From PPIs to UPI – Indian Mobile Payments Are Evolving

India has emerged as one of the most exciting markets for digital payments across the globe. People have increasingly begun to use cashless channels and are proactively encouraged by the innovation happening in this space. UPI has been a game changer for digital payments, as indicated by its astonishing growing adoption levels. In the past nine months, UPI transactions have grown by a staggering amount – 22X by transaction volume and 7X by transaction value.

On the other hand, there are Prepaid Payment Instruments (PPIs) who played an instrumental role and were the early drivers of India’s push towards digital payments. The likes of Paytm and MobiKwik achieved tremendous growth, especially during the time of demonetization, a time when UPI was at a nascent stage of adoption. However, after the mid-2017, the tide began to turn.

PPIs have been burdened with the tightened regulatory norms around KYC, inhibiting their growth potential in some ways. As per the recent RBI regulations, PPIs were mandated to be upgraded to at least minimum-detail KYC before December 31, 2017. This posed a major risk in terms of the KYC-driven friction, driving customer churn.

As an indicative result, while UPI transactions are growing significantly, the PPI transaction value and volumes saw a stagnant, unstable growth over the past year. This is substantiated by the compounded monthly growth rate (CMGR) in between April 2017 and January 2018. In terms of transaction value, UPI grew with a CMGR of 22.2% between April 2017 and January 2018, whereas PPIs grew by 6.2% in the same period. Also, in terms of transaction volume, UPI grew with a CMGR of 41% whereas PPIs grew by 2.7%.

UPI-supported mobile payment apps are quickly emerging as the new gold standards in the digital payment space. In line with the major, global theme of Tech-Fin disruption, several non-traditional technology players have taken the lead in the UPI payments space.

Google, Flipkart, Hike, and other non-traditional players have already established themselves in the mobile payments space. WhatsApp has also joined the bandwagon by recently launching its P2P payments using UPI; it can be expected to give a further boost to the UPI numbers with the kind of user base it enjoys in India. With BHIM’s declining market share (6% in Dec. ‘17), the likes of PhonePe and Google Tez continue to capture the major chunk of UPI market share. Google Tez’s market share was 40% in December 2017.

Paytm, the biggest mobile payments platform and wallet in India, has seen growing success with its UPI payments launched in November 2017. In January, Paytm reportedly recorded 3 million transactions in a single day. Flipkart, one of the biggest Indian e-commerce players, joined the UPI bandwagon as early as August 2016.

Global giant Amazon has also recently started accepting UPI payments. With a growing number of such integrations with major payment gateways, e-commerce players, and other online merchants, UPI has been able to tap into the space of small/medium-value payments, in addition to P2P and offline merchant payments.

People are now increasingly using UPI for e-commerce, food ordering & bill splitting, mobile recharges, etc. This is substantiated by a decreasing trend in transaction value per unit. All the cashbacks, incentives and offers, which were the major drivers for m-wallet adoption during their initial days, are now aiding UPI growth in a similar fashion. This has also been a major driver of the growing number of transactions.

Even though there are some use cases such as instant refunds and prepaid coupons (e.g. Sodexo) where PPIs still have an edge, the general consensus seems to tilt towards UPI taking away the sheen from PPIs. Some of the established wallet players are also taking the UPI route, with Amazon Pay and Paytm leading the charge. In fact, RBI has mandated PPIs to make all KYC-compliant mobile wallets interoperable through the UPI integration in the coming months. Thus, in a true sense, we are looking at a progressive evolution of Indian mobile payments from PPIs to UPIs.