What are the future prospects for payments via UPI in India?

By Puja Sharma

The unified payments interface (UPI) market in India size is estimated to grow by $65.49tn from 2021 to 2026 at a CAGR of 132.98% according to Technavio.

Unified payments interface (UPI) market in India – Market Dynamics

UPI, India’s preferred method for digital payments, is getting revamped with several new features by incorporating Artificial Intelligence-powered (AI) conversational features on UPI.

The Reserve Bank of India (RBI) is likely to introduce ‘Conversational Payments’, a new way to make payments by chatting with AI-powered systems.Speaking on the same, RBI Governor Shaktikanta Das also announced the introduction of offline payments through the ‘UPI-Lite’ on-device wallet.

Importantly, the announcement included implementing “Conversational Payments” on UPI, enabling users to engage in conversation with AI-powered systems to make payments. There have also been proposals for introducing offline payments on UPI using Near Field Communication (NFC) technology through the ‘UPI-Lite’ on-device wallet.

It seeks to enhance the transaction limit for small-value digital payments in offline mode from INR 200 to INR 500 within the overall limit of ₹2000 per payment instrument. It also mentions the development of a Public Tech Platform for frictionless credit delivery deployed as a Plot project.

Addressing the media on August 10th, Das shared, “I am happy to note that the Indian economy is exuding enhanced strength and stability despite the massive shocks to the global economy in recent years. Our economy has continued to grow at a reasonable pace, becoming the fifth-largest economy in the world and contributing around 15 per cent to global growth. Overall, India’s strong macroeconomic fundamentals have laid the foundations for sustainable growth.”

Major Driver – Instant and smooth money transfer process

Instant and smooth money transfer process drives the growth of the UPI market in India. The UPI is based on the IMPS platform, in which, users have the flexibility to make the payment at any time and from anywhere.

Furthermore, along with having no restrictions on holidays and odd hours, bank strikes will also not affect the UPI payments. Users can instantly register and make instant fund transfer. Hence, such factors are expected to drive the growth of the UPI market in India during the forecast period.

Significant Trends – The growing emergence of mobile apps for shopping transactions

The growing emergence of mobile apps for shopping transactions is an emerging UPI market trend in India. When compared to websites, online shopping transactions are higher in mobile apps because of the increasing penetration of smart devices in the market. Furthermore, market vendors such as Google LLC, Paytm Payments Bank Limited, and Walmart Inc. offer mobile-based UPI apps. Some examples of UPI apps include GooglePay, PayTM, and PhonePe. Hence, trends like the growing emergence of mobile apps for shopping transactions are expected to drive the growth of the UPI market in India during the forecast period.

Paytm shares were up 2.48% at Rs 858.6 after the Reserve Bank of India proposed to increase the minimum limit for UPI Lite transactions, as per the local media report. The central bank on August 10 announced that it will increase the limit for UPI-Lite to INR 500. The minimum limit earlier was Rs 200.

UPI-Lite was launched to facilitate lower-value transactions like the ones for payment of groceries, milk, eggs, etc. The feature was launched so that UPI can handle such continuous transactions and make the process smoother.

Key Challenges – UPI payment frauds

The UPI payment frauds challenge the growth of the UPI market in India. Misleading UPI handles, request money fraud, and phishing are some of the examples of UPI payment frauds that take place in the market.

For instance, in phishing, fraudsters send unauthorized links via emails or SMSs to the users, and once they click on such unauthorized links, the money gets transferred from their account to the fraudster’s account. Hence, challenges such as fraud happening in the market can hamper the growth of the UPI market in India during the forecast period.