UPI Transactions On the Rise: Is This Indicative Of a Systemic Shift? If the current trend continues during the next two months as well, then the share of UPI transactions in the overall digital payment industry of the country could increase even further

Nowadays, Indian consumers have a lot of payment options to choose from. Some of these options include credit/debit cards, Net banking, Unified Payments Interface (UPI), mobile wallets, as well as buy-now-pay-later (BNPL). In recent years, there has been a sharp increase in the number of UPI transactions.

In fact, during October 2020, UPI transactions in India crossed the 2-billion mark for the first time. This growth has been driven by factors such as ease of use and minimal hassles. So, does this growth imply that there is a systemic shift in the Indian payments landscape? Or is this a temporary effect of the COVID-19 crisis? Let's look closer to find answers to these questions.

UPI transactions cross the 2-billion mark

According to the National Payments Corporation of India (NPCI), UPI transaction volumes during October 2020 stood at 2.07 billion, which is the highest ever figure in history. This was around 270 million higher than the corresponding figure for September 2020. It is evident that the ongoing pandemic has provided a major thrust to digital payments since consumers are avoiding physical contact with vendors and delivery agents.

In addition to this, another factor is that India is in the middle of the festive season. Indian consumers ramp up their purchases during this time of the year, resulting in high transaction volumes for all modes of payment. This factor has also played a major role in ensuring that UPI transaction volumes remain on a growth path.

What does this signify for the Indian market?

This consistent growth in UPI transactions is also indicative of the fact that Indian consumers are becoming more open to online payments. This development, coupled with the increasing penetration of smartphones and rising income levels, indicates that the market is ready for the next stage of growth. Indian consumers are getting rid of their inhibitions and embracing non-cash modes of payment.

Another aspect is that Indians are embracing international shopping platforms as well. The Indian e-commerce market is becoming extremely attractive for international merchants, as it presents a lucrative growth opportunity to them. An increasing number of international brands are now opening up digital stores in the country, aiming to grab a share of this fast-growing economy.

Further, UPI transaction volumes have also helped the government in meeting its goals related to the Digital India campaign. For example, during FY19, UPI transactions contributed as much as 18 per cent of the total target of 30 billion transactions across the country. The consistent growth rate shown by UPI payments could mean that this share goes up even further in the coming years.

What this means for Indian consumers and firms

The above developments certainly indicate that the Indian digital payments market is evolving. Indians are no longer reliant on cash as the only mode of making purchases. These are good signs for the Indian digital payments market, as consistent growth in transaction volumes indicate a high degree of receptiveness.

In addition, the growth in UPI transaction volumes also presents an excellent opportunity to firms operating in the digital payments space. At present, the Indian UPI space is dominated by two or three major players. In case the industry continues to grow at a rapid pace, this could mean that other players could also emerge and take a significant share of the market.

With India's continual thrust on promoting startups and digitalisation, this growth in UPI transaction volumes could just be the shot in the arm that is needed. The digital payments industry could very well be the sector that leads the Indian economy's recovery from this damaging pandemic.

Conclusion

Overall, it is highly encouraging to witness the growth in UPI transactions during the month of October. If the current trend continues during the next two months as well, then the share of UPI transactions in the overall digital payment industry of the country could increase even further. These developments clearly indicate that we are witnessing a systemic shift in the Indian payments landscape, and it is likely that this shift will benefit consumers and digital payment players alike.