Mumbai: Veteran banker Uday Kotak on Friday raised several concerns over the domination of Google Pay and PhonePe in the payments business. He said that while banks have been caught napping, policymakers also need to look at the issue from a financial stability point of view.
Speaking at an event organised by India’s International Financial Services Centres Authority and Bloomberg at GIFT City, Kotak said that Indian banks have been behind the curve and have allowed the growth of UPI payments to be monopolised by Google Pay and Walmart-owned PhonePe, who have got 85% of the market.
“It is a wake-up call for Indian banking: Wake up, or you will see a large part of the financial market move out. From a policy and financial stability point of view, which policymakers have to look at,” said Kotak. He said that bankers were shortsighted in the last two years. “They said there is no money in payments and let the payment market be taken by these two-three companies.”
Kotak said that bankers need to keep in mind that consumer tech companies have revenue models outside finance. “For example, the e-commerce model. Banks under section 6 of the Banking Regulation Act cannot get into non-financial business. There are serious issues of how we are going to draw the line and simultaneously there is an issue of financial stability,” said Kotak.
The chief of the country’s third-largest private bank also made a reference to the raising of deposits by payment platform Google Pay and to the central bank’s move to ban first loss default guarantees provided by lending platforms. He said that there was a need to establish who was responsible for the deposits and who was bearing the risk on loan assets.
According to Kotak, a competition between a regulated entity and a fintech or consumer tech usually ends up with the tech company being fast and loose on regulation and gaining market share at great speed. “I am not against competition. All I am saying, in the name of competitive service, we do not have a systemic and stability challenge at the same time,” he said. He urged authorities to take UPI and the Aadhaar-Enabled Payment Systems global. He said that there is already a partnership with Singapore, but there was a need to take this to other developing markets such as Bangladesh and African countries.
The Reserve Bank of India’s (RBI) new auto-debit rule regarding additional factor of authentication for recurring payments made via debit and credit cards came into effect on October 1, 2021. The new auto-debit rule made recurring payments like subscription of OTT platforms, music apps, utility bill payments etc. difficult without additional factor confirmation via SMS, email etc..
Thus, many UPI players like BHIM, PhonePe, Amazon etc. have launched the auto-pay facility where users can easily set up mandate for recurring payments. Here is a look at how BHIM UPI users can use the auto-pay facility set up an e-mandate to make recurring payments.
“With UPI AUTOPAY, customers can enable recurring e-mandate using any UPI application for recurring payments such as mobile bills, electricity bills, EMI payments, entertainment/OTT subscriptions, insurance, mutual funds, and loan payments, paying for transit/metro payments among others of up to Rs 5000. If the amount exceeds Rs 5,000, customers have to execute every mandate with UPI PIN,” the National Payments Corporation of India (NPCI) explained via a press release issued on October 13, 2021.
Here are the steps to follow to set up the e-mandate according to the press release.
Steps for customers
Any UPI-enabled application would have a ‘Mandate’ section, through which customers can create, modify, pause as well as revoke auto-debit mandate.
The mandate section will allow customers to view their past mandates for their reference and records. UPI users can create e-mandate through UPI ID, QR scan, or Intent.
The pattern for auto-debit mandate has been created keeping in mind customers’ spends on recurring payments. The mandates can be set for one-time, daily, weekly, fortnightly, monthly, bi-monthly, quarterly, half-yearly, and yearly.
Both, individual users and merchants can benefit from this feature tremendously, as mandates are generated instantly and payments get deducted automatically on the authorized date.
The customers have to authenticate their account through UPI PIN one-time and subsequent monthly payments would be debited automatically.
As per the NPCI press release, here how to set up UPI AUTOPAY on the BHIM UPI App
Login to BHIM UPI App
Click on Auto Debit
Click on Mandate
Manage mandate (create new or view past mandates)
Select payment frequency / period (monthly / weekly / annually, etc)
Add name of the merchant and select auto debit date
Click on Proceed
According to the press release, these are some of the banks, merchants, and aggregators who are live with UPI AUTOPAY: Axis Bank, Bank of Baroda, HDFC Bank, HSBC Bank, ICICI Bank, IDFC Bank, IndusInd Bank, Paytm Payments Bank, Jio Payments Bank, State Bank of India, YES BANK, Bennett Coleman and Co Ltd, Paytm LIC India, Paytm utility bill payment, Paytm recharge/bill payment, Deccan Herald e-paper, IIFL securities, Helpage India, CRY, Bajaj Finserve, Netflix, Disney+ Hotstar, Gaana, Jio Saavn, BSE, JAR, JIO mobility prepaid, Policybazaar insurance brokers, ICICI Prudential, Satin Creditcare, BHIM, Paytm, PhonePe, Amazon Pay, IndusInd Bank App, Angel Broking, and 5paisa.com etc.Google Pay, SonyLIV, Amazon Prime, Voot, Hungama, Zee5, BYJU’s, Acko General, Tata Power, SBI AMC, ET Prime, Upstox etc will soon go live with UPI AUTOPAY.
