Credit Suisse talking of India’s digital payments becoming a trillion dollar opportunity in another five years—and comprising a fourth of all payments by then—sounds like wishful thinking considering how small digital payments are today. Yet, when you look at the dramatic changes brought about in even the past few months by Google adopting National Payment Corporation of India’s (NPCI) United Payments Interface (UPI) technology, the future doesn’t look as distant. NPCI’s UPI was always seen as a game-changer, but it really took off only after it became a part of Google’s Tez app and, after that, PayTM has also started UPI-based payments.
In November 2016, RBI data shows, around 0.3 million UPI transactions took place with a value of Rs 90 crore. In August, the month before Google’s Tez was launched, these transactions had risen to 16.6 million and these had a value of Rs 4,130 crore. By November 2017, these had risen to 104.8 million transactions with a value of Rs 9,640 crore. As a result, RBI data shows, though mobile wallets have been in existence for much longer, the total value of UPI transactions in November already exceeded that of wallets. In December—there is no RBI data on wallets for that month—UPI numbers rose another 40% or so to cross Rs 13,140 crore in terms of value.
Even more interesting is what this is doing to the share of various digital transactions. By November 2017, the value of total transactions done via wallets or UPI jumped to around a fourth of those done by way of debit or credit cards at retail or Point of Sale (PoS) outlets—while Rs 75,800 crore was spent at PoS via debit/credit cards, over Rs 19,000 crore was spent using UPI and wallets; in April 2017, this proportion was around 14%. Apart from the lower transaction fees associated with UPI, its spread is obviously more desirable from the point of the much lower start-up costs for traders—instead of a PoS machines, all traders really need to do is to print a Bharat QR code that potential buyers can scan with their Tez/PayTM or any other app to make a payment.
So, from a time when the availability of PoS machines and their costs acted as a binding constraint, India will move to a situation where this does not matter at all. If this is the impact of one digital giant promoting payments, imagine what happens when others get into the game. WhatsApp, for instance, has already begun working on incorporating a payments feature in its chat app and so has Facebook—that is, the famed WhatsApp moment is still to come. Others like RJio already have payment options built into their apps, so, with the spread of 4G telephony through cheaper and cheaper data services, it is only a matter of time till UPI becomes as easy as using cash even for small-ticket items.
The implications of this digital payments can be quite transformative. For one, with easier capture of consumer information—that cash simply does not allow—the data can be analysed at length. Costs of processing also go down quite dramatically. For the government, this means tracking payments gets easier since, unlike cash, digital payments can be tagged with an Aadhaar/PAN number. While most remained sceptical about whether digital payments would continue to grow once the impact of demonetisation disappeared and cash returned to the system, UPI’s Tez growth should dispel that myth—if people are using digital payments today, it is because they want to, not because they are being forced to.