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The Unified Payments Interface (UPI) has continued to dominate the payment system in the country with transactions rising from 8.03 billion in January 2023 to 13.9 billion by June 2024. According to a report by Worldline India, the UPI transaction volume jumped from Rs 12.98 trillion in January 2023 to Rs 20.07 trillion in June 2024. 

Between January and June 2023, the value of UPI transactions grew by 40 percent, increasing from Rs 83.16 trillion to Rs 116.63 trillion.

The Worldline India report underscored that the UPI QRs scaled by 38 percent, surging to 340 million from 244.23 million between January 2023 and June 2024.

Flipkart-owned PhonePe app dominated the UPI landscape. PhonePe accounted for 49.28 percent of all UPI transaction volume as of June 2024, followed by Google Pay at 37.45 percent and Paytm at 8.11 percent.

In terms of transaction value, all three UPI apps represented 92.21 percent in June 2024, compared to 93.65 percent in the same month the previous year.

The average ticket size of all UPI transactions dropped by 8 percent to Rs 1,478 in the 1H 2024 from Rs 1,603 crore in the same period last year.

However, the average ticket size for person-to-person transactions increased from Rs 2,812 to Rs 2,836.

"We are confident that as India continues to embrace digital. Payments, the benefits will extend far beyond convenience, driving greater economic participation, financial inclusion, and overall growth," Ramesh Narasimhan, Chief Executive Officer at Worldline India said.

'Credit, debit and prepaid card'

The debit card transaction witnessed a 33 percent decline to 0.92 billion in 1H 2024 from 1.37 billion in 1H 2023. In contrast, the prepaid card transactions grew to 0.77 billion, reflecting an 8 percent rise.

The credit card transaction rose 32 percent to 2.04 billion between January and June 2024 from 1.55 billion in the same period last year, Wordline India mentioned in its report.

As per the report, HDFC, SBI, ICICI, Axis and Kotak banks were the leading issuers of credit cards. Private banks issued 71 percent of credit cards as compared to 24 percent from public sector banks in the first half of 2024.

'Mobile payment'

Mobile payment has witnessed substantial growth, driven by UPI applications in the first half of the current calendar year. The value of mobile transactions surged to Rs 179.41 trillion in 1H 2024 compared to Rs 132.40 trillion in 1H 2023.

UPI dominates India’s digital payment landscape; Transactions surge by 73% in 18 months

UPI transactions have continued to register significant growth, with a 57% and 44% increase in transaction volume and value respectively, according to the PwC India report titled, “The Indian Payments Handbook – 2024-29” These figures align closely with projections for the 2023-28 period. UPI has solidified its position as a dominant payment rail in India’s retail digital payments landscape, accounting for over 75% of the total transaction volume in FY 2023. This trend continued into FY 2023-24, where the transaction volume reached 131.12 billion, and the transaction value reached INR 199.9 trillion.

Considering the current growth trend, market penetration of UPI use cases, global expansion of UPI, market dynamics and technological advancements, it’s projected that the daily transaction volume may reach 1 billion during FY 2027-28. This is a shift from the earlier forecast of achieving this target in 2026-27. Furthermore, the daily transactions are expected to increase to 1.4 billion by the end of FY 2028-29.

Securing UPI transactions:

The RBI has recently begun exploring alternatives to traditional PINs and passwords for transaction authentication, considering the use of biometric data, such as fingerprints.

This proposed system would enable users to authenticate UPI payments through fingerprint recognition on android devices and face ID on iOS, effectively phasing out the current UPI PIN. To ensure a smooth transition, initially both PIN and biometric authentication methods will be offered simultaneously,
providing users with flexible options for transaction verification. This initiative, which started over three years ago, has gained momentum amid the RBI’s growing concerns over UPI scams linked to PIN-related fraud.

The introduction of biometric and face ID authentication is expected to enhance transaction security, reduce fraud, and improve the overall user experience, thereby encouraging wider adoption of UPI payments.

However, it is crucial to address potential privacy risks and the misuse of biometric data. The rollout should be gradual, in alignment with the Digital Personal Data Protection Act, 2023, to mitigate data misuse risks. The lessons learned from this implementation will also serve as a foundation for future
integrations of similar innovations into the UPI system.

Reassessing the UPI ecosystem architecture:

As UPI continues to expand, it is crucial for stakeholders to reassess their architecture within the UPI ecosystem. The entry of new TPAPs and the emergence of innovative use cases, such as UPI integration with credit cards and credit lines, are likely to increase processing demands on core systems. 

To effectively manage the anticipated spikes in transaction volume, exploring the deployment of UPI infrastructure on cloud platforms for transaction processing is essential. Leveraging cloud technology can enhance scalability, flexibility and reliability, ensuring that the UPI ecosystem can accommodate future growth while maintaining optimal performance. 

By proactively addressing these challenges, stakeholders can strengthen the UPI framework and support its ongoing evolution in the digital payments landscape.

Gradual enabling of interchange, especially for credit cards and credit line will provide the necessary incentives to the financial system. Lenders will be able to reduce the pricing and make small-ticket loans affordable for segments witnessing the maximum demand.

Credit cards linked to UPI have emerged as the dominant payment method, with users spending over INR 22,000 per month. On average, credit card transactions via UPI occur 21 times per month, which is four times more frequent than traditional physical credit cards.² Credit cards on UPI have propelled the overall RuPay transaction volume and values in the past year, with the RuPay credit cards market share seeing a growth of almost 233%³ during FY 2023-24.

This can be attributed to the implementation of UPI on credit cards by leading issuers. The volume and value of transactions including RuPay cards in force
are expected to increase over the next few years.