PhonePe and Google Pay continued to be the top apps for Unified Payment Interface (UPI) in March this year with collectively nearly 87 per cent of the market share in terms of value of transactions and 79 per cent in terms of volume.
Data released by the National Payments Corporation of India revealed that PhonePe continued to lead the UPI payments space in March processing 1,19.95 crore transactions amounting to ₹2.31-lakh crore. This amounted to 43.91 per cent of the market share in terms of volume in March.
Meanwhile, Google Pay processed 95.7 crore UPI payments amounting to ₹ 2.01-lakh crore last month. This amounted to 35.03 per cent of the market share in terms of volume last month.
NPCI has recently come out with standard operating procedure for market share cap of third party application providers. It had in November last year announced that a 30 per cent volume cap for third party applications offering UPI, effective January 1, 2021. TPAPs which are exceeding the volume cap as on December 31, 2020, will have a period of two year period to comply with the provisions.
In a new record, UPI processed payments worth ₹ 5.04 lakh crore in March this year, totalling 273.16 crore transactions in terms of volume.
Paytm Payments Bank had 14.7 per cent of the market share in terms of volume with 40.11 crore transactions valued at ₹43,221.25 crore in March. Amazon Pay processed 5.23 crore transactions worth ₹4,457.47 crore while BHIM app process 2.44 crore transactions amounting to ₹7,653.21 crore.
Whatsapp payments registered just 5.8 lakh transactions totalling ₹38.17 crore. Amongst banks, Axis Bank, Yes Bank and ICICI Bank apps saw good traction for UPI payments.
This joint initiative aims at encouraging users of SBI’s banking and lifestyle platform YONO to opt for UPI payments. Apart from this, the campaign will also help in educating them about UPI’s benefits so that there are more and more UPI users in the ecosystem.
Ravindra Pandey, Strategy & Chief Digital Officer, SBI said, “UPI has been witnessing a strong month-on-month growth which is a testament of customers’ willingness to adopt digital payments. In this FY, the YONO platform recorded 5.30 million transactions worth Rs. 2086 crore. UPI is currently one of the most preferred digital payment modes in India with around 207 banks linked to it and SBI was leading the segment with 664.75 million transactions, as of January 2021.”
YONO has observed 34 lakh UPI registrations since its inception in 2017, with over 62.5 lakh transactions worth more than Rs. 2,520 crore at current daily average of nearly 27,000 transactions (in last 30 days).
Praveena Rai, COO, NPCI said, “We are pleased to partner with SBI to strengthen the digital payments ecosystem by promoting UPI awareness among YONO users. Customers just need to know their UPI ID and use it so they can enjoy the convenience of making or receiving payment from their YONO app to any other bank or payment app.”
UPI transaction value witnessed a growth of 18.7 per cent month-on-month to Rs 5.05 lakh crore in March 2021 from Rs 4.25 lakh crore in February 2021.
Amid Covid, India was home to the highest number of real-time online transactions in 2020 ahead of countries such as China and the US. 25.5 billion real-time payments transactions were processed in the country followed by 15.7 billion in China, 6 billion in South Korea, 5.2 billion in Thailand, and 2.8 billion in the UK. Among the top 10 countries, the US was ranked ninth with 1.2 billion transactions. The transaction volume share for instant payments India, among real-time transactions, was 15.6 per cent and 22.9 per cent for other electronic payments in 2020, according to a report by the UK-based payments system company ACI Worldwide. Importantly, paper-based payments continued to have a considerable share of 61.4 percent in India.
However, this is expected to change by 2025 as volume shares for instant payments and other electronic payments are likely to grow to 37.1 per cent and 34.6 per cent respectively. Consequently, the share of paper-based transactions would contract to 28.3 per cent. Moreover, the share of real-time payments volume in overall electronic transactions will exceed 50 per cent by 2024. “India’s journey of creating a digital financial infrastructure has been characterized by collaboration between the government, the regulator, banks, and fintechs. This has helped to advance the country’s goal of enabling financial inclusion and also provided rapid payments digitization for citizens,” said Kaushik Roy, VP and head of product management, Asia, ME and Africa, ACI Worldwide in a statement.
India’s digital payments market led by Paytm, PhonePe, Pine Labs, Razorpay, BharatPe, and others on the B2C and B2B sides has surged during the pandemic even as incentives such as cash backs, rewards, and offers have helped businesses to attract more customers. Moreover, policy frameworks such as Pre-Paid Instruments (PPI), Universal Payment Interface (UPI) by the NPCI apart from Aadhar, and the launch of BHIM-app have driven the financial inclusion and improved the payment acceptance infrastructure in the country in the past few years.
