UPI sets searing pace while e-wallets wobble

While digital payments overall have been growing strongly, people are changing the way they transact, choosing bank-to-bank methods such as the Unified Payments Interface (UPI) over other instruments such as e-wallets.

An analysis by The Hindu of data from the Reserve Bank of India (RBI), the National Payments Corporation of India (NPCI) and some industry players from April 2018 to March 2019 shows that not only is the UPI platform outperforming e-wallets in terms of the value of transactions done, but it is also eating away at e-wallets’ market share in specific areas such as person-to-merchant (P2M) transactions.

Payments made on the UPI platform saw a remarkable growth of over 400% in the April to March period, from a little more than Rs. 27,000 crore in April 2018 to Rs. 1.35 lakh crore in March 2019.

Completely interoperable

“UPI is completely interoperable and as such, it is unique in the world, where you have an interoperable system on the ‘send’ and ‘receive’ side,” said Hemant Gala, head-payments, banking and financial services at PhonePe.

“That is, you can send money from different accounts in different banks and receive it in different accounts in different banks. It was a solution designed to be mobile-first, and it shaped that ecosystem because customer adoption of mobile was growing very strongly.”

The rapid growth of UPI is accompanied by a reasonably strong growth in the value of transactions done using e-wallets, but the latter’s growth has not taken off much following the fillip it received in the aftermath of demonetisation in November 2016. E-wallets saw total transaction value grow 210% in the November 2016 to March 2017 period, but this has since slowed to 123% in the April 2018 to February 2019 period.

In absolute terms as well, transactions done using e-wallets in February 2019 (Rs. 16,497 crore) are only 15% of the size of the total transaction value on the UPI platform.

Data from Razorpay — for the percentage share of each payment method in payments made by customers to merchants — also shows that e-wallets are losing ground to UPI. E-wallets accounted for 6.3% of all customer payments made to merchants in 2017-18 and UPI accounted for just 1.6%. In 2018-19, the share of e-wallet transactions fell to 1.87% and the share of UPI rose to 17%.

The Hindu also contacted Mobikwik, Amazon, Paytm, Truecaller, Freecharge, Ola, and the NPCI but either did not receive a response or the companies declined to comment on record. Those who did comment, even off-the-record, said that UPI was indeed posing a threat to e-wallets, but added that there were some factors that were keeping e-wallets in the game.

“There is definitely competition coming from UPI, because UPI is something even the government is backing and so the convenience factor is much more,” the payments head of a major e-wallet company said on the condition of anonymity. “Most people would prefer transactions from their bank accounts itself, rather than going on topping up a wallet, but there are some people who are uncomfortable with the idea of money directly going from the account.”

Others argued that the size of the digital payments market in India was such that various instruments could exist without really eating into each other’s market share.

Diverse use cases

“If you look at personal consumption expenditure in India, and what percentage of these transactions happen digitally, in India it is about only 3.5-4%,” Mr. Gala said.

“India is a diverse country in terms of customers and use cases. UPI has certainly grown tremendously, but every instrument has its own space because of the diverse uses.”

“There would be millions of customers who would want to start their digital payments journey using a wallet,” Mr. Gala added. “UPI is a great solution, but it has some hurdles to adoption such as linking phone numbers, linking bank account, entering debit card number, etc. Many people might want to start with simpler instruments and then transition to more complex ones.”

While some of the growth can be attributed to the low base, the astronomical increase in transactions has meant that UPI is now competing seriously with the incumbent forms of digital payments such as credit cards and debit cards.

For example, while credit card transactions in April 2018 (Rs. 45,174 crore) stood at about 1.5 times the UPI transactions by value in that month, by February 2019 the value of credit card transactions (Rs. 48,859 crore) was less than half of those done on the UPI platform.

Debit cards are far more popular than credit cards as can be seen from the fact that the value of debit card transactions stood at Rs. 3.05 lakh crore in February 2019. Here too, UPI is fast catching up. The value of UPI transactions was only 8.7% the quantum of debit card transactions in April 2018. This proportion climbed to 35% by February 2019.

UPI now offers serious competition to traditional forms of digital payments such as credit cards and debit cards