UPI's dramatic growth, and its next challenge, Pg4

Key Highlights:

• Unified Payments Interface (UPI), launched in 2016, now accounts for 86% of India's digital transactions.
• Over 55 crore people use UPI, with 703 entities facilitating transactions.
• The Payments and Settlement Systems Act of 2007 was amended to allow merchants to be charged a fee for UPI payments.
• The government currently subsidizes Merchant Discount Rate (MDR) for UPI and RuPay debit card payments up to ₹2,000.
• UPI is operational in 9 countries, including France, Singapore, and UAE, with efforts for further international expansion.

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Detailed Insights:

• The Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) developed UPI through the National Payments Corporation of India (NPCI).
• Initial adoption of digital payments was slow, with cash-on-delivery prevalent despite efforts for a less-cash society.
• The High-Level Committee on Deepening of Digital Payments, led by Nandan Nilekani, recommended subsidizing MDR for small transactions.
• Government subsidies, capped at 0.15% of transaction value, significantly boosted UPI usage, especially during the COVID-19 pandemic.
• Private investments in Indian fintech, particularly in payment services, surged in 2019 and 2021, driven by UPI adoption and the pandemic.
• PhonePe and Google Pay dominate the UPI market, handling 80% of transactions and 83% of value in July.
• The payments industry advocates for reintroducing MDR of 0.3-0.6% on transactions over ₹2,000 for larger merchants to cover infrastructure costs.
• The finance ministry stated that relying solely on subsidies is not viable for UPI's "next wave of growth," which is expected from rural and semi-urban areas.
• International linkages, such as with Singapore's PayNow system, aim to streamline cross-border remittances and reduce transaction costs.

Key Concepts Involved:

• Unified Payments Interface (UPI): An instant real-time payment system developed by NPCI facilitating inter-bank transactions.
• National Payments Corporation of India (NPCI): An umbrella organization for operating retail payments and settlement systems in India.
• Merchant Discount Rate (MDR): A fee charged to a merchant by a bank for processing debit or credit card transactions.
• Payments and Settlement Systems Act, 2007: An Act that provides for the regulation and supervision of payment systems in India.