Indian Growth Stories: UPI
According to a report, UPI is going to overtake Debit Cards by 2025.
Background ✨
UPI (Unified Payments Interface) was introduced in April 2016, months before Demonetisation in India.
“Once people start using digital payments for everyday transactions, small merchants and micro-merchants and even people who provide services such as washing and ironing clothes will be able to get soft loans from banks due to their transaction history, which will be now available, weaning them away from usury.”
- Prime Minister Narendra Modi on Launch of UPI
Problem 🤔
In 2015, every four out of five customers used cash as a means of payment. Mainly because cash was easier back then from any of the options available. IMPS required the recipient's full bank details to send money which was a hassle. The procedure does not finish here. Most banks require you to wait for up to 12 hours to add a payee, which means the procedure is not so “immediate”.
Requirements 📄
Bank account, Debit card and a smartphone with any UPI app installed.
Solution 👩🔧
UPI. A payment system which can transfer money to anyone in a matter of seconds, regardless of any bank the other person uses. Completely free of cost. It’s based on IMPS technology. Basically it’s “IMPS on steroids”.
Worth 💰
That’s a 30% increase since the last 6 months!
Rapidly Growing 🔝
To know more, read more statistics at Medianama.
It is estimated that UPI will surpass Debit card transactions by 2023, which is an amazing win for the goal of Digital India!
How did people adapt to UPI so quickly?
Demonetisation ❌
Cash has been the preferred mode of transactions across India.
In Nov 2016, Demonitisation happened. India declared ₹500 and ₹1000 notes as not a legal tender anymore. You had to get your cash changed for new notes to be able to use your money.
Since the decision was a complete surprise, no one was prepared for the same. So people and merchants started using different methods of transactions until cash was in better circulation again.
Easy To Setup
Gamification Of Rewards To Merchants And Customers 💲
Google Pay provided heavy cashbacks and ₹200 per referral when it launched in India back in September 2017. It became so popular that it surpasses both PhonePe and Paytm for UPI transactions, even though both the products have been widely used before Google Pay came.
Not only customers, but merchants were also provided incentives for receiving money. They receive cashbacks on the amount and the number of transactions they do. The best part is the incentives directly go into their bank account, no strings attached.
“According to a report by Zinnov, a global research and strategy firm, Paytm has 39 million daily active users (DAU) which is more than the combined daily active users of Google Pay and PhonePe. The financial services company Paytm has emerged as the leader of digital payments in the country.” Source - Financial Express
How Are They Different From What’s There Already ⚔
UPI is a real-time cross-bank payment system that allows you to send or receive money in your bank. All you need is one of the below information:
UPI ID
Mobile Number
Aadhar QR
Account Number
QR Code containing VPA, Account Number and IFSC or Mobile number.
How Do They Profit ❓❗
By charging payment service provider (PSP) fees. P2P transactions have no charges but in P2M transactions, UPI platforms earn around ₹0.25-5 per transaction. But NPCI abolished the fees in Feb 2020.
It is not confirmed but it is highly possible that they are profiting off our data. What’s more precious than our transaction history, which can help in showing ads according to our spending patterns.
Not Moving Along With The Technology
I believe Paytm should have led this space. They were winning on the digital wallet payments, but are losing on the UPI transactions, where Google Pay takes the lead.
While Google Pay and PhonePe had yet to convince shops to use their QR code, almost every shop already had Paytm QR code to accept payments.
There have been numerous complaints regarding frauds via Paytm, and the issue has been raised by many people.
To tackle this, PhonePe has disabled the “request money” option for all its users.
Players 🧤
Biggest Players are:
Google Pay 🥇
PhonePe 🥈
Paytm 🥉
Amazon Pay 🏅
BHIM 🏅
BharatPe 🏅
Market Share 🍕
GPay leads overall and in-person to person transaction market share.
PhonePe due to its aggressive offline merchant marketing has surpassed Google Pay in Person To Merchant Transaction Market Share.
International Adaption ✈
Singapore and UAE
NPCI is now planning to bring UPI to Singapore and the UAE. Note that as of yet, this will only for Person-to-Merchant and not Person-to-Person transactions. Rupay cards work in Singapore already. It is said that this project will be finished in 2020.
Read more here.
Google recommends UPI in the United States
The letter written by Mark Isakowitz, Vice President, Government Affairs and Public Policy, Google USA and Canada, said, “UPI was thoughtfully planned and critical aspects of its design led to its success. First, UPI is an interbank transfer system (there are now over 140 member banks, after initially launching with 9 participating banks). Second, it is a real time system. Third, it is “open”-meaning technology companies can build applications that help users directly manage transfers into and out of their accounts held at banks.
Read more here.
Startups Grown Out Of UPI Space 🆙
BharatPe: “Started in April 2018 in Delhi as a way for Merchants to collect payments online for FREE, BharaPe has become a behemoth in the Indian Fintech scene.
It wouldn’t be wrong to say that company is basically the distribution engine which enabled merchants to adopt UPI all over the country.
In the latest round, BharatPe closed a Series C of $75 Million led by Ribbit Capital which valued the company over $400 Million.”
Read this amazing writeup on BharatPe by Ankit here.
How To Get Started In This Space 👩💻
NPCI (National Payments Corporation Of India)
You can explore and apply for jobs here & fulfill your parents’ dreams of having a government job.
Fintech
Fintech Startups are gaining pace in India. Read.
The Bad Side🙇♀️
UPI has significantly improved and success rates have been over 95% for many banks this year.
But what if your transaction fails?
Scenario 1: Transaction fails but no money has been deducted.
No worries, just pay via other payments for the time being.
Scenario 2: Transaction fails but the money has been deducted from your bank account.
It can take up to a week for the money to come back to your account.
Many times my transactions have failed when I have tried to pay the nearby shopkeeper. Since I am a no-cash person, I have no option but to use Paytm wallet or go home empty-handed.
Bonus Section🎈
NUUP: Alternative of UPI for Non-Smartphones
The National Unified USSD Platform (NUUP), allows you to have access to your bank account via phone call. You just need a phone number connected to your bank account and voila, easy money transfer!
The system has a protection mechanism where you have to enter your bank’s short code before it will give you access to your account. You can check your balance and last transactions as well.
The amount transferable is restricted to ₹5000 to prevent misuse in case a user’s SIM card gets lost.
Read more on how it works here.
Links To Read More📚
Transactions 2025: An Economic Times report on the future of payments in India.
Not just Google, the world is watching India’s UPI.
Mobile payments firms in India are now scrambling to make money
Very insightful
I've read such a well researched article after a long time. Great job! 👍