In what ways is the Indian payment system evolving?

By Puja Sharma

Worldline India has released the ‘India Digital Payments Report’ for Q2 2022. The report highlights the analysis of the transactions available in public databases as well as processed by Worldline India in the second quarter (April – June 2022) and derived some unique insights.

Paying in India: how does it work?

In Q2 2022, 20.57 billion transactions in volume and INR 36.08 trillion in terms of value were processed through Debit and Credit cards, Prepaid Payment Instruments like mobile wallets and prepaid cards, and UPI which includes P2M (person to merchant) and P2P (person to person) transactions.

UPI P2P accounted for 49% in volume and 67% in value but in terms of merchant transactions, UPI P2M emerged as the preferred payment mode with a market share of 34% in volume and 17% in terms of value. Payments through credit and debit cards accounted for 8% in volume and 14% in value. While UPI remains a dominant payment mode, the adoption of credit cards is growing at a healthy pace it remains the preferred mode for high ticket-size transactions.

According to Ramesh Narasimhan, CEO – India, Worldline, “2022 will be another important year for the payments industry in India. We are successfully sailing through the aftermath of Covid-19, the total cards in circulation has breached the 1 billion mark, UPI is tracking over 6 billion transactions per month, about 53 million FASTags have been issued, and over 20k billers are live on Bharat BillPay ecosystem.

This demonstrates a robust payment ecosystem that is built to serve the diverse and growing needs of Bharat. We are glad to share our India Digital Payments Report Q2 2022 which captures key trends in the payment world and showcases a double-digit growth across almost all payment platforms. We also highlight our view on what the RBI’s Vision 2025 means for Digital Payments in India.”

Unified Payment Interface (UPI)

In Q2 2022, UPI clocked over 17.4 billion transactions in volume and INR 30.4 trillion in terms of value. Transactions volume and value have seen an increase of about 118% increase in volume and over 98% increase in value in Q2 2022 as compared to Q2 2021.

UPI was launched in April 2016 with 21 partner banks and as of now, the number has increased to 346 banks that are part of the UPI ecosystem. It is now accepted in countries like UAE, Singapore, France, and Bhutan.

What could be a game-changer for UPI transactions will be linking credit cards onto the platform – it is currently only Rupay but could increase going forward – and this could further supercharge UPI transactions, especially in terms of P2M average ticket sizes.

The government has also reiterated that UPI is a public good and that it is not considering levying any charges for UPI services. Companies have sought access to UPI data, says RBI Deputy Governor. As of June 2022, the total number of UPI QRs stood at 195.17 million, an increase of 92% compared to June 2021.

Merchant Acquiring

As of June 2022, the total number of POS terminals deployed by merchant acquiring banks was 6.59 million; it increased by 43% growth in Q2 2022 compared to Q2 2021.

Overall, private sector banks represented about 74% of the POS terminal market while public sector banks accounted for 18%. Payments banks accounted for 7% market share and foreign banks continue to represent a 1% share.

Even though credit card volume at POS and eCommerce are nearly equal, the value of e-commerce transactions is higher as compared with the value of transactions at POS. This is in line with the general trend of transactions of high-ticket items moving from the physical to the digital space.

Industry participants are expecting further tailwinds in credit card spending with the onset of the festive season, where spending typically remains at an elevated level. Many issuers have lined up special offers on credit cards to boost festival spending and going by recent trends, they expect a promising festive season. The RBI is also ensuring that cardholders feel secure when transacting online by mandating the tokenization of all card numbers.