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Smart Wallets: UPI drives uptake of digital payments

February 19, 2019
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The move to demonetise high-value currency notes in November 2016 led to the growth of digital payments in the country. The sudden cash crunch saw consumers and markets taking to digital payments in a big way. This also provided the impetus for the government to develop the Unified Payments Interface (UPI) system, which has been providing the biggest push to digital payments.


The uptake of digital payments continued to grow through 2018. Further, transactions processed and facilitated through mobile phones/cellular devices accounted for the majority of digital payments in the country. According to data from eMarketer, India is the world’s fastest-growing proximity mobile payment (PMP) market. PMP refers to scanning, tapping or checking in with a cellular device at the point of sale. As of November 2018, approximately 7.6 per cent of the population or 73.9 million people in India were using mobile payments, a significant increase of 39.7 per cent over the previous year.

tele.net takes a look at key developments in the digital payments space…

Growth trends

According to data from the National Payments Corporation of India (NPCI), for the first time, the volume of total transactions over the government’s UPI platform crossed the half a billion mark at 524.94 million transactions during November 2018, up fivefold from 104.841 million in November 2017. The total value of the transactions stood at Rs 822.32 billion, up from a meagre 96.4 billion during the same period. A total of 128 banks were live on UPI as of November 2018.

Gauging the potential of UPI following its success, NPCI launched UPI 2.0 in August 2018 with additional features. These include an overdraft facility, which  enables customers to link their overdraft accounts with UPI. It assists in simplifying the process of availing of credit for customers with limited credit history. The new UPI version also has provision for a one-time mandate that allows customers to authorise a transaction and pay later. Another key aspect is the invoice in the inbox feature, which allows merchants to send invoices along with a request to collect so that customers can view the invoice before paying. Lastly, the signed intent and QR feature allows customers to verify the authenticity of merchants while scanning QR codes.

Meanwhile, mobile wallet transactions registered a record high in October 2018, in terms of not only value but also volume. According to data released by the Reserve Bank of India (RBI), approximately 368.45 million transactions, grossing a total of Rs 187.86 billion, were conducted in October 2018, registering an impressive increase over the 324.16 million transactions (amounting to Rs 151.02 billion) recorded in September 2018.

Paytm announced that it had registered over 179 million UPI transactions in the month of October 2018, recording a massive increase of 600 per cent in transactions over the past six months. The company also accounted for approximately 37 per cent of the overall UPI transactions. Paytm has been promoting UPI for offline payments and more than 5 million offline merchants out of its total merchant base of 9.5 million now accept payments through UPI. The company had also earmarked a corpus of $27.07 million for promoting UPI transactions.

Flipkart-owned digital payments platform PhonePe announced that it has crossed a billion transactions since its formation in September 2016. The company claims to have recorded an annual total payments volume (TPV) of $38 billion in September 2018, almost double the $20 billion TPV figure announced in June 2018. The company has been able to enrol more than 100 million users in less than a year since it began operations.

Google India, which launched its mobile payments platform Google Pay in September 2017, announced that it had 25 million monthly active users in September 2018. Approximately 1.2 million businesses have registered on the platform and the company has processed 860 million transactions since the commencement of operations.

The boost in e-commerce has partly provided the ground for driving the uptake of various mobile wallets in the country. E-commerce has been growing steadily in the country and several digital payment platforms have been tying up with e-commerce vendors to facilitate payments. Companies such as Flipkart and Amazon have launched their respective payment platforms, PhonePe and AmazonPay. E-commerce companies in partnership with mobile wallets have been offering lucrative discounts and special offers to acquire first-time customers.

The digital wallets and payments space is bound to gain further traction as WhatsApp seeks RBI’s approval for the formal launch of its payment services in the country. Currently, NPCI and RBI are holding discussions on whether WhatsApp is fully compliant with India’s data localisation rules. With a captive user base of over 200 million, the entry of WhatsApp will make the space more competitive.

Key developments


With its notification of the interoperability guidelines, the RBI has given the green signal to users of prepaid payment instruments (PPIs) such as mobile wallets for transferring funds between mobile wallets. Interoperability permits payment transactions between different mobile wallets and enables users to transfer those funds to their personal bank accounts.

According to the RBI, interoperability is being introduced in a phased manner. In the first phase, interoperability of wallets will be enabled through UPI. In the second phase, transactions will be allowed between bank accounts and wallets through UPI. This facility will allow users to transfer money from mobile wallets to their bank accounts without incurring any additional charges. Finally, in the third phase, in instances where PPIs are in the form of debit cards, the cards will be affiliated to authorised card networks such as Visa, Rupay and MasterCard. Further, PPI issuers in segments like food and gift vouchers, and transport can be a part of this interoperability.

The ability to issue cards places mobile wallets neck and neck with payments banks, the underlying difference between them being that payments banks have a deposit limit of Rs 100,000 and pay interest on deposits whereas the monthly wallet balance limit for mobile wallets is capped at Rs 10,000 and no interest is paid on the balance amount. However, these guidelines are not mandatory for companies and the final decision rests with them.

The new guidelines, once implemented, will be beneficial for both merchants and users, as they will obviate the need for them to sign up for multiple wallets, and help them to easily receive and make payments via any single wallet.

Aadhaar-based authentication

Initially, the use of e-KYC using Aadhaar reduced the time and cost involved in enrolling new customers. This enabled companies to bring a large number of users on board rather quickly. However, in September 2018, the Supreme Court termed the use of Aadhaar-based authentication by private firms as unconstitutional and held that it can be used only by the government for social welfare schemes. In light of this, mobile wallet companies had to move to an offline verification mechanism, which increased their operational cost for enrolling new customers significantly.


Going forward, the growth in the number of smartphone users will prove to be the single biggest driver of digital payments. According to Cisco’s 13th Annual Visual Networking Index, the number of smartphone users in India is expected to double from 404.1 million in 2017 to 829 million by 2022, and account for around 60 per cent of the population, up from 27 per cent in 2017. The report also highlights that India is the fastest growing smartphone market in the world, expanding at a compound annual growth rate of 23 per cent. This presents a huge opportunity for players in the digital payments space to enter the Indian market (WhatsApp being a key example). Further, once interoperability between mobile payment wallets and banks becomes seamless, the digital payments space could see unstoppable growth. According to Credit Suisse, India’s digital payments industry, which was worth around $200 billion in February 2018, is expected to grow to around $1 trillion by 2023.

By Aditya Kumar

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