Changing Preferences: UPI’s Dominance Over Digital Wallets .
Changing preferences: UPI’sdominance over digital wallets in thepayments marketDecember 2019Click to launch
ForewordDear readers,It is our pleasure to bring to you the latest edition of PwC’s Payments newsletter.In this edition, we have analysed the current state of prepaid payment instruments(PPIs), changes in payments-related regulations and emergence of otherconvenient payment instruments/channels like Unified Payments Interface (UPI).We have examined the existing challenges for PPIs and how digital payments areexpected to evolve, with a focus on new use cases, emerging regulations and newtechnologies/instruments.We hope you will find this to be an insightful read.For details or feedback, please write tovivek.belgavi@pwc.com or mihir.gandhi@pwc.com2PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
In this issue4Introduction3PwC8Challenges toadoption and growthof PPIs11Way forward fordigital wallets15Payments technologyupdatesChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Introduction4PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
IntroductionOver the past few years, digital payments have witnessed tremendousgrowth in India. This growth has been largely driven by digital walletsand Unified Payments Interface (UPI). Speed and ease of access andattractive cashbacks are the reasons behind the widespread adoptionof digital wallets by consumers.Digital wallets saw tremendous growth until 2017, while UPI has seenexponential growth in transaction volumes since that year.Regulatory push, interoperability, virtual payment address (VPA), directand instant transfer to bank accounts, etc., are the factors which haveled to the unprecedented success of UPI.and volume of transactions. Demonetisation proved to be an inflectionpoint for digital payments. It also gave a big push to the adoption ofe-wallets as a preferred mode of payment.During the same time, smartphone-based faster payments modes likeUPI (without the need for an additional store of value) have picked uppace. In this newsletter, we will attempt to analyse the reasons behindthe wallet industry’s declining popularity and growth compared toemerging payment instruments like UPI, and also assess what thefuture holds for payment instruments.Recent digital payment trends in India suggest that the UPI platformhas been outperforming e-wallets rapidly, both in terms of valueINR billionPPI volume200180160140120%100f 27oR80CAG6040200Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19Source: PwC analysis5PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
IntroductionGrowth stagnation for digital payment instrumentsDigital wallets or e-wallets were at the core of the digital paymentjourney in the Indian economy till 2017. As per the Reserve Bank ofIndia (RBI), there are 43 companies in the prepaid instrument market.1Demonetisation created a cash crunch and thus provided a boost todigital wallets. But for the past one year, the growth has been stunted.As per the RBI’s bulletins,2 the volume of PPI transactions was INR177 billion in September 2018. It grew to INR 186 billion in March2019 but fell to INR 178 billion in September 2019. UPI transactionshave gained traction and this has had an impact on the growth ofdigital wallets.There are fundamental differences between the features of digitalwallets and UPI-powered payment instruments. The convenience ofnot having to manage an additional store of value and lower merchantdiscount rate (MDR) for merchants have proved to be beneficial for UPIpayments. Additional regulatory requirements for know your customer(KYC) details on e-wallets have hampered the growth of PPIs.However, the RBI has introduced guidelines for new types of semiclosed PPIs. These wallets can have an outstanding balance of INR10,000, and require the user’s mobile number to be verified by a onetime password (OTP) to comply with KYC norms.Preferences of customers are also changing as they don’t want tohave an additional store of value. Instead, they can leverage UPI tomake payments directly from their bank ationsview.aspx?id 12043https://www.rbi.org.in/scripts/BS ViewBulletin.aspx6PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
IntroductionEmerging payment instruments – UPI becoming morepopularUPI provides a lot of convenience to customers, as well as merchants.Encouragement to use UPI by the National Payments Corporation ofIndia (NPCI) and the Government of India (GoI), creation of a virtualpayment address (VPA), marketing and promotion activities by FinTechplayers, increased participation by non-banks and interoperability haveresulted in strong growth of UPI in the last two years.As per NPCI,3 the market share of UPI has increased from less than1% in 2017 to 13% in September 2019, whereas PPI transactionsaccounted for to 1–2% of the market share in the last 2–3 years.has further accelerated UPI’s growth. In September 2017, the volumeof UPI-based transactions was INR 53 billion, which grew 30 times toINR 1,614 billion by September 2019.The Indian payments industry is expected to grow fivefold by 2023to USD 1 trillion.4 But with fast-changing market dynamics in thepayments industry, digital wallets will continuously need to build newvalue propositions, augment their services and bring in paymentadjacencies such as lending, loyalty and new businesses, to competewith faster payments.UPI has seen an exponential growth since its inception in April 2016.The entry of FinTech companies and private