In 2019, the Unified Payments Interface (1) exceeded one billion transactions per month and is now up to 1.3 billion transactions per month. In the three years since its launch, UPI has become one of the world’s fastest-growing payment platforms and has attracted global policymakers’ attention. It is now regarded as an essential innovation in institutional and public policy. The Unified Payments Interface product line payments platform of the Indian government tracked 1.32 billion transactions worth Rs 2, 21,995 Crore in February 2020, providing a significant boost to the digital payment space. In February, the number of transactions increased by 1.4 percent to Rs 2, 16,242 Crore from 130 billion transactions in January. According to Worldline’s India Digital Payments Report 2019 (2), after recording a transaction volume of 10.8 billion, UPI emerged as the most preferred mode of transaction in 2019, marking a 188 percent increase year-on-year. In December 2019, UPI broke all records by clocking 1.30 billion transactions worth Rs 2 trillion.
Third-party apps were enabled with the Unified Payments Interface to collect debit instructions and send them to the account holder’s bank, using the protected backend systems operated by the Indian National Payments Corporation. With specialized apps such as PhonePe, PayTM (3), Google Pay (4), Amazon Pay (5), and others vying to be the customer’s favorite payment app, this intentional decoupling has led to competition and innovation. They all run on the payment rails of the UPI. The government of India has been continuously seeking a digital economy. A digital change in market trends has resulted in the Internet and mobile phones availability at lower prices. The market demand for digital transactions increased by 338 percent between December 2018 and December 2019, according to a study titled ‘Age of Fintech Growing’ by the fintech company Razorpay (6).
How UPI has attained success in India
India’s UPI system went through 1 billion transactions and around 100 million subscribers in October 2019 (7), just three years after its launch. More than a third of all online transactions in the country are now performed through UPI. India’s UPI went international in November 2019, with demo transactions being tested through the NCPI’s BHIM app in Singapore (8). According to sources, due to the large Indian expatriate community living there, the Indian government is exploring the launch of the BHIM UPI app in the UAE. Both Singapore and the UAE have already expanded their markets are ready to use RuPay (9) cards from India, and Indian ex-pats will have a cheaper and more comfortable choice to send their remittances back home if the implementation of the UPI system goes through.
Google’s tech giant’s flagship payments app, Google Pay (10), has seen tremendous success as UPI’s popularity among Indian residents has risen. The app registered 67 million monthly active users within two years of its launch, followed by rival PhonePe, owned by Flipkart (11), at 55 million monthly active users. Paytm, value at 16 billion, remains the industry leader, with 140 million active users a month. Numerous countries across the world have gazed at the performance of India with real-time digital payments. Following the popularity of Google Pay with UPI, Google suggested in 2019 that the U.S. The Federal Reserve is also introducing a forum for real-time payments on the UPI lines of India.
Google Pay’s growth and revenue in India
Two years after its introduction in India, in September last year, Google’s electronic payment platform Google Pay (12) crossed 67 million monthly active users in India, driving annual rate transactions worth over 110 billion with hundreds and thousands of offline and online merchants. The growth in 2018 and 2019 was primarily due to the steep increase in digital payments based on the Unified Payments Interface. The overwhelming majority of India’s over 60 million small businesses are still not benefiting from the rising digital economy, according to Ambarish Kenghe, Director, Product Management, Google Pay. The tech-giant had also launched a new app called GPay for Business (13), a free and simple way to make digital payments without the hassle of time-consuming onboarding and verification processes for small and medium-sized merchants.
“Over the last two years, we have had such a lot of coverage with our payment product. We had an immensely successful launch in India through which we learned many features, and we are introducing it. We are trying to revamp our payment products globally”
(14) said Sundar Pichai over an investor’s call while disclosing earning of its YouTube and cloud-based services.
PayTM’s success in India
In the ongoing run for success, Paytm has focused on creating its brand identity more authentic. It recently seemed to be ahead of its competitors, MobiKwik, freecharge, and others. According to the documents, it was found that around 177 million users currently use Paytm in their day-to-day lives and make a total of 7 million transactions per day. It has reached a capacity of 75 million unique users per month after demonetization (15). About 40 percent of all users belong to small cities, 67 million belong to 56 big cities, and the rest to small towns. In Dec 2016, the list below mentioned information about the total number of users, unique visitors, and other things.
In 2017, Paytm has become the first payment app in India to have even more than 100 million app downloads. It launched Paytm Gold (16) the same year, which enabled users to purchase as little as Rs.1 of pure gold online. It also released, among other things, the Paytm Payments Bank and ‘Inbox,’ a messaging app million. With in-chat payments. By 2018, it began allowing merchants to accept payments directly into their bank accounts from Paytm, UPI, and Card at a 0 percent charge. It also introduced the ‘Paytm for Business‘ (17) app, enabling merchants to instantly track their payments and day-to-day settlements. By March 2018, this led its merchant base to grow to more than 7 million.
