Following Another Year Of Record Growth, India’s UPI Dominated By Three Apps

January 11, 2022
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PhonePe, Google Pay and Paytm account for 94 percent of all transactions initiated through apps in India’s Unified Payments Interface (UPI), with the remaining 6 percent shared between 50+ apps.

PhonePe, Google Pay and Paytm account for 94 percent of all transactions initiated through apps in India’s Unified Payments Interface (UPI), with the remaining 6 percent shared between 50+ apps.

2021 brought another record year of growth to UPI, India’s instant retail payment system.

Launched in 2016, UPI has been a huge success and a major contributor to digital payments growth in the country. Usage across the payments infrastructure more than doubled in 2021, hitting 39bn transactions in total, up from 19bn the year before.

Recently published data by the National Payments Corporation of India (NPCI), the operator of UPI, reveals there are over 50 commercial apps that customers can choose from o carry out their transactions on UPI. However, 94 percent of transactions are concentrated through just three payments apps.

The most widely used app on UPI was PhonePe, which initiated 2,077m payments accounting for 44.6 percent of the overall 4,658m transactions carried out in December 2021.

PhonePe is owned by Indian e-commerce company Flipkart, whose owners include US supermarket giant Walmart. The payments app, which initially acted primarily as a frontend service to support e-commerce across its parent company, has continued to evolve and develop its merchant base and services. Its ultimate aim is to become a super-app for Indian customers.

PhonePe has more than 350m users who can send and receive money, recharge mobile and pay-TV, manage multiple bank accounts, pay at stores, make online and offline payments, make utility payments, buy gold, insurance and make investments.

The second most popular app used on UPI was Google Pay, which carried out every third transaction (1,587m) in December 2021.

The U.S. bigtech firm has championed the cause of UPI, advocating that other countries adopt a UPI-like interbank system upon which fintechs can build their services.

“UPI was thoughtfully planned and critical aspects of its design led to its success,” Mark Isakowitz, vice president of government affairs at Google, wrote to the Federal Reserve in November 2019, insisting on adopting a similar approach in the development of the U.S. instant payment system FedNow.

PhonePe and Google Pay were followed by super-app Paytm, with 706m transactions (15.2 percent) in December 2021.

Paytm, one of India’s big fintech success stories, has arguably struggled in recent times as competition has intensified. The app was developed largely as an Indian version of Alipay and the latter’s parent company, Ant Financial, is among its shareholders, alongside Japanese investment firm Softbank.

Launched in 2010, Paytm was one of the first big movers in mobile payments in India and was able to secure significant market share in the country. Starting as a payments service, the app has broadened its scope over time to include a range of other services, including e-commerce platforms, bill payments and other financial products.

Paytm went public last November, raising $2.5bn through its IPO. This was the largest IPO ever in India, which valued the company at $20bn. However, at the close of its first day of trading, the company lost more than $5bn in valuation.

The company’s poor performance did not end here, however, with its share price reaching an all-time low on Monday (January 10) since the market debut.

Best of the rest

Outside the top three apps, there is a significant drop off. Amazon Pay, the fourth largest payments app in December 2021 was used to initiate 76m payments (just 1.6 percent of the transactions), while the rest of the 50+ apps all fall below 1 percent market share.

The success of UPI as a platform to support third-party fintech apps is evidence by the relative marginal share of bank-based apps among the top 50. The most widely used banking app across UPI was from ICICI Bank. Despite being the fifth largest payments app used across UPI, it accounted for just 32m initiated payments, or 0.7 percent of all transactions.

The concentration of UPI among a few dominant payment apps has been a big concern for policymakers in India.

To reduce the high concentration of the UPI apps, in November 2020, the NPCI introduced a cap to limit the volume of transactions initiated by third-party app providers to 30 percent.

The decision means that existing payment app providers, such as PhonePe and Google Pay, have until January 2023 to reduce their respective 44.6 percent and 34.1 percent share to below 30 percent.

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