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In a first, UPI transactions exceed ATM cash withdrawals, courtesy pandemic

Things are changing faster than usual under the pandemic. People’s spending on restaurants has plummeted to near-zero, but that on mobile data and broadband has surged. Travel expenses are being saved, but precautionary healthcare spend is rising.

It doesn’t take much to realise that we are using digital payments more than ever and cash, quite rarely. The local kirana shop, the fruit seller, the electrician: everyone is accepting, in fact, preferring payments on platforms such as Google Pay or PhonePe. 

As a result, the newest of the digital payments platforms, the Unified Payments Interface (UPI), crossed an important milestone. The total value of all UPI transactions in the country now exceeds the amount Indians are withdrawing from ATMs nationwide. 

Cash, which was the primary way to spend money in retail transactions, is slowly taking a backseat as UPI takes the lead. The use of decade old payments system: the Immediate Payments Service, or the IMPS, is also rising, and value of IMPS transactions has closed in on cash withdrawals at ATMs. 

But the surge in UPI is unprecedented, showing an increased demand by consumers and merchants towards the easiest payments system in India. 

About a year ago, the Indian public transacted Rs 1.8-2 trillion a month on UPI, when the monthly cash withdrawals were close to Rs 3 trillion a month. When the lockdown began, UPI crossed cash drawn at ATMs for the first time (April), and that has continued for five months to August, according to the payments data maintained by the Reserve Bank of India.

Before the pandemic, cash drawn at ATMs using debit cards was regularly crossing the level of Rs 3.5 trillion a month. 

Currently, while people withdraw cash to the tune of Rs 2.3 trillion in a month, they transact worth Rs 2.9-3 trillion a month on UPI. 

Harshil Mathur, CEO at Razorpay, on online payment gateway company said that Tier-2 and Tier-3 cities have given a fillip to UPI payments into the pandemic phase. He said that the surge in UPI is also being contributed by new merchants rapidly coming on the platform. 

“Covid-19 only accelerated a trend that was in the making for some time now. And now, once the consumer has learned how to use an easier, free of charge payments service, I do not think he will go back to cash now,” he told Business Standard. 

The trends in bill payments further support the argument that digital payments are rising organically, and not temporarily. Online payments for regular monthly bills such as those towards power distribution companies have surged by 150 per cent, Mathur said. 

“One of the first digital payments anyone makes is a train booking. Once a person does that online, would he go back to the railway ticket booking counter? The upward trend in digital transactions will sustain,” he added. 

And UPI, being the simplest among all systems, is making the most out of it. The use of payment wallets, which were doing well post demonetisation before UPI became popular, is stagnating, and has not picked up during the pandemic. 

Usage of debit cards and credit cards at Point of Sale terminals, too has not come back to the pre-pandemic levels at least till August 2020 (monthly final data is available only till that month). 

Aadhaar enabled payments, used for welfare schemes such as cash transfers and wages under the employment guarantee schemes, have doubled from the pre-pandemic period. 

The government of India instituted rural-centric stimulus measures that gave a fillip to AEPS, another growing payments platform under the National Payments Corporation of India fold. 

Industry experts feel that new habits are getting formed in this pandemic phase, and the retention would be to a very good extent. 

“Retention is a function of habit, and habit, a function of frequency with which one uses something. Due to the frequency of payments one needs to do these days, the chances of sticking around with this behaviour are higher,” Naveen Surya, Fintech expert and chairman at the Fintech Convergence Council told Business Standard. "Even a 60 per cent retention of the current surge would be a good achievement."

Another startling fact, however, is that only cash withdrawals are declining, not the cash with the public. The latter is rising fast, at a rate of more than 20 per cent compared to the previous year, despite the shrinking of the economy. 

Economists have said that rise in cash in the economy is due to enhanced liquidity in the banking system, and the rising precautionary cash needs of people in the times of crisis.


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