The ‘India Digital Payments Report’ (H2 2023) from Worldline India, a licensed payments aggregator, demonstrates that the Unified Payments Interface (UPI), an instant real-time payments system created by the National Payments Corporation of India (NPCI), maintains its dominant position within the Indian payments ecosystem.
During the period from July to December 2023 (H2 2023), there were 65,771 million UPI transactions amounting to Rs 99,678 billion, marking a 56% increase in volume and a 44% increase in value compared to the previous year. Mobile apps, which rank as the second-largest digital payment method by volume, recorded 62,958 million transactions totaling Rs 1,52,333 billion in H2 2023. However, the report highlights that many of these mobile payments likely utilized UPI, although some could also be linked to bank accounts.
Simultaneously, as UPI experiences increasing popularity, the volume and value of debit card transactions have been on a decline.
It is worth noting that the average transaction amount for UPI has been decreasing steadily. For instance, it dropped by 8% from Rs 1,648 in H2 2022 to Rs 1,515 in H2 2023. This trend indicates that UPI is increasingly utilized for smaller or micro transactions.
The decrease in the average transaction amount for UPI is mainly due to the rise in person-to-merchant (P2M) transactions, alongside person-to-person (P2P) transactions.
The primary merchant code categories (MCC) for person-to-merchant (P2M) UPI transactions encompass groceries and supermarkets, dining establishments, telecommunications services, fast-food outlets, department stores, among others. The report notes that these categories’ prevalence elucidates the declining average transaction amount for UPI, despite the escalating transaction volumes.
The expansion of digital payments hinges on a strong infrastructure. India’s increased digital payments are backed by the growth of payment acceptance channels. From July to December 2023, there was a 5.4% increase in point-of-sale (PoS) terminals, reaching 8.56 million, and a 13% growth in UPI QR codes, totaling 317 million.
When compared to point-of-sale (PoS) machines, QR code printouts provide merchants with a more cost-effective option for accepting payments and offer customers a faster payment method.
The primary deployers of point-of-sale (PoS) machines are the leading commercial banks: Axis Bank (19%), ICICI Bank and HDFC Bank (18% each), SBI (15%), RBL Bank (11%), and Paytm Payments Bank (8%). Private sector banks collectively hold a 73% market share, indicating their dominance in this sector.
According to the Worldline India report, PhonePe, Google Pay, and Paytm are the top UPI apps in India, leading in both transaction volume and value (refer to the graphic). The report suggests that their dominance is probably due to a combination of being early movers, user-friendly interfaces, and the various features, discounts, and deals they offer.
Keep in mind that this information pertains to the period from July to December 2023, predating the RBI’s actions concerning Paytm Payments Bank. Therefore, data for future periods may show how this action has affected Paytm’s UPI market share.
In contrast to UPI transactions, net banking transactions typically involve a much larger average transaction amount. The report notes that net banking encompasses not just payments for products and services but also corporate tax payments, contributing to their substantial figures. However, due to their already large base, the growth rate of net banking transactions is projected to be lower than that of UPI transactions.
According to the report, banks collectively issued a total of 1.38 billion cards by December 2023. These included 97.9 million credit cards, 960.8 million debit cards, and 325 million prepaid cards. Comparing the second half of 2023 to the same period in 2022, credit card issuances grew by 21%, debit card issuances by 2%, and prepaid card issuances by 13%.
While card issuances increased, the total volume of card transactions declined by 7% year-on-year to 3.70 billion in the second half of 2023. This drop was mainly due to a decrease in debit card transactions, whereas credit card transactions experienced an increase.
According to the report, with recent RBI notifications regarding credit cards, including matters like co-branded cards and penalties for late payments, it is uncertain how these developments might affect credit card issuances and transactions in the future.
Conclusion
The Worldline India report reflects a vibrant digital payments scene in India, with UPI transactions leading the charge in growth but with a trend towards smaller transactions. The expansion of mobile apps and payment acceptance infrastructure also plays a crucial role. However, challenges like the decline in debit card use and uncertainties in credit card regulations underscore the need for ongoing vigilance and adaptability in the payments sector for continued success.
