The adoption of UPI-based payments in India has dramatically increased since its launch in 2016. It is currently the fastest-growing mobile payment system in the world. Surprisingly, after a stellar performance in 2022, the country saw a notable drop in the volume and value of the transactions made through the Unified Payments Interface (UPI) in February 2023.
According to the latest data by NPCI, the number of UPI transactions in India declined a notable 6.25% month-over-month (MoM) to 7.53 billion in February. The value of UPI transactions also fell a notable 4.84% MoM to Rs 12.36 trillion during the same month.
The above data indicate that cash is still king for the majority of Indians, particularly those who live in tier 2 and 3 cities.
However, if we do the year-over-year growth calculation, February month saw a strong 66.4% YoY and 49.47% YoY growth in terms of UPI-based transactions volume and value, respectively.
For those who are unfamiliar with UPI, it is a real-time payment system in India that facilitates inter-bank transactions and is developed by the National Payments Corporation of India (NPCI).
Growth in UPI transactions in India: History
2022 has been a remarkable year for the adoption and usage of UPI payment apps in India. In March 2022, the number of UPI transactions surpassed the 5 billion mark for the first time in history. In fact, the country recorded double-digit growth in volume (19.4% MoM) and value (16.2% MoM) of transactions made through UPI.
In May 2022, the country made a record Rs 10.42 trillion worth of transactions via the Unified Payments Interface, with a 5.9% MoM growth.
December 2022 again ended with a robust monthly growth in UPI transactions. Approximately 7.83 billion transactions worth Rs 12.82 trillion were processed via UPI. The country recorded an impressive growth of 7.1% MoM in transaction volume and 7.7% MoM in transaction value.
During the 12 months that ended in December 2022, nearly 382 banks in India processed a record 74.04 billion transactions worth Rs 125.95 trillion via the Unified Payments Interface.
Interestingly, January 2023 also ended with record-breaking transactions made through UPI payments in India. In January 2023, UPI processed approximately 8.04 billion transactions worth Rs 12.99 trillion in the country. The transactions volume and value both increased a 2.65% MoM and a 1.30% MoM, respectively.
However, India saw a significant decline in the usage of UPI-based payment apps such as Paytm, Google Pay, PhonePe, etc.
In 2021, there was a slight drop in the number of UPI transactions in February 2021 compared to January 2021, both in terms of value and volume. In February 2021, approximately 2.29 billion UPI transactions were processed, which is marginally less than the 2.30 billion transactions processed in January 2021, representing a 0.43% MoM decline. On the other hand, the UPI transactions value stood at Rs 4.25 trillion, down from Rs 4.31 trillion during the same period, representing a 1.3% MoM decline.
NPCI imposed 30% cap on UPI transactions
In November 2020, the National Payments Corporation of India (NPCI) officially announced that a 30% cap would be imposed on the UPI transaction volume recorded by payment apps starting from January 2021. Initially, the government gave UPI players a two-year phased period, beginning in January 2021, to comply with the cap.
In March 2021, the payment infrastructure provider issued operational guidelines for digital payment players to limit their market share. These guidelines stipulated that the 30% market cap would be calculated based on the total transaction volume processed by a player on the Unified Payments Interface (UPI) during the preceding three months on a rolling basis.
Now NPCI has extended the deadline for UPI players to adhere to a market cap of 30% till December 31, 2024.
Currently, PhonePe is dominating India’s UPI market with a 50.1% market share. However, the Walmart-owned decacorn faced stiff competition from Google Pay and Paytm, which hold 34.2% and 10.8% of the market share, respectively.
As per the bulletin, the Reserve Bank of India (RBI) stated that digital transactions have progressed through different modes. The retail sector has continued to gain significant momentum, mainly due to the Unified Payments Interface (UPI).
In the initial month of 2023, the majority of the transactions, 54.88%, were peer-to-merchant (P2M), whereas peer-to-peer (P2P) transactions accounted for the remaining 45.12%.
Last month, the UPI-PayNow linkage was officially completed by the governments of India and Singapore, allowing real-time cross-border remittances. The collaboration involves the Reserve Bank of India (RBI), the Monetary Authority of Singapore (MAS), and the payment industry.
During the eighth edition of the Google For India event, Union Minister of Electronics and IT, Ashwini Vaishnaw, revealed that the Unified Payments Interface (UPI) platform’s transactions account for 55% of India’s Gross Domestic Product (GDP). The NPCI has recorded Rs 125.10 trillion worth of UPI transactions in FY23 thus far.
The National Payments Corporation of India aims to achieve a billion UPI daily transactions within five years, alongside other initiatives such as linking UPI with credit cards.
This expansion into the international market is part of their ambitious plan. As of February 2023, UPI has recorded 269.1 million daily transactions, which is approximately 27% of the NPCI’s target.