Global card companies like MasterCard and Visa are losing their market share to upstarts in the country’s most innovative payment market. India is noticing increasing transactions through the Unified Payments Interface that allows mobile apps run by retailers, firms and airlines to take payment directly from the bank accounts. It has reached almost half the value of total debit and credit cards swiped across stores in the last month.
The surge in transactions has taken place since 2016 when the new interface was set up by organizations of Indian banks. Mastercard has built up its business over three decades and the surge in UPI transactions has had a strong impact on its business. UPI was introduced in August 2016 and has led to the wealth creation for innovative payment solutions and the adoption rates of UPI payments are spectacular. It allows payments to be directly integrated into the external business applications.
India’s payment system gained a top score of five for innovation and customer value out of 40 countries tracked by Fidelity National. Kenya’s PesaLink scored four and China’s Internet Banking Payment System scored two. The criteria for the same included speed of settlement, round the clock availability and regulator support. Jet Airways India Ltd. and Amazon.com have integrated UPI into their apps to take payment from customers. Other users include Big Bazaar, Uber and Paytm. Facebook Inc. is also piloting payment services in India with a UPI backbone for the WhatsApp Pay. Payment integration into popular apps is set to drive the digital payment market to $1 trillion in the next five years. There are 800 million bank accounts linked which makes the bulk mobile transaction ready.
India’s payment market is worth less than $200 billion currently and is dwarfed by China’s $27 trillion market which is opening up to global players. The challenge in India is the dominance of cash which accounts for about 70 percent of the total transactions in the country by value. China has transitioned to digital with rising mobile penetration which was a process hastened by e-commerce and social platforms. The same shift could play out in India with 300 million Indian smartphone users who rose to 5-10 GB from 1 GB.
There were significant advances in the digital payments market after the announcement of demonetization. The number of UPI transactions surged 57,000% since November 2016 and that of debit and credit cards rose by 20%. Demonetization has caused a permanent uplift in the share of non-cash transactions in the economy.