are likely to lose more of their customers to the digital interfaces like UPI. Clearly, the Fintech companies have been a lot more agile and fleet-footed in their handling of the UPI opportunity compared to banks.

But, there are some risks too

UPI may be a great idea but it is also fraught with risks. Even Uday Kotak has pointed out that data sanctity risks do exist as UPI acquires scale. After all, UPI is about millions of small and mid-sized transactions creating an interface of the customer, the bank and the Fintech. This does raise a number of data issues which the regulator may have to deal with. But for now, the business threat is for the banks. A bunch of new-fangled Fintech companies are just snatching away the payment advantage from the banks and they are doing nothing about it. As Kotak rightly summed it up, banks need to be a lot more customer centric and leverage technology to the hilt. That is perhaps the real challenge!

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