UPI-based payments to dominate in India in the next five years

The demonetization of Rs 1000 and Rs 500 banknotes by India in 2016 made people to take to digital transactions which have since grown manifold

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India’s Unified Payments Interface (UPI), is in for a growth explosion in the next five years, and will capture more than 50% of the payments space, according to a Boston Consulting Group (BCG) presentation made at an industry seminar last week.

Developed by National Payments Corporation of India, UPI is a real-time payment system which instantly transfers funds between two bank accounts. As of March this year, 142 banks were live on UPI with a monthly volume of 799.54 million transactions worth 18 billion dollars.

BCG claims that between the year brackets 2021-22 and 2024-25, the role of cash in the payments space will nosedive drastically. It predicts UPI payments to go up to 59%, with rest of the transactions to happen via mobile and internet-based payments.

ATM transactions that currently dominate India’s payments space, will come down to a meagre 5% in the next five years, BCG said. Around 17% of transactions in 2018-19 were UPI-based, mobile and internet payments contributed to 13% of transactions, while 5% transactions were cash-based.

RBI governor Shaktikanta Das recently said banks need to play catch-up to compete with new age fintech companies.

Riding on the back of UPI, global technology majors such as Amazon, Facebook, and Google—that are not traditionally fintech companies—have also gotten into payments space.

The BCG presentation said, of the entire UPI-based transactions in 2018-19, Google Pay led the race at 36%, followed by Flipkart-backed PhonePe at 29%, Paytm at 25%, and other banks and payments instruments at 10%. The close competition is leading to rapid innovation and churn with customers reaping the most benefit.

A recently constituted panel on digital payments led by Infosys co-founder Nandan Nilekani recommended increasing the volume of digital payments by 10 times in the next three years. RBI has taken cognizance of the panel’s suggestion of doing away with transaction charges on digital payments, simplifying know your customer (KYC) process, and a reduction in KYC costs for banks.