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Slow but steady, UPI may win the race against card payments, net banking

Shritama Bose
UPI, card payments, net banking, credit cards, netbanking transfers, Razorpay, UPI platform, P2M transactions

The value of transactions on the Unified Payments Interface (UPI) platform recorded this January Rs 1.09 lakh crore overtook those made by debit and credit cards at Rs 1.05 lakh crore. But ticket sizes of UPI-based payments, especially person-to-merchant (P2M) transactions, remain relatively small. Spends on cards or even netbanking transfers are usually twice as large as those on UPI.

An analysis by Razorpay of all kinds of transactions on its gateway shows consumers tend to opt for netbanking over UPI and wallets for larger payments. Razorpay CEO and co-founder Harshil Mathur wrote in a recent blog post that UPI and wallets take a back seat as consumers use these methods mainly to transact smaller amounts of money of Rs 500 to 1,000. While UPI transactions are on the rise, consumers are increasingly using netbanking to make transactions of a larger value, and therefore, the average transaction value (ATV) for UPI transfers was small.
This isn t really surprising, say experts because consumers would take time to get familiar with and feel confident about a digital channel. It may not be too long, however, before the size of UPI-based transfers matches those by other payment channels.

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Sudhakar Ram, founder and CEO at UPI platform provider Benow, says it is only a matter of time. It s true that the value of a UPI transaction would be about half that of a card transaction and is in the Rs 600-700 kind of range, Ram told FE, adding: I think it s just a matter of getting used to it. After all, offline merchants have been using it for less than a year, he said.

Others in the payments space point out that cashbacks from some UPI apps may have shaped the behaviour of users, who were merely transacting to cash in on the deals. Ramaswamy Venkatachalam, managing director – banking and payments, FIS, said much of the volume in the initial adoption phase of UPI was driven by incentives that led to high volumes but low ticket sizes.

Also, many were not real transactions but money rotating within small user groups. Over time, there is a gradual realisation of the power of the payment method and it has started to impact the P2M segment. This will also push up the ticket sizes of UPI transactions as real commerce transactions become more significant, Venkatachalam noted, adding that over the next 12-18 months, UPI should become more prominent.

In March, both modes of digital transactions crossed the Rs 1-lakh crore mark, with UPI clocking Rs 1.33 lakh crore and cards notching up Rs 1.11 lakh crore in transaction values. UPI usage shot up exponentially over the period between March 2018 and March 2019, with monthly transaction volumes growing 4.5 times to 799.54 million over the year. In its initial days, UPI usage was being driven largely by person-to-person (P2P) transactions. Over a period of time, it has begun to make a dent in the person-to-merchant (P2M) segment, taking away some share even from card-based payments and netbanking, according to market players.