According to another report by the Indian Private Equity and Venture Capital Association (IVCA) and Ernst & Young, digital payments in India is expected to grow at 27 per cent CAGR during the FY20-25 period from Rs 2,153 lakh crore transactions in FY20 to Rs 7,092 lakh crore in FY25. UPI transaction value witnessed a growth of 18.7 per cent month-on-month to Rs 5.05 lakh crore in March 2021 from Rs 4.25 lakh crore in February 2021 while transaction volume rose by 19 per cent to 2,731.68 million from 2,292.90 million during the said period, according to data released by National Payments Corporation of India (NPCI).
The gap between the top three UPI apps and WhatsApp Pay is quite epic.
It took a good over a two-and-a-half-year period for Facebook-owned WhatsApp to roll out its much talked about payments service in November 2020 from around February 2018 when the messaging giant had started testing the feature. In October 2020, a month before the rollout, WhatsApp Payments or WhatsApp Pay had processed 70,000 UPI transactions amount to Rs 9.32 crore. In its first month (November) of approval from the National Payments Corporation of India, which operates the UPI payments infrastructure, the figures jumped to an impressive 3.1 lakh transactions worth Rs 13.87 crore. However, the growth, in transactions primarily, since its launch till February 2021 arguably hasn’t picked the kind of pace one would have expected from WhatsApp that counts over 500 million users in its biggest market India. As per NPCI data, WhatsApp managed to scale to 5.5 lakh UPI transactions worth Rs 32.41 crore in February.
“The reason is very clear. It is the lack of use cases. Right now, WhatsApp is offering peer-to-peer (P2P) payments. There is no geography where just on the back of P2P payments, digital payments have proliferated. They don’t have those P2M transactions or use cases defined really well,” Arnav Gupta, an analyst at Forrester Research told Financial Express Online.
WhatsApp didn’t reply to an email seeking comments for this story.
The Roadblock
While the company has been studying the digital payments market for at least three years, the business side of the platform has been a roadblock for the company as WhatsApp hasn’t been able to further evolve it and connect it back to payments proposition. For example, Gupta said that WhatsApp is only a unilateral channel of communication for enterprises to speak to their customers. For instance, a travel portal can send a customer’s travel tickets and invoice on WhatsApp but he/she cannot talk back to the company while there are very few and limited use cases where there are chatbots set-up. According to Gupta, that is the struggle WhatsApp is going through.
WhatsApp’s viral growth and the kicking off of its networking-effects in the early days was certainly the stuff of legend. However, that has not translated yet in its payments business that has been approached in fits and starts. “WhatsApp’s desire to keep its interface consistent across geographies meant it was unable to create a dedicated payments interface within the app for India despite the exploding UPI market. This means it lags in a market it could have clearly dominated. Even when we look at the data in the past three months, its transactions have fallen in January 2021 from a December 2020 high,” Utkarsh Sinha, Managing Director, Bexley Advisors, a boutique investment bank firm, told Financial Express Online.
Importantly, WhatsApp Pay rollout had coincided with the NPCI announcement in November that third-party applications offering UPI payments service can process a maximum of 30 per cent of the transaction volumes starting January 1, 2021. The decision, according to an NPCI statement, was taken to “address the risks and protect the UPI ecosystem as it further scales up.” Moreover, NPCI had allowed WhatsApp to launch payments service in a graded manner to a maximum of 20 million registered users in UPI.
“Limiting the number of digital payments that could be made via payment apps adversely affected all other wallets, including WhatsApp,” Prabir Chetia, Head – Business Research & Advisory, Aranca told Financial Express Online. Moreover, the entire payment section had a step-by-step launch with no marketing push. “There was no big bang marketing campaign to announce its entry into the payment space. Hence, the awareness regarding this new offering of WhatsApp is very low. Consumers who are tech-savvy and active users of the app may know about it and even use it, but many others still view it as a communication tool,” added Chetia.
Missing the Bus
The thought perhaps at WhatsApp back in 2017 was about leveraging the customer loyalty for its messaging environment to plug-in the payments service. This would have meant for customers to remain within WhatsApp instead of exiting it and using Paytm, PhonePe, Google Pay, others for transacting online. However, a nearly three-year long period from testing the service to its eventual launch has perhaps impacted its growth. “Had they been able to launch then (in 2018), they would have evolved like others. They have missed the bus by over two years. Having said that, their partnership with Jio could be a potentially viable business model and can create some buzz. But JioMart is not available on WhatsApp in all the cities currently,” said Gupta.
