Smart plans and rising use-cases drive small UPI companies' growth

Unified Payments Interface (UPI) in India is witnessing a significant shift.

While top players continue to dominate, smaller companies are displaying growth, driven by differentiated strategies and expanding use cases.

Smaller players on the UPI leaderboard, such as Navi, Groww, and MobiKwik, have shown remarkable year-on-year (Y-o-Y) growth.

Navi, owned by Sachin Bansal, jumped to sixth place in August last year, processing 88.71 million transactions, surpassing Amazon Pay, which processed 70.72 million transactions in the same month. 

Fintechs such as Groww and MobiKwik, which will have its initial public offering, have seen their volumes more than treble on a Y-o-Y basis (August 2024 compared to August 2023).

During the same time, PhonePe and Google Pay have seen their volumes rise by 46.9 per cent and 48.6 per cent, respectively.

The combined market share of smaller players, those outside the top five on the UPI leaderboard, remains modest at just over 5 per cent as of August 2023, according to the data from the National Payments Corporation of India (NPCI).

However, transaction volumes of third-party application providers (TPAPs) like Navi and Amazon Pay have seen significant growth as the year-end deadline approaches to cap a single player’s UPI market share at 30 per cent. 

Players have grown on an expanding base. UPI transaction volumes were estimated at 14.9 billion in August, as compared to 10.5 billion in the same month last year.

Meanwhile, much of the growth has been concentrated in well-funded smaller players that can afford to acquire a customer by offering cashbacks and rewards to users.

“If we speak of debit payments on UPI, ‘reward’ will attract customers to the platform. You can make a better user experience for them, but from day one they will come for the rewards and they might stay for the experience,” said Prakash Sikaria, founder and chief executive officer (CEO), super.money.

The Flipkart-backed company, which launched in August, has processed over 11 million UPI transactions in just a month. It offers up to 5 per cent cashback on every UPI transaction. In an earlier interaction with Business Standard, Sikaria said he wanted super.money to be among the top five players in UPI, which he wants to achieve by March 2025.

“For somebody to process significant volumes of these payments, they have to be ‘UPI first’ and everything ‘second’. For a shopping app or a bill repayment fintech, UPI is the second order of things, and creating a dent on the leaderboard is difficult unless you are UPI-first,” said Mohit Bedi, co-founder, Kiwi; a credit on UPI fintech.

Expanding use cases

Over the years, NPCI has announced initiatives based on the UPI rails. This includes UPI Lite, credit card on UPI, creditline on UPI, UPI circle, among others.

This has enabled TPAPs to develop business models developed on UPI rails despite them being small on the overall UPI leaderboard, which tracks peer-to-peer (P2P) and peer-to-merchant (P2M) debit transactions.

“We started as a transaction credit UPI app because that was a new white space and had a revenue model as well. Today, more than 50 per cent of the transactions we process come from credit and that’s what differentiates our play,” Bedi added.

Sikaria said: “A lot of new growth will come with either taking a sharper view to a feature that has been neglected by one of the larger players. This includes sharper use cases for customers. The other way to grow is to acquire a unique set of users.”

Sikaria said for a substantial increase in volumes, it was important for use cases like credit to grow 

Merchant discount rate (MDR) and government subsidies

An MDR is a fee levied on a merchant by a fintech or any other payment processing company for processing a digital transaction including UPI. At present, most of debit UPI transactions continue to remain free with payment-processing expenses borne by fintechs and banks.

That said, in Budget 2024, the government allocated Rs 1,441 crore for incentivising fintech firms to facilitate small-value BHIM-UPI transactions (person-to-merchant) and RuPay debit cards.

This is 42 per cent lower than the Rs 2,482 crore the Centre earmarked in the previous Budget.

Players say government subsidies need to be democratised to ensure that they reach smaller companies too. 

For others, a focus on a use case-based approach is favourable over uncertainty regarding subsidies or an MDR. 

“From day one, our strategy has been to build a scalable and profitable business. A focus on credit on UPI acts incentivises us to grow on that model since we can earn revenue based on processing these transactions, and hence that use case makes sense,” Bedi said.