Record-Breaking Numbers Of UPI In 2022 Hint At India’s Maturing Digital Payments Ecosystem

India’s digital payments ecosystem received a much-needed boost with the launch of the United Payments Interface (UPI) in 2016 after the Centre decided to withdraw high denomination currency notes of INR 500 and INR 1,000.

Since then, the adoption of UPI has grown by leaps and bounds, so much so that in the last month of 2022, UPI transactions value stood at INR 12.82 Lakh Cr.

According to data sourced from the National Payments Corporation of India (NPCI), the total number of UPI transactions last year jumped 91.11% YoY, and the value of UPI transactions saw a 74.83% YoY increase in 2022.

As of now, the growth of the government’s digital payments network is showing no signs of retreat.

The Rise Of The UPI

Starting with 21 banks in 2016, the UPI ecosystem has today expanded to 381 banks, enabling billions of digital transactions each month. According to the National Payments Corporation of India (NPCI), the entity that manages the UPI, the country’s digital payments ecosystem includes the following participants:

• Payer Payment Service Provider (PSP)
• Payee PSP
• Remitter Bank
• Beneficiary Bank
• NPCI
• Bank Account holders
• Merchants

To put it into context, apps that are used to make UPI transactions, such as PhonePe or Google Pay, are called third-party app providers (TPAPs) in the value chain. Banks are called payment service providers (PSPs) in the value chain, while they also double up as remitters and beneficiaries in most transactions.

TPAPs can’t directly access the UPI network and need PSPs to connect with the UPI network and enable transactions.

Currently, there are 381 live members on the UPI network, with 57 PSPs and the remaining remitters or beneficiary banks.

UPI Enabled 2,348 Transactions Every Second In 2022

2022 was a great year for India’s digital payments framework, or UPI, on all fronts – be it the number of transactions or their total value.

At the end of the calendar year 2022, UPI’s total transaction value stood at INR 125.95 Lakh Cr, up 1.75X year-on-year (YoY), as per the NCPI. Interestingly, the total UPI transaction value accounted for nearly 86% of India’s GDP in FY22. 

Further, India saw a total UPI transaction count of 7,404.45 Cr in 2022, up 1.91X YoY. The number translates to nearly 2,348 UPI transactions per second.

In the first quarter of the calendar year 2022 (between January and March), the UPI network saw a rise of 1.99X in the transaction count and a 1.92X jump in the transaction value, compared to the year-ago period.

In the second quarter of 2022, the number of UPI transactions rose 2.17X YoY to reach 1,740.10 Cr. Meanwhile, the transaction value surged 1.98X YoY to reach INR 30.39 Lakh Cr.

However, the second half of the year remained a bit slow for the UPI. While the growth in the third quarter of 2022 remained flat QoQ, the fourth quarter witnessed a decline in the growth rate of transaction value and count. 

Between October and December, UPI transaction value stood at INR 36.84 Lakh Cr, up 1.55X YoY. Similarly, the UPI transaction count was up 1.73X YoY at 2,244.44 Cr.

Experts say that a slowdown in the growth of UPI transaction value and count indicates that the digital payments ecosystem is approaching maturity, which, they believe, is a good sign. 

Meanwhile, the average transaction value on the network, too, saw a slight decline during the year, falling from INR 1,855 in 2021 to INR 1,711 in 2022.

The slight decline means that more users made small-ticket transactions (under INR 500) in 2022, compared to 2021. 

It is pertinent to mention here that in December 2022, 3.24% of the total person-to-person (P2P) transactions and 14.57% of person-to-merchant (P2M) payments were up to INR 500. The increase in the number of smaller transactions was more evident in P2M transactions, which means more small merchants are using UPI.

Big Guns Of The Ecosystem

Last year, PhonePe, Google Pay and Paytm accounted for 6,380.75 Cr transactions worth INR 107.10 Lakh Cr until November 30. For context, the transaction count represents 96.36% of the total transactions in India in the first 11 months of 2022 and 94.67% of the total value of UPI transactions during the period.

The year also saw the rise of many new players such as CRED, Amazon Pay and WhatsApp Pay.

The biggest surprise of the year was CRED, as the Kunal Shah-led fintech startup saw its transaction number skyrocket to 13.19 Cr in November 2022 from just 1.07 Cr in January 2022.

The startup’s transaction value jumped to INR 1.49 Lakh Cr in November from INR 14,189.86 Cr in January, making it the fourth-largest player in the field in terms of the transaction value.

WhatsApp Pay, too, saw a rise during the second half of the year, after the NPCI increased its UPI users cap to 40 Mn users. 

A Level Playing Field For All

To address the challenge of the growing market dominance of a few payment apps, the NPCI introduced a 30% market share limit on TPAPs in November 2020.

Under the policy, the NPCI would bar any single app from having more than 30% of the market share in the UPI ecosystem. However, last month, the NPCI extended the deadline for apps to comply with the guideline to December 2024.

In 2022, India’s digital payments innovation reached foreign lands. At the Google for India 2022 event, Union minister of electronics and IT Ashwini Vaishnaw said that India was in talks with 30 countries for the adoption of the UPI.

The year also saw the Reserve Bank of India’s (RBI) interest in linking RuPay credit cards with UPI. This move will allow users to make payments on the UPI network via their credit cards, subject to a 2% merchant discount rate (MDR).

What’s Next For UPI?

Industry experts say that over the next 12 months, the UPI will continue to see steady growth on the back of the proliferation of the payments ecosystem throughout the country. Further, a fall in the average ticket size of transactions indicates that UPI payments are getting smaller due to the increased penetration of the technology across the country.

Although the year 2022 largely favoured the UPI in terms of growth, a slowdown in the transaction value in the second half of the year hints at an ecosystem-wide maturity, as UPI users reach saturation.

However, with the international expansion of the technology and the upcoming credit card linkage, the UPI is expected to further consolidate its position in the world as the leading digital payment technology.

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