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UPI overtakes digital wallets

According to data from the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI), transactions made under the Unified Payments Interface (UPI) saw a 30% increase last month, as a greater number of the population have started using the service to pay for offline purchases, bill payments, cab-rides, among several other utilities.

The Unified Payment Interface was developed under the Digital India initiative and is run by the RBI. The UPI is a system that powers several bank accounts into a single mobile application (of any participating bank), merging several banking features. Nearly 90% of the transactions on UPI and digital wallets are small-value peer-to-peer fund transfers.

For small-value peer-to-peer transactions, UPI makes instant bank-to-bank fund transfers accessible and easy and is gradually overtaking mobile wallets.

The chairman of the Payments Council of India (PCI), Mr Naveen Surya noted that a large chunk of peer-to-peer remittance payments that are normally facilitated by digital wallets are moving to UPI. He attributed this to the Reserve Bank of India’s mandatory KYC (know-your-customer) rules for digital wallet companies and the goods and services tax imposed on business correspondents’ transactions.

RBI and NPCI data show that UPI transactions reached approximately 405 million in September, up nearly 70% from about 235.65 million in July and 165% from about 151 million at the beginning of this year.

In terms of value, UPI transferred IN 59,835 crores (around US $8.91 billion) in September, which was a 10.3% increase from the IN 54,212 crores (around US $7.33 billion) made in August.

In September 2017, UPI handled 30 million transactions worth a total IN 5,293 crores (around US $715 million). Digital wallet transactions dropped to 320 million in July from about 326 million in January.

RBI data indicated debit card payments through point-of-sale terminals, or card-reading machines increased to 366 million in July up from 301 million in January.

According to a fintech company leader, the surge in debit card payments through point-of-sale terminals means that people have started using their cards more for direct purchases, rather than only for withdrawing cash from ATMs.

There have also been improvements in the way online payment gateways are designed and presented. This could be a factor that led to the increase in debit card usage as now it is easier and more accessible for customers to pay for products online rather than opt for cash-on-delivery.

According to industry experts, several wallet companies have either deleveraged to broader financial services models or gone back to their remittance business as banks’ agents.

Mobile-based payment system and digital wallet provider MobiKwik is now leveraging itself as a broader financial services platform rather than solely as an e-wallet entity, extending loans to its wallet customers with support from non-banking finance companies (NBFCs).

Additionally, mainstream payment companies are promoting UPI more than their traditional wallet business. Last month, e-commerce payment system Paytm registered 137 million UPI transactions in September, which was 20% of its overall transaction activity.

In August, the NPCI launched UPI 2.0, an upgraded version of UPI, with several new features, including an overdraft facility enabling customers to link their overdraft accounts with UPI.

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