UPI to be used for 90% of retail digital payments by FY27: PwC

Unified Payments Interface (UPI) transactions in the country are expected to reach 1 billion per day by 2026-27, accounting for 90% of the retail digital payments, the latest report by PwC India shows.

Calling it a "game-changer" in India’s digital payments ecosystem, PwC says since its launch in 2016, UPI has gained "massive acceptance", thanks to features like instant transactions and credit to beneficiaries in real time; seamless integration of multiple use cases; using application programming interfaces (APIs); convenience in making payments due to interoperability; secured mode of payments; no additional costs to customers; and adaptive framework for mobile networks and fintechs.

The data shows UPI grew from 18 million transactions and ₹69.61 billion in FY16–17 to 83,751 million transactions amounting to ₹1,39,204 billion in FY 22–23, contributing to a compound annual growth rate (CAGR) of 234% in transactions and 196% in value.

The three key trends have now emerged in UPI: the linkage of credit cards on UPI; international transactions enabled through UPI; and credit lines on UPI.

In 2022, the Reserve Bank of India (RBI) announced the linkage of RuPay credit cards to UPI to provide a seamless and digitally enabled credit card lifecycle experience to RuPay cardholders. Customers can link their UPI ID on either Bharat Interface for Money (BHIM) or other UPI apps with the help of the registered mobile number which is linked to their credit card account.

The credit card on UPI facility allows users to make low-ticket transactions and enables RuPay cardholders to avail of the credit limit period of 45–60 days, even on these low-value transactions. Cardholders can accumulate reward points and earn cashbacks on low-value transactions, resulting in better customer experience and engagement.

“Overall, credit card on UPI, international transactions for foreign inbound travellers and cross-border transactions on UPI and credit lines on UPI will bring in additional revenue and provide benefits to all ecosystem players,” says the report.

The report, however, says as since the NPCI has recommended an interchange fee up to 1.1% of the transaction value to be levied on PPI-UPI transactions greater than INR 2,000, MDR for small merchants should be waived.

"The ticket-size for these merchants is low and their annual turnover is also moderate. Also, the cost of services like last-mile delivery charges and overheads lead to lower margins for such merchants/micro entrepreneurs. Any further charges on UPI will reduce their margins more and disincentivise digital payments over cash," says the report.

In terms of future for UPI, the report says enabling credit and credit card RuPay payments via UPI is a "landmark move" by the RBI and NPCI.

"Overall, this initiative of moving credit on UPI is going to be instrumental and help in further extending the digital payments ecosystem in India."

To allow UPI on international transactions, on the other hand, will have a significant impact on the Indian economy and international businesses, and help expand into a new target segment of NRIs and foreign travellers, the report flags.