Micro Payments and Small Merchants – Next Big Story

The Payment ecosystem in India comprised of (1) RTGS for high value payments – Corporate and Government, (2) NEFT/NACH for low value payments, that mainly supported Salary and SME Business. In recent years, the micro-value payments segment has seen the introduction of a number of products like digital wallets, UPI etc. This has driven the lower end of the pyramid to the payments ecosystem, fulfilling the
government’s financial inclusion objective.

Growth of UPI – The value of transactions through UPI surpassed that of cards last year at ~Rs120 tn. This was in part driven by incentivization in the form of cashbacks etc. and hence is expected to moderate slightly from these levels as incentives normalize. Interoperability was the key value proposition that UPI had over other digital payment systems and helped remove a lot of friction in the payments ecosystem.

UPI 2.0 will expand the use cases of UPI in a big way, with features including (1)book and pay (expected to improve efficiencies in e-commerce CoD transactions, IPO mandates etc.); (2) digital lending (which will have UPI linked to an OD account rather than a bank account); and (3) invoice inbox (will drive efficiencies for merchants) (4) merchant verification and (5) foreign inward remittance

Next Big Theme & Story in Indian Payment ecosystem
The next big driver of growth will come from small-value in-store payments enabling small grocers, milkmen, auto rickshaw drivers etc.. It will be enabled by the creation of a new P2PM (Person 2 Merchant) category customized for this consumer segment featuring easy/lite-onboarding, lower interchange etc

The one-nation one-pay card is VERY AMBITIOUS which will introduce a universal payment system, completely interoperable between all banks and vendors, enabling payments for transit and para-transit systems like highways, tolls, metros, buses, parking etc. It is expected to replace the existing card systems that are currently not interoperable.

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