players in the UPI marketVolume of UPI transactionsINR billion200015001000x: 30wthGro5000Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19Source: PwC tps://plus.credit-suisse.com/rpc4/ravDocView?docid V7ax692AF-YEch7PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Challengesto adoptionand growthof PPIs8PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Challenges to adoption and growth of PPIsChallenges faced by digital wallets1. Multiple intermediary steps involvedWhile there has been an overall growth in the use of digital paymentsystems in India, people are shifting towards bank-to-bank paymentmethods such as UPI, over other instruments such as e-wallets. Thekey reasons that are influencing customers to move away from mobilewallets have been analysed below.In digital wallets, users need to create a separate account andadd money to it before beginning transactions. This adds tooperational inefficiency for payments.UPI allows frictionless transactions by directly debiting moneyfrom the user’s bank account.2. Longer settlement nteroperabilityReasonsforstagnationin PPIMarketingandpromotionSource: PwC ettlementperiodDigital wallets usually take T 1 day to settle payments in merchantaccounts.5 This leads to cash mismanagement problems and hasan impact on merchants’ credit cycles. In contrast, UPI instantlycredits money to the beneficiary’s account. Settlements can bemade in multiple batches throughout the day.3. High MDRHighMDRCompared to UPI, digital wallets charge merchants a higher MDR.The typical rate charged for wallet transactions is 1% of the total GST, whereas for UPI transactions, the rate is 0.3% of the total GST.6 This encourages merchants to accept UPI payments insteadof payments from e-wallets.4. Cost-cutting in marketing and promotionDigital wallet companies spent a lot to promote cashbackincentives, as part of their customer acquisition strategies. Oncethe freebies were discontinued, customers moved to cheaperpayment alternatives such as UPI.Changing preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Challenges to adoption and growth of PPIs5. No interoperabilityIn digital wallets, both the sender and the receiver must be onthe same wallet platform to make a transaction possible. UPIhas overcome this feature and allows transactions on differentplatforms with different service providers.6. Regulatory constraintsThe RBI’s mandate on physicalverification to complete KYCnorms of digital wallet usersand double authorisationadds to the woes of digitalwallet users.10 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Wayforward fordigitalwallets11 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Way forward for digital walletsThere is no doubt that e-wallets have been losing ground to UPIrapidly over the last two years. However, all is not lost for the e-walletindustry and they need to figure out unique business offerings thatcan help them find their own space in the digital payments industry.Some of the new growth opportunities which could be lucrative fore-wallets are as follows:1. B2B marketIndia has huge potential for digital payments in the business-tobusiness (B2B) market. As per the Make in India website, there arealmost 6.8 million micro, small and medium enterprises (MSMEs)registered on the Udyog Aadhar Memorandum.7 Most of themare heavily dependent on cash transactions for their financialoperations. This provides an immense opportunity for digitalwallets to extend their services in the B2B space.2. Short-term lendingDigital wallets can offer quick disbursement and accept digitaldocumentation for short-term lending. This is a huge financialgap in the Indian economy, which conventional banks are findingdifficult to fill.This service can again be extended to retailers. Digital walletcompanies already have details of transactions by merchants,which can be used for building risk profiles for lending purposes.Extension of this service will add to the revenue source of walletcompanies.Due to continuous operations and financial transactions, the B2Bspace provides a lot of certainty to cash flows. Digital wallets cancharge a small fee for managing their accounts, which invariablytakes care of their bottom line.Apart from MSMEs, there is a huge network of wholesalers andretailers, most of whom are already acquired as merchants bydigital wallet players. This network can be catered to by walletservices as customers as well.7.http://www.makeinindia.com/msme12 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Way forward for digital wallets3. International remittancesCross-border remittance is a new business opportunity for walletplayers to leverage. Conventional financial institutions are inefficientwith international remittances in terms of both cost and time.Industry outlook will also depend on regulatory policies.Regulatory policy shaping the payments industryWallet players can design a solution which would enablecustomers to transfer money overseas quickly and at a lowertransaction cost.Policies regarding KYC norms, interoperability, data localisation andtransaction pricing will determine the future of the payments industryto a large extent.4. Expense reimbursementReimbursement expenses are usually managed by a standalonesystem. Wallet players can tie up with corporates to manageemployees’ expenses in the e-wallet itself. This can be clubbedwith a loyalty programme. These expenses can be recorded,reconciled and reimbursed in the same application.5. New target segmentsDigital wallets need to empower last