UPI vs. Rest of the World: A Closer Look at A Phenomenal Growth Story

One thing that sets India (and China) apart from the rest of the world is its sheer market opportunity. With a billion+ population, Indian consumers hold power to nurture world-class businesses that witness unprecedented growth rates and scale. By establishing itself as one of the leading payment systems in the world with over 989% growth rate (three-year CAGR) since inception, India’s UPI (Unified Payment Interface) echoes this story in the payment systems landscape.

In our previous article, we highlighted how the government-backed UPI is shining among other P2P/P2M system around the globe. UPI has significantly changed how the Indians transact – a shift from wallet-based money transfers to UPI-powered account-based transfers. Interestingly, while all the other major P2P/P2M systems such as Venmo and Zelle are private, UPI is government-backed. 

The P2P/P2M payment systems studied in this article provide evidence of growth in the transactional value over the last eight quarters, which depicts that the society is accepting and working towards a cashless ecosystem. Both the private players (Venmo, PayPal, Zelle, and Square) as well as government initiatives such as UPI have been critical components in moving towards digital cashless societies, where both the receiver and sender need to be part of a financial ecosystem to enable transactions between them.

PayPal leads the pack in terms of the total transaction value with $172 billion recorded in Q2 2019. PayPal has grown at CQGR of 6.05% in the last eight quarters. UPI is only second to PayPal in terms of the total transaction value ($63.5 billion in Q2 2019) but leads the pack in terms of CQGR in the last eight quarters that stood at a whopping 65.09%. Zelle and Venmo are growing at a healthy rate of 14.08% and 15.04%%, while Square is growing at a decent CQGR of 6.36%. UPI has a long way to go before it goes head-on with PayPal in terms of numbers, but it has achieved a major milestone in India this year.

Within three years of its launch, UPI has surpassed total credit or debit card transaction values by Indian consumers in FY 2018-19. This says a lot about the rapid shift in India’s consumer behavior in terms of digital payments. Indian consumers have educated themselves and widely adopted the new payment system, and the result is a phenomenal growth in UPI numbers. UPI transaction value has grown at a CAGR of 989% between FY 2016-17 to FY 2018-19. 

The NPCI has been engaged in proactive strategic steps to make sure the UPI is widely accepted by consumers, FinTechs, and banks. For example, earlier in April 2019, the NPCI had announced to cut the usage fees for small transactions to promote the system’s adoption among banks and other PSPs. In September 2019, NPCI has indicated to bring a circular to cap the market share of UPI entities to a maximum of 33%, effective April 2020. This move can block the growth plans of Google and PhonePe, who hold the larger part of the UPI market share. On the brighter side, this move is in-line with NPCI’s aim to keep the market open for smaller players that would help increase the wider adoption. NPCI is also in discussions to make it mandatory for third party payment providers with greater than 5% market share to work with more than one banking partner. That means FinTech players such as PhonePe would go out in search of more banking partners. One way or another, the relevance of banks has been maintained.

UPI is setting new milestones with every passing year, and its overall growth is serving as a beacon of India’s FinTech growth story. However, it is important to keep in mind that with its increasing scale and penetration, UPI-related strategies will significantly influence the entire payment systems landscape in India.