With P2P transactions in place, UPI players shift focus to merchant space

NPCI is said to be running a pilot on proximity payments through UPI, which can invalidate the need of PoS machines for card-based payments

While United Payments Interface (UPI) players have established their foothold in peer-to-peer transactions, they are now focusing on boosting merchant transactions.

The National Payments Corporation of India (NPCI) is reported to be working on two developments in UPI – UPI 2.0 and Proximity payments. While the previous developments were focused on strengthening the general infrastructure of the network, the new developments seem to be targeted at increasing peer to merchant (P2B) transactions. 

Both UPI 2.0 and proximity payments geared towards merchant payments as it would allow a person to make payments without manually typing the merchant's number or code.  UPI 2.0 will have additional features like Aadhaar-based payments, periodic payments of predetermined amount, scheduled payments, among others. These are features that other digital payments players like wallets already offer.

NPCI is also said to be running a pilot on proximity payments through UPI. This can invalidate the need of PoS machines for card-based payments.  The cost of point-of-sale (PoS) terminals is one of the biggest deterrents to digital payments.

Leading player's share in UPI merchant transactions
Players	Sep-17	Dec-17	Mar-18
Tez	6.86	35.76	44.92
PhonePe	25.1	17.5	15.39
BHIM	41.2	27.7	21.78
ICICI	10.9	4.61	4.98
Paytm		2.68	3.44
Others	15.93	11.75	9.49
Figures in %age; Source: PayU Insights

The government’s decision to waive merchant discount rates (MDR) up to Rs 2,000 played a huge role in boosting digital transactions, especially UPI acceptance at PoS terminals. Since the waiver only applies to debit card and UPI transactions, it may deter merchants from accepting wallet payments. Payment processor PayU saw a growth in UPI transactions from 25.48 per cent in September 2017 to 77.87 per cent in March 2018, with a corresponding fall in share of wallet transactions.

Various UPI players have already started tapping the scope of merchant transactions with the government’s app Bharat Interface for Money (BHIM) offering incentives to merchants accepting UPI Payments. On the other hand, market leader Google Tez in December, had announced its plans to target small merchants through partnerships with various Indian banks.

“We want to help offline merchants go digital. With two-thirds of our users beyond the major cities, we think there’s real potential to digitise the smaller merchants across India who so far have been slightly slower in going digital,” Diana Layfield, Vice President, Head of Finance & Commerce Products, Next Billion Users, Google told reporters earlier.

UPI has witnessed a huge growth of 188 per cent in the average transaction size as compared to the other mode of payments in the past six months, according to PayU’s report (average transaction size for credit cards grew by 11 per cent, debit cards by 19 per cent and wallets by 41 per cent). While the average transaction value for all UPI transactions stood at Rs 1,410 for March 2018, PayU’s UPI P2B average transaction value was higher at Rs 1,985 in the same month. Merchant UPI transactions, thus, show a huge potential for growth.

While Google Tez and PhonePe seem to be leading the P2B merchant space, there will be chances of even greater competition going forward. Whatsapp Pay is currently restricted to peer to peer payments. However, the success of Whatsapp Pay and the integration of 'Whatsapp for Business' signals that it would soon venture into merchants payments as well.

Against the backdrop of UPI’s success is the struggle of the wallet industry with various regulations weighing them down.  The Know-Your-Customer (KYC) norms, as well as the data storage norms, are both acting as major roadblocks.  UPI, however, is free from these troubles.

Dilip Asbe, managing director and chief executive, NPCI said that all UPI players are fully compliant with NPCI guidelines since April. He added that data sharing guidelines for UPI players are very clear. “No payment sensitive data is on these apps. The financial data is stored either on the bank’s app or the NPCI library,” he said.
 
     
Players    Sep-17    Dec-17    Mar-18
Tez    6.86    35.76    44.92
PhonePe    25.1    17.5    15.39
BHIM    41.2    27.7    21.78
ICICI    10.9    4.61    4.98
Paytm        2.68    3.44
Others    15.93    11.75    9.49
Figures in %age; Source: PayU Insights