mile payments in India. Thereis still huge market potential in tier 2 and 3 cities, which is yet tobe fully explored.There are unbanked and risk-averse customers who cannot beserved by UPI. Reaching out to such customers will provide thenecessary growth opportunity for digital wallets.8.The market potential for the digital wallet industry is huge and remainsunexplored. Players who move first and innovate continuously will beable to capitalise on the opportunities.There was a lot of uncertainty regarding KYC norms for PPI wallets.It started with minimal KYC, but eventually, the RBI directed thatPPI wallets need to comply with full KYC norms, which increasedoperational costs among wallet players.In December 2019,8 the RBI introduced a semi-closed PPI. Theminimum KYC requirements for operating these wallets are the user’smobile number verified by an OTP and a self-declaration. This allowsusers to have an outstanding balance of INR 10,000 at any point oftime. But these PPIs can only be loaded by a bank account and usedfor purchase of goods and services and not for funds transfer.Digital wallet providers need to actively work with regulators andpolicymakers to design policies for digital onUser.aspx?Id 11766&Mode 013 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Way forward for digital walletsFuture landscape of digital walletsThe digital wallet industry is going through a stagnation phase. Strong, innovative measures/offerings need to be taken soon to sustain thewallets business. Some of the steps digital wallet players can take are:Consolidation1Industry stagnation calls forconsolidation, where marketleaders will look to acquiresmaller players and expandtheir customer base bothorganically and inorganically.They must also rationalisepricing to set an industrystandard for others to follow.This will eventually result inenhanced profitablity.14 PwCDiversificationThe industry players willalso look for new businessopportunities such as theB2B payments market andlending space.They will also look tocollaborate with otherpayment instuments suchas UPI to bring out thesynergies among paymentchannels.2PenetrationTier 2 and 3 cities arethe new future marketsfor digital wallet players.Wallets should focus onharvesting growth fromthese areas. Bringingunbanked customersinto the digital paymentsspace will be another keybusiness driver for thegrowth of digital wallets.3Sell-off/exit4Lastly, a few players will tryto acquire a large customerbase by following acompetitive pricing strategy.These players will eithermerge or sell off theirbusiness operations andexisting customer base tolarge players.Changing preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Paymentstechnologyupdates15 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Payments technology updatesGoogle wants US Fed to replicateIndia’s UPI modelBusiness StandardThe time has come to examine exactly howThe US Federal Reserve, or the Fed, shouldreplicate India’s Unified Payments Interface(UPI) model for its proposed interbankreal-time gross settlement (RTGS) service,Google has recommended.Read more.RBI to introduce new prepaidpayment instrument for digitaltransactions up to Rs 10,000Paytm paymentsbank eyes small financemodelEconomic TimesTimes of IndiaThe Reserve Bank of India’s (RBI) proposal tointroduce a prepaid payment instrument (PPI)for transactions up to Rs 10,000 on goodsand services will give good competition toGoogle Pay, Paytm, PhonePe etc.Paytm wants to convert itspayments bank into a small financebank as that will allow it to lend to itscustomer and build a more profitablegrowth model.Read more.Read more.Paytm now only app offeringNEFT, IMPS, UPI, wallet and cardpaymentsLivemintWith the Reserve Bank of India (RBI)making online NEFT transfers 24/7 on alldays including weekends and holidaysfrom Monday, India’s digital payment leaderPaytm has become the only payments appoffering three ways to pay 24x7 seamlessly,within the same “Money Transfer” flow viaUPI, IMPS and now NEFT mode.Read more.16 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
Contact usVivek BelgaviPartner, Financial Services Technology and IndiaFinTech LeaderPwC Indiavivek.belgavi@pwc.comMihir GandhiPartner and LeaderPayments TransformationPwC India 91 9930944573mihir.gandhi@pwc.comContributorsParag MukherjeeAarushi JainKshitij Mathur17 PwCChanging preferences: UPI’s dominance over digital wallets in the payments market - December 2019
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UPI QR to accept payments Customer scans the QR to pay the merchant Customer enters UPI PIN The transaction is routed to the UPI switch for onward routing. The merchant account is credited and the customer account is debited BANK 1 8 On successful completion both
Setiap sivitas akademika UPI telah memiliki akun SSO (Single Sign On). Untuk masuk ke seluruh aplikasi yang ada di UPI maka sivitas cukup login satu kali dengan menggunakan akun SSO tersebut. Selain kemudahan tersebut, tentunya memiliki resiko yang tinggi pula. Oleh karena nya sivitas harus sangat berhati-hati menjaga kerahasiaan akun tersebut.
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administrim publik pranë fakultetit “Maxwell School of Citizenship and Public Affairs” të Universitetit të Sirakuzës. Dmitri është drejtues i ekipit të pro jektit për nënaktivitetin e kuadrit të raportimit financiar pranë programit PULSAR. FRANS VAN SCHAIK : Profesor i plotë i kontabilitetit, Universiteti i Amsterdamit Dr. Frans Van Schaik është profesor i plotë i .
