Interoperability guidelines and Bharat QR could help UPI overtake debit cards in just a few years
When NITI Aayog CEO Amitabh Kant said, at an event in January 2017, that India could see debit and credit cards becoming redundant by 2020 with UPI-based payments taking over, it sounded like bombast. Almost two years later, though cards are far from dead with about Rs 100,000 crore of retail sales taking place through them every month, Kant’s prediction looks a lot more perspicacious.
In January 2017, UPI payments were a mere Rs 1,659 crore as compared to Rs 81,712 crore for both debit and credit card usage at retail outlets; that is, card usage was around 50 times as much as UPI. In August this year (see graphic), card usage rose to Rs 97,000 crore versus Rs 54,000 crore for UPI-based payments; card usage is now less than double that of UPI. Given how, since November last year, UPI payments are rising by around Rs 5,000 crore per month, the gap is likely to be closed quite soon.
Add in the transactions via mobile wallets—around Rs 15,000 crore per month—and the difference narrows further. The reason for adding it is simple, since mobile wallets now allow use of UPI also, chances are, over time, mobile wallet transactions will largely move to UPI.
It is, of course, true that not all UPI payments are made to merchant establishments; to that extent, a UPI-to-card comparison may not be strictly correct. But, over time, a larger share of UPI transactions are being made to merchants—the figure is around 25% right now—so the comparison is not wholly without merit. It is, though, true that UPI is not substituting just for cards, it is for cheques and even cash; so, instead of withdrawing cash to give to a friend, you may just make a transfer, via a wallet or UPI that, in turn, could be part of a wallet app.
The value of transactions made using cheques—these are partially being substituted by UPI—fell from Rs 6.6 lakh crore in January 2017 to Rs 6.4 lakh crore in August 2018. IMPS, also a substitute for cheques, rose from Rs 49,125 crore to Rs 1.2 lakh crore and NEFT from Rs 11.4 lakh crore to Rs 18.7 lakh crore in the same period.
Initially, the mobile payments game was almost entirely dominated by players like PayTM and UPI/BHIM was a small fraction of this, around a fifth in January 2017. In August 2018, however, while UPI-based transactions rose to Rs 54,212 crore, wallets were just Rs 15,573 crore; that is, UPI reversed the tables and was 3.5 times that of wallets.
This doesn’t mean that wallets like PayTM or Mobikwik are declining in importance. What is more likely is that, since wallets now offer a UPI mode as well, a large number of transactions of wallets are taking place via UPI, and so get captured by NPCI as UPI transactions. And unlike wallets that require users to give others their mobile phone numbers, UPI allows complete anonymity since users can create an ID not related to anything like, say, rationalexpectations@upi; that ID can now be given to someone wishing to make a payment instead of either the mobile number or the bank account details.
So, even though government apps like BHIM took a long time to offer the same type of services that a PayTM offers—you can pay utility bills on BHIM but PayTM and various bank apps offer a whole lot more—with the UPI universe expanding as various banks and players like Google started using it, this no longer mattered as much. Over time, even before RBI came out with interoperability norms for wallets, it helped that NPCI came out with a UPI QR code that could be recognised/scanned by any app, from PayTM to those by banks or Google, that offered UPI-based transfers; in this case, a merchant simply prints a QR code and keeps it in the shop for people to scan it using their mobile phones.
What was even better was Bharat QR, which was an amalgamation of UPI’s QR code and that of card firms like Master, Visa and NPCI’s RuPay. While a common QR code allowed credit card machines to recognise Master/Visa/RuPay cards, the BharatQR allows users to either pay via payment apps or even their Master/Visa/RuPay cards. Just download a BharatQR app—this is built into the apps of most banks—and add in your debit/credit card details, or even your virtual cards, scan the merchant’s BharatQR code with your phone and then make the payment from your wallet, GooglePay, WhatsApp, your UPI-linked bank account or your Master/Visa/RuPay card.
While it is true that not as many merchants use UPI QR codes or Bharat QR codes as compared to, say, the number of outlets that accept credit cards, the lower charges—since no card machine needs to be bought by the merchant—and the greater security, since your card can’t be cloned, means that UPI usage should increase at an even faster pace going forward. Considering that this has happened in less than two years, that’s nothing short of a revolution.