UPI — India’s №1 Digital Payment System | Growth story of UPI
Can you imagine digital payments without UPI? No, right. Unified Payments Interface (UPI) has become an integral part of our day-to-day payments.
From purchasing Rs.5 biscuit packet to applying for IPOs (up to Rs.5,00,000) of companies in the stock market, it has enabled digital transactions with few clicks and less time.
In this blog, I will be taking you through UPI’s growth in digital payments. So, sit back and enjoy the blog.
Before we dive into the growth story, let’s get to know about UPI in brief.
About UPI -
UPI was made available to the general public in 2016. National Payments Corporation of India (NPCI) developed the payment system to allow quick real-time payments between two bank accounts.
It’s developed to provide a secure, efficient, and authorised payment system in India. Another reason was to reduce black money and corruption, as well as to bring more transactions under the tax net.
Benefits of UPI -
- It is fast, hassle-free, and the cheapest way to transfer money to anyone.
- Available 24/7 for all 365 days.
- Only a UPI ID is necessary to do the transaction.
- No need to carry cash.
- You can perform transactions through UPI apps.
- Real-time fund settlement in a bank account.
- No charges on the transactions.
UPI vs Other payment methods -
UPI — It processes the transaction in seconds. It facilitates instant money transfers free of charge.
NEFT — NEFT takes about 12 hours to transfer the money and needs to pay transaction charges if done through a bank branch.
RTGS — RTGS transactions get processed in real-time, but there is a minimum transaction limit of Rs. 2 lakh and above.
IMPS — IMPS is an instant payment service available 24/7 to transfer funds immediately and securely but all the bank details need to be mentioned to transfer the funds.
Growth story of UPI -
India is a technology-driven country. Our country is full of people who are motivated to change the world.
India has a vast population, so the scope of adaption of any technology remains high, which resulted in the growth of UPI.
UPI’s ease and security have helped revolutionise India’s banking sector. It has been designed to enable payments in a few seconds. India has set an example for the rest of the world.
It has helped India to become the digital payment hub around the world. It has grown so rapidly that it has challenged all existing payment settlement methods and established its dominance in them.
Growing digital literacy and financial inclusion in the country helped it become the preferred payment option over credit cards, debit cards, net banking, and e-wallets.
UPI has become a leader by beating the likes of Visa, Mastercard, and internet banking.
So many people started using digital payment modes after the demonetisation of Rs.500 and Rs.1000 currency notes. Replacing cash for low-value transactions was one of the initial objectives.
According to transaction data analysis, 50% of transactions processed through UPI are below Rs.200.
When UPI was first introduced in India, it recorded 1.8 crore transactions worth Rs.6,900 crore in the financial year 2016–17. It increased to Rs.1 lakh crore in the following financial year, 2017–18.
In the financial year 2018–19, the value of UPI transactions increased by nearly 700%, reaching Rs.8.76 lakh crore, and it crossed Rs.21.3 lakh crore in the financial year 2019–20.
Following the success of UPI, Google suggested to the Federal Reserve Board of the United States in December 2019 to develop FedNow in the United States.
Due to UPI’s rapid growth, India has surpassed China and the United States in the real-time payment market.
UPI growth after the covid pandemic -
The covid pandemic fueled the growth of UPI. Many people shifted from physical transactions to digital payments fearing infection by the covid virus.
Many new users entered the digital payment system as a result of the covid pandemic.
While more users are connecting to UPI for various reasons, the same covid lockdown forced retailers to adopt it as a payment option in order to stay in business.
During the second lockdown, more merchants integrated with UPI to keep their operations running. It has tapped into areas where card use is not common, posing a threat to major card payment networks.
It is accelerating the adoption of digital payments in smaller cities where small businesses are shifting to digital solutions.
Every small business is not capable of accepting card-based payment, that’s why it has seen exponential growth in tier-2, tier-3 cities as well as rural areas.
Despite the outbreak of the covid pandemic, the value of UPI transactions reached Rs. 41 lakh crore in the financial year 2020–21.
In the financial year 2021–22, the payment system processed over 45 billion transactions worth Rs.84 lakh crore, nearly double the 22 billion transactions worth Rs.41 lakh crore processed in FY 21.
During the financial year 2021–22, 7,422 crore digital payment transactions were recorded.
UPI was the most used platform for performing digital transactions, accounting for 452.75 crore transactions during the same period.
Since its launch in 2016, UPI has recorded the highest number of monthly transactions in May 2022. According to NPCI data, the payment system has processed 5.95 billion transactions worth Rs.10.41 lakh crore.
It has emerged as a critical component of India’s retail digital payment system.
Keeping this in mind, NPCI developed and launched UPI 123Pay for feature phone users recently.
Feature phone users were unable to use the payment system to make payments. Those who have feature phones can do the transactions without an internet connection.
UPI going global -
NPCI through its international arm, NPCI International Payments Limited(NIPL) is trying to expand UPI in other countries starting with our neighbouring countries.
Bhutan was the first country in the world to use UPI standards for QR codes. Nepal is the first country to adopt India’s Unified Payments Interface. The UPI deployed in Nepal would be overseen by the NIPL in partnership with Gateway Payment Services and Manam Infotech.
PayNow, Singapore’s payment system, is being linked to Unified Payments Interface. It might get operationalised in 2022. Singapore has already started accepting BHIM-UPI in its merchant locations.
NPCI is planning to expand in middle eastern countries. Network International, a digital commerce enabler in the Middle East and Africa, has signed a Memorandum of Understanding with NIPL to launch UPI in the United Arab Emirates.
In June 2022, NIPL signed an MoU with Lyra Network of France for acceptance of UPI. Soon the services will be launched making France the first country in Europe to accept UPI.
What Next? -
UPI will most likely continue to dominate the digital payments space in India. According to the NITI Aayog’s prediction, UPI will overtake Visa and Mastercard by 2023.
NPCI is aiming for UPI transactions worth $1 billion per day in the next two to three years.
UPI recorded 22 billion (2,200 crores) transactions in 2020–21, and it is expected to grow at a CAGR of 122% to 169 billion (16,900 crores) by 2025–26.
Partnerships with other Asian countries to enable low-value transactions and cross-border remittances via UPI will contribute to its growth.
Conclusion -
In 2022, UPI accounts for over 50 percent of retail payments in India since its launch in 2016. No one would have imagined that it would grow this far when it was launched.
You can see every small roadside shop, Kirana store, and even autos have UPI QR codes. For Indians, it has become a habit.
Due to the lack of smartphones in rural areas and the large gender gap in mobile phone access, proper rural penetration will take time.
It has created an impact which has attracted financial experts from all over the world including India.
UPI has the potential to make India a global leader in financial payment settlement in the times to come.
Thank you for reading.
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Originally published at http://saurabhchede.wordpress.com on August 6, 2022.
