Jhunjhunun, India – 10.28.2020: PhonePe ATM stickers outside a small shop | Photo credit: Getty Images

The dizzying array of daily limits on United Payments Interface (UPI) transactions set by apps and banks – both in terms of value and volume – has highlighted the rapid increase in such transactions in India in recent years. .

In 2021, the National Payments Corporation of India (NCPI) limited the number of daily transactions users can make to 20 and the amount to ₹1 lakh per day. However, banks and apps have set their own limits at different times over the past few months. This created a complex web of limitations in both value and volume. For example, according to ICICI Bank’s UPI FAQ page, the number of transactions is limited to 10 in a 24-hour period, while Bank of Baroda and HDFC Bank allow 20 transactions in the same period.

These limits were introduced in view of the increase in UPI transaction volume in India in recent years after its popularization as an alternative to cash in the post demonetization period. UPI payments were introduced in India under a pilot program on April 11, 2016. As of May 2018, around 190 million UPI payments have been made in India (Chart 1). This figure rose to 9,415 million in May 2023, an astonishing increase of almost 4,855%.

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In 2017-18, UPI’s share of all retail payments was only 5.9%, while prepaid payment instruments (wallets offered by Paytm and Amazon, gift certificates, etc. ) and debit cards dominated with shares of more than 20% each (Chart 2). In 2022-2023, UPI led all instruments, increasing its share to more than 73%, while prepaid payment instruments came a distant second with a 6.5% share. Additionally, the share of credit cards in retail payments fell from over 11% to just 2.5% over the same period.

However, it should be noted that the increase in transactions was mainly in terms of volume and not value. The value of UPI transactions made in May 2018 was ₹33,288 crore, which is equivalent to ₹1,756 per transaction. The corresponding figure for May 2023 was ₹14,89,145 crore, which is equivalent to ₹1,581 per transaction, a decline of ₹175 per transaction in five years. In 2017-2018, the share of IPU in the total value of retail payments was only 0.4%. It rose to 21.1% in 2022-23 (Chart 3).

When the increase in volume and the decrease in value are read together, two trends emerge. First, consumers are increasingly using UPI as an alternative to petty cash, with the value associated with each transaction becoming smaller and smaller over time. Second, according to PwC’s Indian Payments Handbook, released in December 2020, banks are struggling to keep up with the increase in UPI payments by improving their banking infrastructure and technical systems. This struggle leads to failed transactions. This is also why smaller banks set UPI transaction limits that are far lower than even the ₹1 lakh allowed by the NCPI.

Graphics 4 And 5 show UPI transaction volume through UPI applications and issuing banks, respectively.

PhonePe dominates the apps, closely followed by GPay, while Paytm was a distant third. Among the banks, State Bank of India was the remitting bank for the majority of UPI transactions, while HDFC lagged far behind.

Source: NPCI and RBI

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