Unified Payments Interface, mainly used for person-to-person (P2P) payments, is now finding wider adoption in merchant payments, a perceptible shift as companies move away from giving incentives for P2P payments to make their businesses more viable.
The share of merchant payments on UPI has grown consistently over the last one year, numbers accessed by ET show.
It has grown to 31% in June from around 16% of total UPI transactions in April last year. Around 240 million merchant payments were reported in June, according to industry estimates, translating to the 31% share.
Companies cannot continue to burn cash to acquire customers unless they transact actively through them.
“Only peer-to-peer transactions do not create any value,” said Deepak Abbot, senior vice president at Paytm. “It can be a starting point to get consumers hooked, but as the market matures, merchant payment use cases need to be developed.”
“When I look at it from a profit and loss standpoint, merchant payments is important, there is a business model there,” he added.
Business margins have fallen due to fierce competition between domestic companies and the entry of technology giants into the payments market. There is hardly any money to be made from the core payments business, and companies are hoping to earn by selling investment and credit products.
“Players are looking to cross-sell to make money, but that is still at a test stage, no one has managed to hit profitability only through cross-selling,” said a senior banker at one of the largest private sector banks in the country.
Paytm’s closest competitor, the Flipkart-backed PhonePe, has also started moving towards merchant payments by expanding the offline acceptance points. It claims to have created a base of 5 million offline merchants who accept payments through PhonePe.
P2M might be emerging as an important category, but P2P continues to be the initial hook for new customers.
“A consumer under normal circumstances does five to six payments to friends and family in a month, but the number of instances for merchant transactions is much higher; that is where consumer stickiness will come,” said Yuvraj Singh Shekhawat, head of offline organised business at PhonePe. “We offer multiple services, and we charge merchants accordingly, which ensures there is revenue in this business.”
Profitability through the merchant payments route is still a few years away, as large investments are needed to create a payment habit among consumers and ensure merchants use the platform regularly, he added.
These companies are not the only ones to target offline merchants.
Amazon, for instance, started with merchant payments through UPI and most of its incentives were in that space. However, venture funds-backed Indian payment startups approached the market from the P2P side.
“While they may be backed by venture funds with big pockets, there is a limit to funding without profitability,” said the banker quoted above.
Paytm faces a similar issue with competition from Google Pay and PhonePe rising.
As per latest numbers sourced by ET, Google Pay recorded the highest volume of UPI transactions in June at 270 million, followed by PhonePe at 241 million and Paytm at less than 180 million.
The National Payments Corporation of India does not publicly share the data split between companies.
“Paytm achieved 700 million digital transactions in June, which is higher than the overall UPI total transactions. We provide flexibility to our large customer base to select any of their preferred payment methods, such as wallet, UPI, cards, and net-banking,” Abbot said.
The company also claimed it was settling intra-bank transactions internally, without hitting the NPCI systems, and these transactions could add a further 70 to 80 million to its overall numbers.
