Why are there so many UPI Apps in India?*

As a leading global economy, India is a big market for payments. Cash was and is king.

I don’t know the latest figures but digital payments probably amount to not more than 20% of all payments in India. Therefore, there’s a huge headroom for their growth. Whenever that happens, whether in payments or in any other space (e.g. ecommerce), whether in India or any other market, it’s called a landgrab market.

Landgrab markets usually breed multiple players in a mad rush to tap the market. When VC funding is freely available to underwrite losses, as it is in India currently, that number only shoots up. That’s what we’re seeing in India, with dozens of PSPs in the market, with some supporting UPI only and others working on both Card and UPI rails.

Such markets eventually drive the “Winner Takes All” outcome. Many companies will shut down, some will function as zombie companies and the market will be dominated by a handful of companies (“last man standing”). We’ve already seen this in ecommerce in India. Perhaps we’re about to see this in payments market now. Bank-consortium and quasi-payments regulator NPCI recently observed that, despite the massive proliferation of digital payment apps in India, an overwhelming majority of the market is owned by just three PSPs, namely, PayTM, PhonePe and Google Pay. NPCI also announced plans to cap the market share of UPI processing volumes to a max of 33% per PSP.

That said, as ET PRIME says in Paytm, PhonePe, Google Pay vs. cash: India’s long journey to a digital economy – ET Prime, despite so many digital payment apps being around, cash and cheque still dominate the payments market, cash in circulation remains at an all-time high, and, as noted earlier, cash is still king.

At the peak of Michael Schumacher’s career, there was a famous statement made to express his absolute dominance of Formula One racing. Lately, they’re using that line for Lewis Hamilton.

This statement can easily be paraphrased to the context of Cash and dozens of digital payment apps in India today.

No prizes for guessing what takes the place of Michael Schumacher / Lewis Hamilton:).

This statement can easily be paraphrased to the context of Cash and dozens of digital payment apps in India today.

No prizes for guessing what takes the place of Michael Schumacher / Lewis Hamilton:).

UPDATE DATED 30 DECEMBER 2021:

According to the #ZeroMDR regulation that came into force two years ago (1 Jan 2020), there is no processing charge (aka MDR) for UPI payments. This means merchants incur zero cost for accepting UPI payments. As a result, UPI transaction volumes and values have trebled or even quadrupled since my original answer was written two years ago (Oct 2019).

While the market for UPI payments has grown, the number of leading UPI apps has come down. PhonePe and Google Pay are now considered the duopoly of UPI. This speaks to the Winner Takes All outcome that I’d mentioned in my original answer.

During this period, credit card transaction volumes and values have also nearly doubled.

That’s a sign that UPI is replacing Cash more than Credit Card.

I have not been able to find any data for composition of total payments by different methods of payment but, even according to recent reports, cash is still supposed to be king.

 

*: This is the original question I answered. I’m repeating it to help me make sense of my answer in case it’s moved to / merged with some other question that I didn’t answer.