UPI to witness massive growth over next 5 years, says report

Unified Payments Interface (UPI) is estimated to see a massive growth in next five years, targeting more than 50 per cent of the payment space.

According to Boston Consulting Group (BCG) presentation made at an industry event last week, the role of cash in the payments will be limited during the period from 2021-22 to 2024-25. UPI will dominate the payment space with around 59 per cent payments transactions followed by mobile and internet-based payments. This will made around 20 per cent of the total number of cash and non-cash transactions.

Although, during FY 2018-19, the choices related to payments witnessed a different scenario wherein, ATM transactions being the highest, occupying around 30 per cent of the total cash and non-cash transactions, followed by UPI-based digital payments with a 17 per cent share, point of sale (PoS) machines (20%), and mobile and internet (13%), and cash comprising 5 per cent of the total transactions. 

It is expected that ATM transactions will comprise of 5 per cent total transactions between 2021-22 and 2024-25. This change in the scenario is an outcome of innovation along with the government and the banking regulator’s attempt to move to a ‘cash-less economy’.

According to Reserve Bank of India (RBI) governor Shaktikanta Das, banks need to utilise the technological advances in the payments and lending space to compete with fintechs and bigtechs.

Global technology giants such as Alibaba, Amazon, Facebook, Google have grown significantly in the last couple of decades and now some of them offer payment services that is an alternative to traditional card-based payments. 
Similarly, many fintech start-ups have been witnessing significant growth over the last few years and are offering banking-related services to customers which is believed to compete with lenders and give them a run for their money if they do not catch up.

In July 2019, UPI system has seen 822.29 million transactions which are worth Rs 1.46 lakh crore (US$ 20.29 billion). There were 754.54 million transactions in June giving competition to the number of debit card-based transactions which totalled 786.11 million. Debit card transactions--at PoS terminals and ATMs-- presently, dominate the payments space.

In 2018-19, Google Pay had maximum transactions at 36 per cent followed by PhonePe at 29 per cent, Paytm at 25 per cent and other banks and payments instrument standing at 10 per cent.

The benefits of the coming together of new-age technology and traditional banking methodology will be a win-win situation for the financial ecosystem and offer more options to the customer.

Recently, Nandan Nilekani- headed panel on digital payments suggested that there will be increase in the volume of digital payments by 10 times in the coming three years along with initiatives such as removing transaction charges on digital payments, simplifying Know Your Customer (KYC) processes, and reducing KYC costs for banks. The regulator has initiated action based on the committee’s recommendations.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.