The Next Growth Phase Of UPI Payments Happening In Tier 2, 3 Cities
As India continues on its journey to transform itself into a digital economy, the adoption of digital payments is picking up across the length and breadth of the country. Affordability of smartphones and cheaper internet connections have resulted in an uptick in UPI transactions, leading to digital and financial empowerment of the last person standing in the line. While demonetisation gave the first push to adoption of digital payments, it was the black swan event of the pandemic in 2020 that actually led to digital payments becoming mainstream, as millions across tier-2 and 3 cities of the country also preferred using them, instead of cash. In fact, digital payments have been widely adopted by consumers across age groups, during the last few years. What came about as ‘need of the hour’ has now become a norm for millions.
Today, the benefits of UPI payments have transcended beyond the boundaries of metro cities to tier 2, 3 cities and non-urban locations. Untapped market potential, improved digital infrastructure and most importantly, convenience, trust and credibility of digital payment services are the biggest growth enablers for UPI, which is fast emerging as the de-facto payment mode for millions. People residing in non-metros are actively making payments digitally for online shopping, in-store purchases (payments via QR), OTT subscriptions and others, owing to which, tier 2 and 3 cities are fast-emerging as the new growth centres of UPI transactions in the country. In fact, they are outpacing the tier-1 markets in terms of month-on-month growth, on many occasions.
Enhanced customer experience, technological advancements, safe and secure transactions, transparency and awareness are the other reasons which are moving people towards UPI transactions in smaller towns. The transactions can be carried out instantly and the government’s push for digital payment is also helping in adoption of UPI payments. As per our own internal numbers, tier 2 and 3 cities have registered 79 per cent of the total monthly UPI QR transactions in November this year. Also, tier-3 cities witnessed a 10 per cent growth month-on-month in the number of UPI QR transactions on BharatPe QR.
The UPI Impact And The Way Forward
Today, India has over 100 million active users on UPI. Also, UPI has witnessed a jump of whopping 427 per cent in usage between March 2020 and August 2022. Today, one can easily walk out of his/her home without a wallet and rely on the mobile phone for all payment transactions during that visit to the mall. UPI is also no longer a metro city phenomena. In my recent visits to emerging cities as well as tier-3 markets, I noticed that the payment acceptance via QR has become a common practice.
It is the simplicity and convenience of using UPI payments that has made millions adopt this payment mode, over the numerous modes available. Also, UPI payments are widely seen as reliable, with vast acceptance from street vendors to malls. Retail is the backbone of the Indian economy and while millions of consumers throng the physical stores to look and try products before making the final purchase, it is the acceptance of digital payments via QR by retailers that has added a level of customer delight with no hassles of carrying cash or waiting for change and minimised ATM visits.
Also, a propelling factor behind UPI payment growth is the rise of online shopping in tier 2 and 3 cities. People here are actively purchasing clothes, mobile phones, medicines, gadgets, among other items and making payments from digital wallets. The rise in last-mile delivery and growth in online businesses have contributed to wider adoption of digital payments among people across age groups and locations, which is encouraging.
Another positive impact that led to the empowerment of merchants was zero merchant discount (MDR) rates. Earlier, they were required to pay a fixed 2-3 per cent MDR on each transaction and with this being removed; they are now able to save more on their business costs, which made them more receptive to digital payments. For the merchants, another key reason for adoption of the UPI QR is the fact that they can avail unsecured loans, based on the QR payment flows. At BharatPe, we facilitate unsecured loans of up to Rs. 10 lacs to our merchant partners, via a 100 per cent digital process.
The usage of UPI payments is growing exponentially in India, majorly in the emerging and younger cities. The country has entered the 5G era and the coming of low latency network will take the digital payment ecosystem to unimaginable heights. Estimates suggest that by 2025, the volume and value of digital transactions in India will reach 186 billion and Rs 238 trillion respectively. Technological advancements, rise in smartphone users will further catapult this growth and will lead to unlocking of new opportunities and possibilities benefitting all stakeholders majorly the merchants and customers. The future is digital and UPI is expected to take centrestage in the times to come. With the launch of UPI LITE, credit on UPI and UPI 123PAY earlier this year, we are set to add millions of new users in the UPI.