PhonePe’s growth in India
PhonePe has now reached the user mark of 250 million. PhonePe also recorded 100 million active users per month, and in October, it clocked 2.3 billion app sessions (18). This comes when there are all-time highs in digital transactions. PhonePe says they reported 925 million transactions on the platform in October, while they saw 750 million transactions in September. There are significant digital channels in Tier II and Tier III cities in India, with more than 70 percent of transactions from users in those cities. PhonePe reports that they saw 835 million UPI transactions (19), which translates into a market share of more than 40 percent of the month’s overall UPI transactions. In October, there were as many as 2 billion UPI transactions across all channels, according to NPCI data, the highest ever since UPI was launched.
NPCI’s influence over UPI transactions
A new limitation will adhere to all third-party app providers beginning on January 1st, 2021. No TPAP (20) will be permitted to have more than 30 percent market share in UPI transactions as per this new cap. However, questions relating to the actual application and execution of this new cap were presented, bringing into question the legitimacy of such a market regulation measure. As of now, even the NPCI has no definitive answers as to how the 30 percent market share limit on TPAPs will be measured and applied (21). If any app were to reach the stipulated threshold of 30 percent market share, the NPCI failed to explain how they would implement the said measure. NPCI has commented that a comprehensive Standard Operating Procedure for the cap’s compliance would eventually be adopted. Until then, apps such as Google Pay and PhonePe, which have the most to lose from such a regulation, have expressed their disagreement with the option of NPCI. Since both Google Pay and PhonePe account for about 40 percent of UPI transactions each month, reducing that number would be almost impossible, particularly since new users sign up every day.
The NPCI recently announced a 30 percent market cap for platforms offering Unified Payments Interface service. Google Pay said the change is likely to influence the country’s further UPI (22). Simultaneously, a 30 percent limit on the transaction amount clocked by a player beginning in 2021 was revealed by the retail payments association. This limit of 30 percent will be calculated on the total amount of transactions processed over the previous three months in the UPI. “By nature, UPI is a fully open and interoperable ecosystem. For new applicants, there is no obstacle to entry at all. There are also new players coming in every day. But why penalize customers by pressuring them at any time to use anything but the best available apps and service providers? ‘Said Sameer Nigam, co-founder, and CEO of PhonePe (23).
According to NPCI data, the United Payments Interface was the most common among Indian users, breaching the two billion mark in October alone among different digital payment modes such as debit and credit cards and Rupay. In the meantime, digital adoption has intensified the effects of COVID-19, and the number of people using contactless payment solutions such as UPI has risen dramatically since the lockdown. The only time that UPI transactions encountered a decline was possibly due to a pause in most economic activity in April as the country was going through the lockdown process. Walmart-backed Phone Pe claimed it commands 40 percent of the UPI market share with 250 million registered users earlier this month. Together over 80percent of the UPI transaction market is controlled by Google Pay and Phone Pe, but surprisingly, the cap doesn’t apply Jio based payment services.
UPI’s growth in the future
Given the country’s large-scale adoption of mobile payments, particularly after the demonetization of 2016 (24), it is not a stretch to imagine that the entire nation will soon be able to pay for goods and services via mobile one day. As India is predominantly rural, and mobile and internet penetration is not as strong as some other developing economies, this is incredibly inspiring. Even with such odds, with the implementation of the UPI system, India has shown tremendous success. India’s urban population is rising rapidly, which is more likely to use emerging technologies and follow new fintech practices (25). This has resulted in a significant mobile and digital payment opportunity in the region and the ‘Digital India’ movement. With homegrown players such as Paytm transforming into super-apps (26), offering within a single interface everything from e-commerce sites, bill payments, investments, etc., to foreign players such as Google Pay and WhatsApp Pay joining the market, the Indian population is targeted with distinct payment options.
Interoperability (27) was a critical reason for UPI’s success in India. Introduced at the beginning of 2018, RBI’s interoperability mandate allowed clients to make and accept payments from users of various payment apps. This made it a national payment system, and there was no need for users to select one app or payment provider to send their peers’ money, pay their bills, etc. To protect their clients’ loyalty, interoperability creates a healthy rivalry between competing payment providers (28). During the few years; mobile payments have increased in India, powered by mostly favorable regulations. However, as the need for full physical KYC verification has now been mandated by the RBI, the scenario is likely to change. Payment providers have historically enjoyed relaxed rules, allowing partial or digital-only mandates for KYC (29). Given that these payment providers have significant numbers of registered customers, this has proved challenging.
