Merchant transactions to account for 75% of all UPI payments by 2025: Report

UPI transaction volume in India has more than doubled to 9.3 billion in June 2023 from 4.6 billion transactions recorded in January 2022, while transaction value went from Rs 8.3 trillion to Rs 14.7 trillion during the same period, according to a report by European payment services company Worldline.

Peer to merchant (P2M) payments have especially seen a momentous upward trajectory in the first half of the current financial year, growing 119 per cent from 13.33 billion in H1’22 to 29.15 billion in H1’23 while their value grew 72 per cent from Rs 11.6 trillion to Rs 19.18 trillion during the same period, reflecting the increased penetration and adoption of UPI as a payment method in even smaller towns cities. Overall, P2M transactions accounted for 57.5 per cent of all UPI transactions in June 2023, as per Worldline’s report.

This is despite the average ticket size of P2M transactions declining 21 per cent from Rs 839 to Rs 659. The categories where P2M transactions have been dominating include groceries and supermarkets, eateries, telecom services, fast food joints, department stores, service stations, bakeries and pharmacies, among others, reflecting why average ticket size is decreasing while volumes are increasing. “It indicates that UPI is increasingly being used for micro transactions ensuring a greater stickiness for the product,” the report said.

It attributed the high uptake of P2M transactions to zero transaction fees imposed on merchants, along with secure and timely payments which have made UPI a preferred payment mode for sellers.

“With the dominance of P2M transactions, UPI is going to become even more entrenched with the population and growth will continue at this rapid pace and the P2M percentage, at current trends, will likely reach 75 per cent of all UPI transactions by 2025,” the report noted.

The ecosystem is currently dominated by three UPI apps, Google Pay, Paytm and PhonePe, which make up for 95.68 per cent of all transactions compared to 94.55 per cent a year before. Their monopoly is largely due to their early mover advantage along with specific app offering, as per the report.