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In contrast to the shadow cast by the Covid pandemic and the subsequent lockdown, fintech and digital payments sectors witnessed high growth in 2020. This is owed to a vast number of people opting to stay in the confines of their home and maintain social distancing. This accelerated digital transformation and also boosted digital payments to promote contactless transactions.
According to the National Payments Corporation of India (NPCI), UPI transactions saw a sudden jump from about Rs. 2,18,391 crore in value in May 2020 to Rs. 2,61,835 crore in value in June 2020. There are several reasons for this boost in digital payments and UPI during the pandemic.
Digital Payments Witness a Boost
Digital payments include payments done without the involvement of cash. These include payments done through credit and debit cards, online transfers (NEFT, IMPS and RTGS), digital wallets (PayTM and Amazon wallet, for example), and smartphone apps. All these forms of payments witnessed a boost during the pandemic, primarily driven by the restrictions imposed on movement and fears of contracting the virus through cash transactions. Digital payments offered safer alternatives to cash transactions.
Digital wallets and mobile app-based transactions specifically saw significant uptake as they also offered ease of transaction over other forms of digital payments. All people had to do when making payment at a restaurant, tea stall, or even to a street vendor was to turn to their smartphone, open a payment app like PhonePe or Google Pay, scan a QR code or enter the merchant’s phone number and make the payment. Alternatively, they could open a digital wallet on their smartphone and make the payment.
Pandemic Accelerates UPI Growth in India
The NPCI introduced the United Payments Interface (UPI) in 2016 as part of the central government’s push for cashless transactions. UPI is a real-time payment system created to enable person-to-merchant (P2M) and inter-bank P2P (peer-to-peer) transactions. In essence, payments can be made instantly from one bank account to another. Today, most cashless payments made using smartphone apps are through UPI. As mentioned earlier, the pandemic gave a significant boost to UPI payments.
Numbers Speak — UPI Growth Statistics
As one can see, the volume of transactions took a massive leap since the first lockdown last year. According to NPCI, the monthly transactions crossed 3,200 million in July this year.
Further, UPI transactions surpassed most other forms of digital money transactions. According to the Reserve Bank of India (RBI), the value of transactions using cards dropped from Rs. 1,511 billion to Rs. 1,262 billion between January and September 2020. Similarly, the value of transactions using prepaid payment instruments (PPI) dropped from Rs. 183 billion to Rs. 166 billion during the same period. However, the value of transactions during the same period increased from Rs. 2,162 billion to Rs. 3,290 billion.
Regulators Play a Key Role
Besides the restrictions on movements during the pandemic and the fear of spreading the virus, regulators, too, played a key role in boosting UPI adoption. For example, they removed the fees involved, such as the merchant discount rate (MDR) and payment service provider (PSP) fees in UPI transactions. Further, the Central Board of Direct Taxes (CBDT) directed the banks to stop charging fees for UPI transactions in August 2020. It further directed them to refund all the fees levied since January 2020.
The NPCI removed the PSP fees for P2M transactions from January 2020 to encourage the adoption of UPI by merchants. NPCI further doubled the transaction limit for some UPI transactions from Rs. 1 lakh to Rs. 2 lakh. All these steps were taken to encourage UPI adoption by consumers and businesses.
The 2021 Outlook Is Bright
While UPI offers a plethora of benefits, there are also a few challenges. For example, many infrastructural issues have come up in the recent past, leading to an increased number of failed payments. Banks’ services such as HDFC Bank’s digital services and SBI’s YONO app have had technical glitches and outages in the recent past. All these have highlighted the need for better infrastructure.
Despite these challenges, the outlook for UPI utilization looks positive as banks say they look to have more digital engagement with consumers. More fintech players are also adopting UPI as part of their payment systems. NPCI has also launched a subsidiary NIPL to internationalize UPI. According to PwC, the UPI transaction value is expected to hit Rs. 128 trillion in the financial year 2024-25. The present security and infrastructure issues, too, are expected to be rectified by the regulators.
All these are indicative of a positive outlook for UPI adoption.