Daily Updates Indicate Over 700 Million Transactions Via UPI for the First Time
The digital payments landscape in India took a significant leap forward on August 2, 2023, as the number of daily unified payments interface (UPI) transactions surpassed the 700 million mark for the first time. This milestone underscores the growing popularity and adoption of digital payments in the country.
Despite the success, the government and the Reserve Bank of India (RBI) are aware that the current zero Merchant Discount Rate (MDR) policy for UPI transactions is not financially sustainable in the long term. While there are no plans to reintroduce MDR on UPI transactions, the need for a viable financial model to ensure UPI's long-term viability is a topic of ongoing discussion.
The government has denied any intention to reintroduce MDR on UPI transactions, labelling such reports as false and baseless. However, the sustainability issue remains unresolved, with someone needing to bear the costs, whether collectively or individually.
Banks have already started charging fees on certain UPI transactions routed through payment aggregators, which raises concerns about the long-term model's viability without direct MDR charges. Alternatives such as banks absorbing costs through other revenue streams or government subsidies have been proposed, but these subsidies are dwindling, leading to discussions about evolving cost recovery mechanisms without affecting UPI's affordability and inclusion.
Charging fees, even selectively, could potentially impact digital payment adoption, particularly for microtransactions. The government continues to prioritise broad digital inclusion and affordability.
The UPI system, currently free for users, is supported by the government through subsidies to banks and other stakeholders. The platform is projected to reach the target of 100 crore (1 billion) transactions per day next year at the current growth rate.
In August 2023, UPI was registering around 350 million transactions a day, having doubled over the past two years. The platform now powers around 85% of all digital transactions in India and nearly accounts for 50% of all real-time digital payments globally. UPI surpassed global payments giant Visa in daily transaction volumes.
The suggested reintroduction of MDR is a proposed strategy to further increase the number of UPI transactions to a billion per day. The RBI Governor, Sanjay Malhotra, has voiced support for the MDR demand of payment companies.
In August 2023, the number of daily UPI transactions had increased to 500 million. The current growth rate of UPI transactions is enough to reach the government's target of 100 crore transactions per day next year. This translates into around 650 million transactions in a day on average and is worth around Rs 83,000 crore daily.
As the digital payments landscape continues to evolve in India, the future of UPI remains promising. The ongoing discussions about a sustainable financial model will be crucial in ensuring that UPI remains accessible, affordable, and continues to drive digital payments in India towards greater heights.
Businesses and finance sectors are closely monitoring the discussions surrounding the long-term financial sustainability of the UPI platform, given its significant role in the technology-driven digital payments landscape of India. The need for a viable financial model that ensures UPI's long-term viability without impacting affordability and inclusion is a pressing concern, with potential solutions such as banks absorbing costs through other revenue streams or government subsidies being proposed.