The average transaction value for RuPay credit cards on UPI stands at INR 1,125 which is significantly lower than overall credit card transactions which hovers around INR 5,100 and almost double of UPI P2M transactions which stand at INR 650. This shows that credit cards on UPI transactions have created their own place in this market.

Considering the payment mode is currently being used by early adopters, credit cards on UPI seems promising. UPI's ease of use and the technology
already being well penetrated in the market at both ends of the spectrum (i.e. consumers and merchants)
is attributed to the growth seen by this particular use case. 

Global expansion of UPI

There is significant progress in the global expansion of the UPI system, and it will continue growing in a resolute manner in the coming years. The strategic partnership of RBI and NPCI International Payments with international organisations have enabled the integration of UPI in numerous countries, thereby enhancing the efficiency and ease of cross-border transactions.

As the Government of India persists in its efforts to collaborate with various nations for the global expansion of UPI, it’s imperative for other
stakeholders in the ecosystem to concentrate on expeditious implementation, seamless technical integration, robust security protocols and interoperability. Additionally, raising user awareness and adapting to local preferences are crucial for boosting UPI acceptance in these countries. 

UPI One World

A prepaid wallet was tailored for foreign visitors from the G20 countries allowing them to experience the ease of P2M payments of UPI, garnering everyone’s
attention during the last G20 summit in India. Post the G20 launch, G20 country residents could use UPI. This is an important development for Indian
tourism sector which is expected to contribute 4 USD 250 billion to the country’s GDP by 2030.

Enabling UPI for international visitors will provide much needed convenience as it will obviate the need to locate ATMs in a foreign country. Implementing
UPI One World can ensure a smooth and immaculate travel experience.

Credit on UPI

As the country has accepted UPI on all fronts – i.e. consumers, retailers and ecosystem participants – use of cash from smaller to medium expenses has
reduced. Now, one ATM transaction is converted into 10+ UPI transactions. This has created a technical debt on the banks and ecosystem participants. One of
the ways in which this liability can be leveraged by the asset side of banking is to aggressively penetrate the
credit lines of UPI.

Due to UPI, numerous new customers have been linked with the payment ecosystem who were unserved earlier. Transaction data, coupled with basic
underwriting checks through participants like account aggregators, can thus prove to be pivotal in bringing about this change.

UPI to reach 1 billion transactions per day in FY28: PwC report

As per the PwC India report titled, “The Indian Payments Handbook – 2024-29”, credit cards have witnessed a formidable growth in FY 2023-24 with the industry adding more than 16 million new credit cards, crossing the well-anticipated milestone of 100 million cards in force.

Discussing the future of digital payments in India, Mihir Gandhi, Partner & Payments Transformation Leader, PwC India, said, “Over the next five years, the payments industry will prioritise expanding ecosystems and exploring new use cases for existing platforms. Key growth drivers will include embedded finance, ecosystem finance, digital lending based on payment data, and offline payments. In India's dynamic payments landscape, innovation, interoperability, higher security measures and financial inclusion are shaping the path towards a more seamless digital economy.”

With the addition of new cards, the industry has also seen 22% and 28% surge in transactional volume and value respectively. Debit cards have seen a dip in both transactions volume and value owing to the shift in preferences by cardholders. Credit cards are expected to reach 200 million by FY 2028-29. Newer feature innovations, product propositions and customer segments are expected to contribute towards this growth.

Business credit cards

About 40% of Indian MSME and SME segments comprise businesses with a turnover of less than Rs 10 lakhs, employ 1 to 100 employees and less than one-third of these businesses market and sell products online. These numbers, apart from providing the structure of the market, also provide an important insight into the business segment which tells us that these businesses are cash-strapped, require low- or interest-free credit, smooth
vetting/credit approval process and would keep security and protection from payment frauds at the helm of the overall operations.

Unlike corporates, MSMEs/SMEs must manage their financials, keeping working capital as the primary focus while making business payments. To do this, small businesses, especially managed by sole proprietors, reach for their current or personal accounts or personal credit cards strapping their personal finances for the business use, which can cause setbacks. Most importantly, the reconciliation of business expenses for payables becomes
tedious and may create reconciliation/settlement losses and personal credit cards does not provide any business related rewards which can be used to redeem for any business expenses.

Commercial cards 

These can be beneficial for small businesses. With the top issuers entering this segment in the Indian market, the requirement for these cards has also increased. To mitigate the issue of working capital, commercial and business credit cards provide small businesses the freedom of providing interest-free loans for 45 to 55 days. Some business credit cards in India provide account payable and receivables tracking through partnerships with SaaS and BaaS platforms. 

These platforms provide connected finance solutions for the end-to-end tracking of funds, expenditures made by employees and precise financial positions of the business. This allows micro businesses and sole proprietors to separate their personal and business expenses. The global credit card market has seen
small business credit cards grow through the recent years, providing annual percentage rate (APR) benefits, business expenditure rewards and tax
payment solutions.

Adoption of virtual cards

Post the Covid-19 pandemic, the B2B payment landscape has evolved due to an increased adoption of virtual card payments. Virtual cards offer a unique
proposition to businesses, allowing them to offer multiple or single use virtual cards based on the nature of business. Single-use virtual credit cards not
only offer a secure way of doing business wherever third-party transactions are involved but also offer simplified reconciliation. Many Indian delivery startups within grocery and food delivery businesses make use of single-use virtual prepaid cards to avoid reconciliation and transactional issues.

Businesses can integrate virtual cards into their system to simplify accounts payable, corporate travel, payments related to shows/conferences,
healthcare, insurance and fleet management. Virtual card market is expected to grow rapidly especially in the Asia-Pacific region.

DIGITAL PAYMENTS