Indian consumer tech has been one big hand-me-down movement. Flipkart’s an Amazon-wannabe; Ola, an Uber clone; and Zomato, a Yelp version. With payments, too, nothing unique had been created for India; not for the longest. That is until Unified Payments Interface (UPI) was introduced.
It was a payment system created specifically for India by the National Payments Corporation of India (which manages various payment standards in the country). It was imagined to be a payment system that works just like sending an email, complete with the person having a unique address. It is the closest thing to a one-size-fits-all payment solution as it can be used for peer-to-peer payments, peer-to-merchant payments, both online and offline. Its one limitation is that it can be used only through a smartphone.
In the 17 months since UPI’s launch, it has accounted for 431 million transactions amounting to Rs 50,962 crore ($7.66 billion). That makes up about 6% of all retail payments, according to NPCI. And companies—Indian and multinationals—want in on this.
While this timeframe should give a reasonable picture of how a payment system has fared, the dust around UPI just doesn’t show signs of settling. UPI has been at its fickle best for companies that have placed bets on it. The biggest companies, from Flipkart-owned PhonePe, government-backed BHIM, Google’s Tez and Paytm*, have all claimed to be the leaders in the last 1.5 years. With none taking a definitive lead.
For it to get to a stage of stability, payment companies and banks will need to find a way to get people to use UPI in place of cash. That means more merchant payments. But the new rules around merchant discount rate makes it difficult for companies to make money. The government said merchants don’t have to pay a fee anymore to the banks for two years, for transactions less than Rs 2000. The banks will be reimbursed by the government. But there is no clarity on how this reimbursement will trickle to payment service providers. “This could slow down companies’ efforts to take UPI to more merchants,” says a Mumbai-based banker who requested not to be named.
But cornering a large market share in this uncertain business environment is the ultimate prize for each of these companies. For PhonePe, a large market share means Flipkart will continue to pour millions into it and it can carry that $500 million valuation tag. For Google, it is about finding its next billion users. And for Paytm, it is about not losing the payments-mindshare it has invested so much in. As for BHIM, it is about contributing to the government’s target of 25 billion digital transactions by FY 2018, which it will certainly miss.
In its short life, UPI has already gone through four distinct stages. And each time a new company says it wants to implement it, the market share reset button is hit.