The country’s largest bank, the State Bank of India (SBI), has a market share of just 0.18 percent in Unified Payment Interface (UPI) transactions, which are fast catching up as a person-to-person (P2P) payment method) as well as person- to dealer (P2M).
Even the largest private bank, HDFC Bank, has a meager 0.21 percent share of UPI transactions by value for July 2022. The biggest legacy banks are actually a pale shadow of third-party apps like PhonePe and Google Pay, which have market shares of 48.91 percent and 34.17 percent, respectively.
“Banks are somewhat reluctant to create a dedicated UPI app. They have mobile banking apps that offer a whole range of banking services, including payments,” says Mihir Gandhi, Payments Transformation Leader, PwC India.
In fact, Yes Bank and ICICI Bank are the two big banks that surpassed the 1.0 percent market share mark.
“The banking apps are too confusing,” explains another market observer. In fact, traditional banks tend to focus on a holistic app rather than just UPI. Take SBI’s Yono, for example, a digital banking app that’s attracting a lot of volume. The largest bank has attracted more than 60,000 customers for savings accounts, granted loans totaling Rs 20,000 and received mutual fund subscriptions totaling Rs 10,000 in 2021-22.
These numbers certainly speak volumes about what a traditional bank like SBI has achieved in the digital banking space. But SBI’s UPI market share of less than one percent shows a disparity with Yono’s increasing adoption by digitally-savvy customers. “There is also no incentive in terms of MDR or cost recovery,” explains PWC’s Gandhi.
The fact that P2P and P2M transactions do not have an MDR hinders the use of UPI by major banks. Today, all non-bank transactions performed by PhonePe and GooglePay eventually end up on the banking infrastructure for settlement. In fact, banks end up spending more on interbank fees, SMS costs, refunds, and other technology setup costs. During public holidays, cricket matches, etc., banks’ IT infrastructure is flooded with high volumes of low-value transactions.
Banks are also not fully reimbursed for UPI transactions made through third-party apps. There is a subsidy component, but it is not enough.
“Customers are used to GooglePay and PhonePe. They have also offered cashbacks and other incentives to onboard large numbers of clients,” says one fintech player.
While the National Payments Corporation of India (NPCI), which operates UPI, previously stated that UPI’s market share for third-party apps like Google Pay would be capped at 30 percent of total volume by January 2023, this is likely an extension of that be deadline. The banks are not complaining either.
In April, NPCI also allowed WhatsApp to add another 60 million users to UPI, bringing the total to 100 million users. The advent of WhatsApp will further intensify competition for banks and also costs in the near future.
UPI, which instantly authenticates and authorizes money transfers, processed a record over six billion transactions in July alone, the most since its inception in 2016. Data from the NPCI states that UPI was Rs 10.62 lakh in terms of value in July crore reached. UPI is currently reading 220 million per day, with a 4x increase as the next target. Newer use cases like credit card UPI linking, international remittances, and digging into smaller geographies are poised to fuel the next wave of exponential growth.