The Unified Payments Interface (UPI) has taken little time to come into its own. In the month of its launch in August 2016, it had 21 banks on its network, which yielded a low transaction volume of 93,000, worth a little over Rs 3 crore. Its annus mirabilis arrived as early as in 2017-18, with the launch of the Bharat Interface for Money (BHIM) app and the on-boarding of Google Pay (then Tez) and Paytm leading to a surge in usage. And the figures for February 2019 reveal how far it has come its launch: The number of banks offering UPI payments has surged to 139 and the volume and value of UPI transactions stand at 674 million and Rs 1.7 lakh crore, respectively.
In August 2018, the National Payments Corporation of India (NPCI), its parent, launched an upgraded version of the UPI with a bank account-to-bank account payment feature that allowed money to be transferred using nothing more than a phone number.
And yet, despite recording an exponential growth in terms of usage, UPI has not been able to achieve all its objectives. While NPCI does not release disaggregated data on peer-to-peer (P2P) and P2M (peer-to-merchant) UPI payments, it is commonly accepted that UPI s growth over much of its journey has been largely led by P2P transactions, even as contributions from merchant transactions have been rising in recent months. In a 2018 interview to FE, NPCI managing director (MD) and chief executive officer (CEO) Dilip Asbe said the offline growth was tough because banks and third-party players had to invest money to acquire merchants and train them. It s a demand-and-supply situation, where a consumer should be willing to pay through this mode and that merchant should be enabled.
So, success for us on the offline side is still some time away, he observed. If the upgraded version of UPI is able to meet its goals, more offline merchants may switch to UPI-based payments from point-of-sale (POS) machines. In addition to other things, UPI 2.0 allows users to access a digital invoice and verify a merchant s credentials, ascertaining if it has been originated by the right party. Customers can pay seamlessly once they have verified the details of the invoice.
Bankers are also coming up with ideas to make it more attractive for small merchants to use the system. With a view to driving digital transactions, banks have suggested to the government that smaller vendors be on-boarded as peers for QR-based UPI transactions, thereby sparing them the merchant discount rate (MDR). If the suggestion is implemented, eligible merchants would not need to shell out MDR, or the fee charged by banks for offering payment-acceptance infrastructure. The MDR for UPI transactions stands at 0.25% for transactions of under `1,000 and 0.65% for all other transactions.
Yet, it is not just merchants who pose a behavioural challenge. Consumers need to be reoriented, too. As Asbe said, it may be a while before a large set of consumers used to card-based digital transactions are weaned off them. QR is in its early stages and new systems like these take some time to settle down. Currently, merchants are being on-boarded to Bharat QR and BHIM QR, but change in consumer behaviour takes time. Consumers have been used to making merchant payments using cards. Through the new methods we are asking them to scan the QR code, he observed.
Yet another problem has been the tendency of Indian consumers to adopt digital payments when offered incentives and go back to cash once withdrawn. For instance, when the NPCI restricted cashbacks on use of the BHIM app by new consumers and merchants in July 2018, it began to see a steady dip in usage. The volume of transactions through the BHIM app fell on a month-on-month basis for the third straight month in February, with the share of the app in the UPI pie slipping to under 2%. Asbe said that should not be seen as a problem because it meant the field was widening for other UPI apps to participate in the ecosystem, which was desirable. The objective was never to launch one app and get everybody onto that app. It was to create a BHIM UPI app ecosystem where hundreds of apps were made available to the consumer, Asbe said.