UPI: Persons-to-merchants transactions to be 75% of all by 2025, says Worldline

Virendra Pandit 

New Delhi: India’s extremely popular Unified Payments Interface (UPI), which revolutionized digital payments in the last five years, is set to scale new heights in the next five years: three-fourths of all online transactions will be from person-to-merchant (P2M) by 2025.

In other words, the ubiquitous Quick Response (QR) Code has largely made cash redundant in everyday transactions.

Recently, the UPI also penetrated the Middle East and Europe, and over 40 countries are expected to adopt this model in the next few months.

As of now, India leads the world in digital payments. Of all such payments worldwide, India alone accounts for nearly 45 percent, a huge achievement for a country currently emerging as the leader of the Global South.

According to a report released on Tuesday, citing data from the National Payments Corporation of India (NPCI), the popularity of UPI is driven by zero transaction fees and the depth of acceptance. The P2M, which currently accounts for a 56.1 percent share of all UPI transactions, is expected to increase to 75 percent by 2025.

The “India Digital Payments Report for H1 2023”, released by global payments service provider Worldline, said the number of UPI transactions in India rose 62 percent in the first six months of 2023 compared to the same period last year. This was largely driven by P2M transactions.

“The allure of digital payments beckons both consumers and merchants alike, evolving it into an indispensable facet,” said Ramesh Narasimhan, Chief Executive Officer (India) at Worldline.

Out of 51.91 billion UPI transactions between January and June this year, 29.15 billion were P2M payments, which comprised a share of 56.1 percent. The rest is made up of 22.75 billion person-to-person (P2P) transactions.

The P2M transactions are growing at a rapid pace. Compared to a 41 percent increase in P2P transaction volume in the first half of 2023, P2M transactions have jumped 119 percent.

“While some of this growth in P2M transactions can be attributed to zero transaction fees imposed on merchants, it indicates the depth of acceptance of this payment mechanism from both buyers and particularly the sellers,” the report said.

“Beyond low fees, merchants are also looking for security, and timely payments, among other things, and UPI delivers here. The other fact is that with the dominance of P2M transactions, UPI is going to become even more entrenched with the population and growth will continue at this rapid pace.”

The Worldline report said that UPI’s average ticket size (ATS) in the first six months of 2023 at Rs 1,604 was 10 percent lower than Rs 1,774 in the same period last year. When put in juxtaposition with the 62 percent jump in the number of UPI transactions, it shows that its penetration has improved and is now increasingly being used to make even smaller payments.

“A key driver for this growth has been the near-ubiquitous acceptance of UPI for both personal and payment transactions from the user/buyer standpoint as well as high acceptance by merchants. Also, there has been greater penetration of UPI in rural India,” it said.

In terms of value, UPI transactions have jumped 47 percent in H1-2023 to Rs 83.17 trillion from Rs 56.59 trillion between January and June 2022.

“Since the future of UPI is going to be P2M transactions, this is a good trend. It indicates that UPI is increasingly being used for micro-transactions ensuring a greater stickiness for the product.”

It said three major payment apps – PhonePe, Google Pay, and Paytm – account for 95.68 percent of all UPI transactions in India by volume. By value, they make up 93.65 percent of all transactions as of June 30.

The share of PhonePe in the total market, in terms of volume, has remained stable, rising from 45.8 percent in June 2022 to 47.2 percent in June 2023. In terms of value, its market share has risen from 48.8 percent to 49.8 percent.

On the other hand, Google Pay’s share is being eaten up by Paytm. Google Pay’s market share in the number of UPI transactions fell from 34 percent to 13.8 percent. At the same time, Paytm’s share rose from 14.7 percent to 34.6 percent.

A similar story was visible in terms of volume. Google Pay’s market share by volume fell from 34.6 percent in June 2022 to 10.9 percent in June 2023. Paytm’s share rose from 9.9 percent to 33 percent during the same period.

Because of the rise of Paytm, its Paytm Payment Banks topped the list of UPI beneficiary banks with a volume of 11.6 billion, followed by 9.6 billion from Yes Bank and 5.7 billion from the State Bank of India (SBI).

HDFC Bank was the top UPI remitter bank with a volume of 46.3 billion, followed by the Bank of Baroda with a volume of 34 billion and the Union Bank of India at 32.4 billion.