In April 2020, Facebook had picked up a 9.99 per cent stake in Jio Platforms at $5.7 billion. The deal had supporting India’s vast small business base digitally as its key focus. Moreover, Mark Zuckerberg at a company event in December 2020 with Mukesh Ambani had revealed that WhatsApp has 15 million business app users from India. “Jio brings digital connectivity, WhatsApp now with WhatsApp Pay brings digital interactivity, and the ability to move to close transactions and create value, and Jio Mart brings the unmatched online and offline retail opportunity, that gives our small shops which exist in villages and small towns in India, a chance to digitise and be at par with anybody else in the world,” Ambani on his part had said. Jio and WhatsApp have more than 400 million customer base in India.
“WhatsApp has been ironing out its strategy for the space since 2017. But that has led it to concede valuable space to the current incumbents. If WhatsApp was aggressive in payments to start with, a lot of the current competition would have struggled to gain a foothold,” said Sinha.
The Epic Gap
Current UPI payments incumbent PhonePe had cornered an impressive 42.5 per cent share of the 2,292.90 million UPI transactions in February, as per NPCI data. Walmart’s payment arm in India – PhonePe had processed 975.53 million UPI transactions amounting to Rs 1.89 lakh crore. Likewise, Google Pay, which lost the top spot to PhonePe in December 2020, was the second-largest UPI app in February processing 827.86 million transactions (36 per cent of total UPI volume) worth Rs 1.74 lakh crore. On the other hand, Paytm was still the distant third player in February recording 340.71 million transactions involving Rs 38,493.52 crore. It had processed 332.69 million transactions worth Rs 37,845.76 crore in the preceding month.
The gap between the top three UPI apps and WhatsApp Pay is quite epic. “WhatsApp has a huge user base. However, these users are using it as a communication tool. Will they become loyal to its payment solution? I think it is unlikely,” said Chetia. Despite a large user base, those living in Tier-III cities and beyond are less likely to use WhatsApp for payments. That’s also because, unlike its large competitors, WhatsApp doesn’t offer cashback and other add-on services as incentives. “Even if they build out certain use cases, still daily active users on other platforms are far too much. So, I don’t think WhatsApp would be in a leadership position,” said Gupta. However, it might be too early to call any winners in the UPI space. WhatsApp still owns the Bharat behind India, and their entry is a significant tectonic shift that might unlock a lot of disruptive value in the long term. It is precisely because of their scale that this value potential exists.
UPI is currently the biggest among the NPCI operated systems including NACH, IMPS, AEPS, BBPS, RuPay, etc.
UPI transactions ended 2020 on a high note. The value for digital transactions done via UPI stormed past the Rs 4-lakh-crore mark in December, according to the latest UPI data from the National Payments Corporation of India (NPCI). 2.23 billion transactions worth Rs 4.16 lakh crore were recorded in December, up from 2.21 billion transactions involving Rs 3.91 lakh crore in November. The year-on-year growth in volume stood at 70 per cent from 1.30 billion transactions while the value of UPI transactions increased 105 per cent from 2.02 lakh crore in December 2019. Moreover, the number of banks live on the UPI platform increased from 143 to 207 during the 12-month period.
Among the leading UPI players, Google Pay and PhonePe had together cornered over 82 per cent of the market by volume and over 86 per cent by value in November. While Google Pay processed 960.02 million transactions involving Rs 1.61 lakh crore, PhonePe, saw 868.4 million transactions worth Rs 1.75 lakh crore. Paytm had processed 260 million payments.
The transaction volume and value have apparently scaled up faster during the Covid and lockdown phases as people switched to digital mode to avoid cash usage. The volume jumped by 908.47 million transactions during the 10-month period from 1.32 billion transactions in February 2020, according to the analysis of NPCI data. However, in comparison, similar volume growth of 908.47 million transactions, before Covid, took 17 months (from September 2018) to reach the February 2020 level.
UPI is currently the biggest among the NPCI operated systems including NACH, IMPS, AEPS, BBPS, RuPay, etc. As of October FY21, out of 3.39 billion retail transactions on all NPCI platforms, 2.07 billion transactions were recorded on UPI followed by 340.03 million transactions with respect to NFS inter-bank ATM cash withdrawals, 318.97 million transactions on the instant payment inter-bank electronic funds transfer system — Immediate Payment Service (IMPS), and 245.55 million transactions on the National Automated Clearing House (NACH), according to the NPCI data.
Importantly, the Reserve Bank of India had on Friday launched a ‘composite Digital Payments Index (DPI)’ to measure the extent of digitisation of payments in India based on parameters including payment enablers, payment infrastructure – demand-side and supply-side factors, payment performance, and consumer centricity, according to the RBI.
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