UPI forms 10% of overall retail payments in FY21, says Macquarie report

UPI saw its FY21 annual throughput value at Rs 41 trillion, almost 2.8x that of credit and debit card at Point of Sale combined, and almost 20x that of prepaid payment instruments.

The National Payments Corporation of India’s (NPCI) flagship payment platform, Unified Payments Interface (UPI), made up for 10 per cent of overall retail payments in FY21 (excluding RTGS), growing at a compounded annual growth rate (CAGR) of 400 per cent between FY17 and FY21, a report by Macquarie Research said. 

Until a few years ago, UPI’s share in overall retail payments was only 2 per cent. Launched in 2016, UPI, although a late entrant in the retail payments space, saw its FY21 annual throughput value at Rs 41 trillion, almost 2.8x that of credit and debit card at Point of Sale (PoS)combined, and almost 20x that of prepaid payment instruments (PPIs). 

“While the share of UPI has gone to 10 per cent since FY17, the share of PPIs (wallets, pre-paid cards, etc) has remained insignificant (sub 0.5 per cent in overall retail payments)”, the research report said. 

In FY21, UPI clocked the highest number of transactions in volume terms, mainly due to interoperability, open-source platform, ease of use, and zero merchant discount rates. In FY21, UPI recorded 22.3 billion transactions in volume terms amounting to Rs 41 trillion. While the volume of transactions shoed a drop in the initial months of the pandemic, however, it soon picked up momentum and reached new highs every month as the economy was opened up. 

While the majority of transactions on the UPI platform, almost 81 per cent by value, are peer-to-peer (P2P), suggesting that UPI is replacing cash in the payments ecosystem and hence leading to more digitization of the economy, around 19 per cent of the transactions are peer-to-merchant (P2M) accounting for nearly Rs 9.96 trillion, surpassing both credit and debit card PoS transaction values. 

“We believe cards are generally used for transactions with higher ticket sizes as compared to UPI which is used to make small-ticket purchases. While P2M transactions form 45 per cent of the total UPI transactions by volume, in value terms they constitute just 19 per cent with an average ticket size of Rs700 for FY21”, said the report. 

“The average ticket size in the P2P segment has been Rs 2,700. Credit cards average transaction size at POS is around Rs3600 while generally average spends per card per month is around Rs11,000 - 12,000”, the report added. 

In July 2021, UPI processed a record 3.24 billion transactions, up 15.7 per cent from June when it processed 2.8 billion transactions. In value terms, in July, the platform processed transactions worth Rs 6.06 trillion, up 10.76 per cent from June, which is also an all-time high. 

UPI was launched in 2016 and crossed 1 billion transactions for the first time in October 2019. The next billion transactions came in just a year. In October 2020, UPI processed more than 2 billion transactions for the first time. Further, the journey from 2 billion transactions a month to 3 billion transactions was traversed in just 10 months’ time, indicating the incredible popularity of the UPI as a platform for retail digital payments among consumers.

Due to the second wave of the pandemic, UPI and other payments platforms saw a blip in transactions processed in April and May but recovered soon after as the economy was opened up.

On the UPI platform, third party application providers (TPAPs), such as Walmart-backed Phone Pe and tech giant Google-backed Google Pay dominate the space. Together, these two players, constituted 86 per cent and 80 per cent of the market by value and volume respectively in July 2021. PayTM is a distant third with 8 per cent market share by value and 12 per cent by volume. PhonePe is seeing its market share increase each month in terms of the volumes of transactions on the UPI platform at a time when the NPCI is working to reduce the concentration risk in the ecosystem owing to the dominance of few large players.

NPCI is caught in a conflicting situation. On the one hand, it does not want to hamper the growth of UPI by restricting any player from processing transactions because eventually, it is the consumers who decide which platform they want to use, and, on the other hand, it has to think of the concentration risk when one player corners a lion’s share of the market.Hence, experts believe that emergence of new players in the TPAPs space is critical. There are two-three players who can take 10-20 per cent of the UPI market and if that happens the UPI space will balance out.