Expanding into India? Meet instant payment method UPI

Saying that India's eCommerce industry is a fast-growing market is not news. More and more global enterprises are expanding into the region. However, they will only touch the surface of their revenue potential if they don't utilize the right localized payment mix.

India’s payment mix

International credit cards account for 23% of eCommerce transactions in India. Alternative payment methods (APMs) like digital wallets, cash, and bank transfer claim a significant portion of the eCommerce payment pie. Remember, in addition to the share that the payment method currently holds, merchants should pay attention to each option's growth speed.

Enter UPI (Unified Payments Interface). In April 2018, two years after its launch, UPI handled 190 million transactions. Only six months later, that figure rose to 482 million monthly transactions.

UPI is used for 35% of digital payments, with an unprecedented adoption rate. In August 2023, four years after its launch, UPI handled 10 billion transactions (online and offline). That figure rose to 12 billion monthly transactions only four months later, with the cumulative total for 2023 hitting 117 billion – up 49% from 2022 .

What is UPI?

UPI is an instant real-time payment system facilitating inter-bank transactions, developed by the NCPI, an umbrella organization for operating retail payments and settlement systems in India.

Think of UPI as "an email ID for the money," a unique identifier the bank uses to transfer money to merchants or other banks in real time. It uses a Virtual Payment Address – e.g., john@icicibank – as a unique ID for identifying its users and performing payments.

When looking at UPI, one must recognize the strategies utilized to assist its tremendous growth. India has made it law for any company making above USD$6 million in sales to accept UPI payments and has banned transaction fees for customers and merchants.

Why are end-users adopting UPI?

• Always available: UPI is a 24/7/365 service

• Easy to use: not necessary to type payment or account details – accept the payment request already displayed on the screen.

  already displayed on the screen.

• One account: The user holds all their bank accounts under one profile

• Safe and secure: no need to share credentials – use the virtual ID (VPA). It is more difficult for criminals to gain access, as the interface uses a Double factor Authenticator (2FA)

The bigger picture

While the penetration of Paytm and other wallets might seem high, the number of bank accounts in India is much higher than that of wallet users.

By implementing UPI, the expectation was that those who do not have eWallets but have a bank account and want to start transacting online have access. UPI genuinely started democratizing digital payments in India, and the best part is that it is present from the day you have a bank account.

Flow from end-user side

Looking forward with UPI

UPI is making the Indian financial system more inclusive. The Reserve Bank of India (RBI) has proposed enabling AI tech to allow users to make digital payments through voice commands. Adding Conversational Payments to the app will make it simple and even more user-friendly to initiate transactions. In another proposed update, the RBI wants to implement NFC-enabled tech to facilitate 100% offline payments. NFC enables communication between two devices over 4m away.

India's eCommerce industry is expected to reach $USD1.1 trillion by 2027, and $USD2 trillion by 2032. If you want to be a part of India's growth and expansion, remember to consider regional regulation complexities, localized payment methods such as UPI, and the unique socio-economic factors in the country.