UPI Transactions Surge But Only 15% Come From Merchants

After a quiet start, the government’s payment offering – the unified payments interface (UPI) seems to be picking up.

After a slow start, the real-time transaction platform launched in August last year, has recorded “exponential” growth in both number and value of transactions following demonetisation, AP Hota, chief executive officer of National Payments Corporation of India (NPCI) told BloombergQuint on Monday. Merchants, however, are conspicuous by their absence from the network, he added.

UPI transactions touched Rs 1,660 crore in value and 18 lakh in volume in the month of January, according to data released by the Reserve Bank of India (RBI). This implies a 18 times jump in transaction value and a six-time jump in volumes in a matter of three months following demonetisation.

About 2 lakh transaction take place daily on the UPI platform and the number will only increase as more banks participate, Hota said. Besides demonetisation, another fillip to UPI came from the launch of the BHIM app which allows customers to use the platform without going through a bank’s app.

Out of 2 lakh transactions, about one lakh are coming from BHIM and the rest one lakh from different banking apps. BHIM has provided a big boost because about 35 lakh people are using this app regularly.


But since most of these transactions are not coming from merchants, the NPCI has reasons to worry. Hota said that only a fraction of total volumes on UPI currently are commercial payments.

“Most of these transactions are peer-to-peer transfers as of now. We have been thinking about it too. We want more merchants to sign up for UPI as the default mode of payment but those transactions are hardly 15 percent of all transactions at the moment,” he added.

Retailers, on their part, claim that the government has not done enough to bring them on the UPI platform and private players like Paytm seem to be racing ahead.

Merchants are choosing Paytm over other modes because of the merchant discount rate (MDR) that banks levy on digital transactions, said Kumar Rajagopalan, chief executive officer of Retailers’ Association of India, an industry body that has more than five lakh stores under its purview.

While the RBI has proposed bringing down MDR substantially for small retailers with a turnover of less than Rs 20 lakh per annum, as of now, it stands at 0.85 percent of the transaction value even for UPI transactions which makes it relatively unattractive, according to Rajagopalan.

I don’t think the customers are paying with it. For retailers, it doesn’t make sense even now to get on to UPI. The biggest requirement is to completely do away with MDR to boost digital transactions. Customers are using Paytm because there are all kinds of offers and incentives, and a great support system. Banks are not doing anything to push UPI in the market.

Kumar Rajagopalan, CEO, Retailers’ Association of India

Rajagopalan added that banks are not aggressive in getting merchants on board platforms such as UPI which require some technical handholding to begin with.

“Merchants need to be onboarded on these systems that the government keeps launching but they’re not doing anything to help merchants get acquainted with these technologies. We are hoping that BharatQR changes things but it’s unlikely that the government will bring down cost of transaction for us,” he said.

Meanwhile, the NPCI is brainstorming ways to boost these transactions and bring more merchants on board by the end of the year. One way to do this is likely to be the integration with Bharat QR, a QR code-based payment method jointly developed by major card networks. Bharat QR is likely to be linked with UPI in its next iteration, according to Hota.

[Copyright by Mayank Jain]