Merchant payments on UPI to reach US$ 1 trn: Report

Greater degree of awareness, expanded merchant adoption), and the introduction of new payment functionalities will contribute to this growth

May 4, 2023

Merchant payments on UPI are driven by a growth rate of 40 to 50%

In March 2023 approximately US$ 40 billion worth of merchant transactions were processed through UPI

The combined market share of UPI and mobile wallets is projected to increase from 11% in FY22 to 28% in FY26

There will be a reduction in government subsidies for payments in the next three to five years

Merchant payments on Unified Payments Interface (UPI) are expected to reach USUS$  1 trillion by FY26, driven by a growth rate of 40 to 50%, according to a report by Bain and Company.

Factors such as heightened awareness, expanded merchant adoption of UPI, the introduction of new payment functionalities like UPI Lite and UPI 123 Pay, as well as the establishment of international payment channels on the domestic payment infrastructure are expected to propel the growth of merchant payments.

In March 2023, the National Payments Corporation of India reported that approximately US$ 40 billion worth of merchant transactions were processed through UPI, indicating a payment run rate of US$ 500 billion. As a result, the combined market share of UPI and mobile wallets is projected to increase from 11% in FY22 to 28% in FY26, contributing to the US$ 3.2 trillion digital payments market. With the growth of all digital payment modes, including credit cards, debit cards, and buy now, pay later options, cash usage is expected to decline from 69% in FY22 to 48%.

According to the report, there will be a reduction in government subsidies for payments in the next three to five years. This shift is expected to result in market forces determining pricing for merchant payments, with premium merchants potentially paying a specific Merchant Discount Rate (MDR) for UPI transactions. Payment service providers will also seek to establish alternative revenue streams during this time.

The report identifies six significant opportunities for payment service providers, including unsecured retail credit for users, working capital for merchants that accept digital payments, commerce-related offerings, and several others. The report also identifies omnichannel as the next significant growth opportunity for payment fintechs.

Additionally, the report emphasized that fintech companies will need to establish compliance functions, focus on revenue diversification, and reinforce partnerships with banks and non-banking financial companies (NBFCs) to accelerate their go-to-market strategy.

Source: Economic Times

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