Unified Payments Interface (UPI) transactions shrank in terms of both volume and value in June as compared to May, showed data released by the National Payments Corporation of India (NPCI).
The volume of UPI transactions fell to 5.86 billion in June from 5.96 billion in May, and the value of transactions declined to Rs 10.14 trillion from Rs 10.41 trillion in the previous month.
In the last few years, UPI has emerged as the most popular mode of retail payment channels, eating into the share of card-based transactions. In a recent report, Boston Consulting Group (BCG) and PhonePe pointed out that UPI transaction volumes have grown nine-fold in the past three years to 46 billion transactions in FY22 from 9 billion in FY19, and accounting for more than 60% of non-cash transaction volumes in FY22.
“Led by an open and interoperable architecture with direct payments linked to a bank account without the need to top-up wallets, UPI transactions are at approximately 9x of credit and debit card transactions today in volume terms in FY22,” the report said, adding that UPI is estimated to grow and drive 75% of total digital transaction volumes in the next five years.
At the same time, credit cards have not lost their sheen when it comes to large-value purchases. A recent analysis by Worldline found that during the quarter ended March 2022, credit cards accounted for 7% of transactions by volume, but 26% by value, indicating that customers still prefer to use their credit cards for large-ticket transactions.
The Reserve Bank of India (RBI) recently mooted the idea of linking UPI to RuPay credit cards in order to offer a larger set of choices for customers. However, questions remain about the implementation of the plan, especially because the merchant fee structure for UPI is different from that of credit cards.
UPI attracts no fee from the merchant, and many have seen this feature as the chief reason behind the increased adoption of the channel. If market-determined merchant discount rates (MDRs) get applied to credit card-linked UPI transactions, they could reverse the gains achieved in terms of digital adoption, some analysts say.
“The merchant has to be made aware that there is a possibility of charges (MDR) that could be deducted when a credit card is used on an UPI QR code. The ‘no-charge on UPI’ has been a key reason for the success of the acceptance of UPI as a payment product from consumers and merchants,” Kotak Institutional Equities said in a recent report.