Monthly UPI Transactions Record Fastest Growth In Six Months In June

Monthly transactions through the unified payments interface grew at its fastest pace in six months in June as digital payment companies offer cashbacks and discounts to users to increase volumes.

Transactions grew 30 percent in June to 246.4 million from 189.5 million in May, data released by National Payments Corporation of India yesterday showed. This is also the fastest growth since December 2017 when volumes grew 38.7 percent. The value of transactions rose 22.7 percent on a month-on-month basis in June to Rs 40,830 crore, the NPCI data showed.

The increase in transaction volumes in June can be attributed to the entry of nine additional players, a wider user base and cashback schemes run by the government for UPI users, AP Hota, former managing director and chief executive officer at NPCI, told BloombergQuint over phone. The UPI platform supports 110 banks now compared with 101 in May.

In the last one year, the monthly UPI transactions have grown over 2,300 percent, although on a low base. The payments platform also hit 10-million transactions in a day on June 20.

“The potential is for a billion transaction a day given the large population of this country,” Hota said. “I am very confident that would happen by end of the year.”

The UPI was launched in April 2016. Digital transactions across platforms such as UPI, m-wallets and debit or credit cards increased multifold after the government in November 2016 scrapped high-denomination notes amounting to 86 percent of all currency in circulation.

Private lenders, according to Morgan Stanley, are expected to be the biggest beneficiaries of the growth in UPI payments. The investment bank, in a note dated May 29, said the platform will help banks deliver and recollect loans at a low cost to borrowers. It expects a 400-500 basis point improvement in the cost income ratio over five to six years for banks.

“Given UPI's robust, real-time framework, its share in digital transactions is expected to grow exponentially,” Ritesh Saxena, business head in retail banking, digital and payments domain at IndusInd Bank, told BloombergQuint in an email. “A lot of the current usage is P2P (peer-to-peer)-based and consequently lower in ticket sizes, but with more merchant transactions across retail industries, UPI transaction values are going to rise even faster than volumes.”

Morgan Stanley expects the increased use of smartphones, a rise in younger workforce, the entry of new digital players and the launch of an upgraded version of UPI to drive the growth of the payments platform.

It is expected to account for nearly 50 percent of digital transactions by the financial year ending March 2023 (from 20 percent in March 2018), Morgan Stanley said. This would imply UPI growing at an annualised rate of about 90 percent over the next five years to $400-450 billion a year, equivalent to about 10 percent of GDP, it said.

UPI 2.0, which will address user convenience and security, “can be launched anytime now”, Hota said.