UPI - India's Bid for a Cashless Economy

According to the latest statistics posted by the National Payments Corporation of India, total UPI transactions in India crossed $100 billion in value. This was the first time the platform hit that astronomical number in its 5-year-long history.

UPI Crosses Another Milestone

The October 2021 statistics for UPI reflected a month in all greens for the payments platform. It registered a growth in the number of banks associated, the total transaction volume, and the transaction value. For the first metric, the number of banks went up to 261, up from 259 in September. Along with this, the transaction volume went up from 3.65 billion in September to 4.2 billion in October; it registered an increase of 15%.

Most importantly, the transaction value went up from Rs. 6.54 trillion ($87.7 billion) to Rs. 7.71 trillion ($103.4 billion). The transaction value saw a growth of almost 18% month-on-month. The growth curve of UPI has been a positive one, for at least the past two years.

What has been the secret of this growth, then? UPI started as a P2P, or peer-to-peer payment system, with Google Pay. However, since 2017, it has become more of a P2M, or peer-to-merchant payment system, and it has resulted in rapid growth ever since.

Origins of UPI - One of India's First Deep Tech Innovations

The government had set up the National Payments Corporation of India (NPCI) in April 2009. The NCPI started consolidating and integrating various systems with different service levels into a nationwide process for all retail payment systems.

An RBI document, first published in March 2011, showed that back then, there were only about 6 cashless transactions per year per person. What's more, out of 10 million retailers, only a fraction accepted card payments. The same document mentioned that nearly 145 million Indian households didn't even have access to banking. After the development of the system, NCPI formally launched UPI in 2016. Since then, it has become the largest real-time payments system in the world.

UPI soon became one of the most popular, if not the most popular, methods of digital transactions in India. Sharad Sanghi, MD and CEO, Netmagic had called UPI one of the first and most successful deep tech innovations in India. The comment refers to the way UPI operates.

Incidentally, UPI uses similar blockchain technology as Bitcoin does. However, the scalability and the reach of the former have made it uniquely suited for the Indian economy. To give an idea, UPI can handle 10 million transactions a day, that is, 15,000 transactions a second. On the other hand, Bitcoin can only handle about 3-7 transactions a second.

Over the last decade, a series of groundbreaking decisions have filled in on a number of these disparities. For instance, the government's Jan Dhan Yojana scheme has seen over 400 million new bank accounts opened since its launch in August 2014. This has seen more and more Indians coming into the banking system, which has boosted India's bid for a cashless economy and society.

Demonetization, COVID-19, and UPI

The demonization (still a touchy subject to talk about) forced the hand of many to switch to digital, directly influencing UPI's rise to prominence. In the immediate aftermath of demonetization in November 2016, UPI saw a significant rise in the number of transactions and volume.

Not just the number of transactions, the value followed a similar trend; growing 2 times from October to November, 7 times from November to December, and double again, from December to January.

This momentum carried the development of the system forward. As mentioned before, in October 2021, nearly 5 years from demonetization, UPI transactions have gone more than 16,000 times in value, and more than 42,000 times in total transactions. Therefore, demonetization has directly contributed to the growth of UPI as a uniform payment system.

Another such outlier event happened with the COVID-19 pandemic and the subsequent lockdown.

At first, the transactions dipped, coinciding with the implementation of the nationwide lockdown. However, that dip was short-lived; the subsequent boost in contactless and digital payments saw the transactions double in 6 months.

Talking about the growth of digital payments, Ankit Gera, Co-founder, Junio, said, "India is the world’s fifth-biggest online customer base and the majority are using mobile data. This is powering digital payments in India. Wallets like Paytm, Mobikwik became popular during demonetization and this year we have seen exceptional growth in UPI. With the support of big players like Google Pay, PhonePe – UPI has surpassed wallet payments by a big margin. With WhatsApp getting the final nod to launch UPI payments, the growth is not going to slow down".

Therefore, demonetization, the COVID-19 pandemic, and other historic events of the last decade, and this one, have seen this system propelled to dizzying heights.

The Future of UPI

Over the last two years, both the number of transactions and the transaction volume have been growing at a steady pace of 6-7%. Therefore, even if we project a similar growth, by January,  transactions should cross the 5-billion-mark

However, since it depends on more than the historic trends, it might be way off of our projection here.

India has already launched on UPI2.0; it has been launched in August 2018. It has updated the security of transactions, and the whole blockchain, while introducing new features. One of the key new features is the one-time mandate, which allows users to schedule a payment in advance. Along with this, features such as invoice verification have greatly improved the user experience. Over the years, NCPI has been working with technology and banking partners to further simplify and enhance the whole UPI experience, to ensure more and more inclusion.

However, the project that has been 12 years in the making, has finally started to deliver, and there is no doubt that UPI will carry India towards a cashless future.