UPI payments and the impact on Indian commerce

Introduction

UPI, short for Unified Payments Interface, has truly transformed how consumers pay for the services and products they buy. According to a report by Plural and Redseer, as of FY23, UPI accounts for 84% of all digital transactions. Given that in FY19, this figure was a meagre 17%; it is clear that the adoption of UPI has seen a significant boost among consumers. UPI is quick, direct, reliable, and doesn’t impose any transaction fee.

Let’s understand the emergence, adoption, and growth of UPI in India and its impact on Indian commerce.

The current UPI landscape

UPI today has become the preferred channel for all kinds of transactions – B2B, B2C, and on-us transactions. UPI payments facilitate immediate transfers at zero transaction fees. This has made it an obvious pick over debit or credit cards and even net banking.

According the National Payments Corporation of India (NPCI), the total volume of UPI transactions in January 2023 in India was approximately 8,036.89 million. PhonePe, Google Pay, Paytm, and Cred account for over 95% of the market share (source)

Statistics around UPI

For businesses, UPI has improved intent-to-purchase and boosted affordability by making it easier for consumers to pay at convenience. NPCI released the data for the volume of P2M and P2P transactions, with some surprising results:

• Of the total 8,036.89 million UPI transactions in January, a whopping 4,410.94 million were P2M transactions.
• P2P transactions amounted to about 3,265.95 million of the total.

We can draw two inferences from this data:

• People have begun to rely on UPI as a major mode of payment in place of hard cash or cards.
• The fact that,
  • P2M transactions form about 54% of the total UPI transaction volume
  • UPI transactions are about 52% of the total digital transactions made

It is safe to assume that consumers prefer UPI payments when purchasing products and services from businesses over other payment methods.

Along the same lines, consumers favour UPI payments for certain industries more than others. According to the UPI Merchant Category Classification done by NPCI for January 2023, the following insights came to light:

• Groceries and supermarkets emerged as a “High Transacting Category” of businesses for UPI payments, followed by eateries and restaurants.
• Bakeries and utility services like electricity and gas emerged as the “Medium Transacting Category” of businesses.
• Establishments like beauty and salon shops, apparel and accessory shops, etc., remained in the “Low Transacting Category.”

It is evident from the data above that UPI payments have not only become mainstream since their emergence in 2016 but have taken the payments landscape by storm today.

Driving economic growth through UPI

The adoption and popularity of UPI as a mainstream payment channel are governed by many other factors, such as the penetration of the internet in India. According to data published by India Brand Equity Foundation, there will be about 900 million active users of the internet in India by 2025.

Improved adoption of the internet across the country is bound to help deeper penetration of UPI payments across the payments landscape. Furthermore, UPI-based apps (mobile-based) may get a boost as Deloitte predicts that by 2026, there will be about 1 billion smartphone users in the country. The rural population of the country will drive this growth leading to a CAGR of 6% in smartphone adoption as compared to 2.5% in urban areas.

Inferences from this data suggest that better smartphone and internet penetration have a high potential to improve UPI payments adoption and volume in the coming years.

Features of UPI that make it so useful

Several features of UPI payments make this method a go-to for countless consumers:

• Round-the-clock operation; no off days.
• Immediate money transfer.
• Single-interface applications to access all bank accounts.
• Two-factor authentication within a single click.
• Enhanced security through virtual addresses that don’t need bank account details for any transaction.
• In-app payments to businesses using a single application.

Advantages of UPI payments

Some of the key benefits of UPI payments that make them so popular are summarized below:

• The biggest benefit of UPI payments to businesses is that even the small and micro vendors can accept UPI payments without needing any hardware, or infrastructure. Only a mobile app and a bank account are required.
• UPI payments leave behind a clear record of transactions in the form of a data trail. This makes it easier for businesses to process their accounting and taxation mandates.
• It is a deterrent to corruption because digital payments are easily traceable.
• It enables businesses to set a “Pay By” date for their consumers to allow them to pay at their convenience.
• The UPI payments network is interoperable, eliminating payment siloes by allowing any entity to transact with any other entity.

What the future holds

The digital payment landscape of India is a complex interplay of aspects like consumer behaviour, progressive government policies and facilitations and internet penetration.

According to data published on IBEF, it is estimated that there would be 300% growth in the digital payments industry in the country. Given the fact that India had a huge portion of the population unbanked only a few years ago, the numbers look extremely positive to pave the way for increased UPI payments and adoption.

Wrapping up

As the volume of digital payments grows for Indian businesses, it becomes more and more important to facilitate easier and seamless transactions that are secure, interoperable, and efficient.

To aid businesses with their payment solutions, Plural offers its innovative solution, the UPIverse – a comprehensive suite of UPI payments solutions to help businesses collect UPI payments.

The UPIverse offers the following services to businesses:

• UPI Autopay for recurring payments.
• UPI DeepLinks by Setu allows businesses to collect UPI payments on WhatsApp.
• UPI Switch by Setu to incorporate all UPI products into the business’s payments ecosystem without needing any integrations.
• UPI Intent Flow to reduce channel hops for customers.

UPIverse has helped boost ShareChat’s transactions from ₹1 lakh to ₹2.5 lakhs through Setu’s UPI DeepLinks solution. To learn more about how UPIverse can boost your business, read this article.