UPI Payments: 10 Billion Transactions A Month Done, Next Stop 100 Billion

A few weeks ago, a resident of Bengaluru landed in Mumbai and had the surprise of his life. While payments for intercity travel using the unified payments interface are ubiquitous in his city, Mumbai had no such compulsion.

This person was forced to stop at automated teller machines and withdraw cash to pay local taxi and autorickshaw drivers for his commute. He expressed surprise that Mumbai, called India's financial capital, is so far behind on adoption of financial technology.

He made the mistake of putting his unrestricted thoughts on social media platform X (formerly Twitter), though. Incessant trolling aside, an important question was asked, had UPI grown from being a public good to a public essential now?

The latest monthly data for August shows that UPI may very well be on that path. For the first time in its seven years of existence, UPI has crossed the 10 billion monthly transactions benchmark. The value of transactions now stand at over Rs 15 trillion (Rs 15 lakh crore) a month.

Speaking at a media summit in March, Dilip Asbe, chief executive officer, National Payments Corporation of India, had said that UPI transactions have the potential to rise 10 times to three billion payments a day, if the platform receives the right investments.

"At 10 billion, there is still a lot of room for UPI transactions to grow. The data shows that UPI P2M transactions are growing at a pace of over 100% on a YoY basis and have a higher share than P2P transactions," said Sunil Rongala, senior vice president head–strategy, innovation & analytics, Worldline India. "Over time, P2M transactions will drive UPI transactions growth and it will be no surprise if UPI transactions hit 20 billion a month in 18-24 months."

Currently, outside of basic peer-to-peer and merchant transactions, UPI's use-case has expanded to payments for initial public offering and UPI credit. NPCI has also introduced UPI 123Pay, a feature phone-based transaction option for small-value payments.

The expansion of NPCI's international business adds another dimension to potential future growth. NPCI International aims to provide UPI payments in other countries such as France, Singapore, Bhutan, Nepal, United Arab Emirates, Sri Lanka and Bahrain.

"India has emerged as a global leader in real-time payments and UPI stands as the driving force behind this accomplishment. With India's G20 presidency, the government's push toward UPI will lead to greater achievements globally," said Mandar Agashe, founder & managing director, Sarvatra Technologies.

Investments Needed

According to a person in the know, currently about 200 million Indians use UPI, which has the potential to rise by at least three times. Similarly, only 50 million out of India's 150 million merchants currently use UPI, which indicates an additional growth of three times.

In terms of investments, UPI needs more payment applications to work toward merchant acquisition as a way to expand the use-case for the platform. Moreover, banks need to spend money for scaling their payment processing capabilities, the person quoted above said.

Additionally, policy decisions will need to support to lower the entry barrier for new payments businesses to enter UPI. Currently, all merchant UPI transactions are free, irrespective of the size of the merchants.

If policy decisions allow for levying merchant discount rate for large merchants, which have a turnover of Rs 1 crore or more, it could make these UPI payments viable for businesses, this person said.

A Duopoly Reigns

Even as the UPI reach expands, two mobile applications rule the roost as far as customer transactions are concerned. PhonePe and Google Pay account for 80-90% of all UPI transactions.

In the month of July, PhonePe accounted for 4.7 billion transactions worth Rs 7.61 trillion, while Google Pay reported 3.5 billion transactions worth Rs 5.2 trillion. As a platform, UPI recorded 9.3 billion transactions worth Rs 14.75 trillion in July.

While the NPCI did propose to introduce caps on individual applications in 2020, which would limit their maximum market share to 30%, the idea has not taken off yet.

According to the person quoted above, the fast pace at which merchant acquisition is taking place may not allow immediate capping of business targets. In those terms, UPI's runaway success is turning out to be its curse.

The NPCI is working on expanding the merchant acceptance space by allowing entry to more entities which can provide a merchant QR-code. If a large entity were to enter this space for further expansion, that would help fight the duopoly.