05/04/2017 3:05 PM IST | Updated 05/04/2017 6:46 PM IST

How Govt-Backed UPI Is Giving Many Private Digital Wallet Players A Run For Their Money

Race to cashless.

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India's mobile banking sector is a red hot space right now with several big name private players chalking out ambitious and aggressive growth plans. But it is the government-backed payments platform United Payment Interface (UPI) that is quietly but dramatically leaving behind many private players.

UPI is a government and Reserve Bank of India-backed 'peer-to-peer' e-payments platform designed to facilitate instant, smartphone-based payments between people, and between people and merchants.

According to RBI data, the total value of UPI transactions has nearly tripled since December 2016 to Rs 19 billion as of February 2017. In comparison, pre-paid payment instruments, which include all digital wallets, saw a 12.2 per cent decline in transaction value in February to a total of Rs 18.7 billion in December. From the January to March period, UPI transactions have jumped about 17 per cent, ET reported.

Exponential growth

In terms of number of transactions, UPI use has more than doubled to 4.2 million transactions in February. While that is only a fraction of the 78.4 million transactions recorded on pre-paid wallets, the latter has seen the volume of transactions drop 10 per cent since December. Also, the high value of UPI transactions shows that the average UPI transaction is much larger in size than a typical wallet transfer.

Of course, UPI's exponential growth is also partly due to the fact it began from a low base as it only launched last year. But the platform is finding increasingly greater acceptance across merchant networks and banks. As many as 44 banks have now signed on UPI and 35 have launched their own UPI-linked apps, ET reported. And several big merchants such as Reliance Retail have begun accepting UPI transactions. UPI's parent National Payments Corporation of India (NCPI) has also recently introduced a QR code-based payment option for customers allowing merchants to accept payments via UPI.

UPI has also recently announced that the platform can also be linked to digital wallets, meaning a person will be able to pay another person via UPI regardless of the digital wallet app the other person has on his or her phone. For example, a Paytm user will be able to pay a Freecharge user via UPI.

Overcrowded market

The payment app universe in India is increasingly looking overcrowded. The country currently has 81 non-bank digital payment providers that have been authorised to launch payment apps like e-wallets, according to RBI data. This is in addition to about 52 banks that are also authorised to launch e-wallets and pre-paid cards. WhatsApp, backed by Facebook, is the latest player planning to enter the payments space through a peer-to-peer payments service. Recently Samsung also launched Samsung Pay, a "contactless" service to enable a Samsung Galaxy phone user to pay a merchant by waving the phone on a merchant POS machine.

However, UPI, with its trademark "inter-operability" feature -- that allows its use across banks and wallets and of, course the government's push -- could help unify different payment providers onto a common platform. If that goes smoothly, UPI's rise could prove to be a serious disruptive threat to private players vying for a bigger piece of the digital payments pie.