About A Quarter Of India’s Personal Consumption Spending Is Now Digital
QR codes for UPI and Paytm transactions are displayed at a roadside food stall in Mumbai, India, on Feb. 3, 2020. (Photographer: Dhiraj Singh/Bloomberg)

About A Quarter Of India’s Personal Consumption Spending Is Now Digital

The Covid-19 pandemic pushed more people towards digital payments as consumers, stuck in their homes and worried about the virus spread, opted to purchase and pay online.

The share of digital payments, while increasing, still remains modest in overall personal spending, shows data analysed by BloombergQuint.

The data shows that about a quarter of personal consumption expenditure took place via digital payment platforms in the April-June quarter.

Judging The Share

To make the assessment, volume of payments via Unified Payments Interface, Immediate Payment Service, Bharat Bill Payments, National Electronic Toll Collection or FASTag, prepaid instruments, debit and credit credits was considered.

However, the transaction volumes have to be adjusted for cash withdrawals via cards, data for which is provided by the Reserve Bank of India. Volume of transactions via UPI and IMPS need to adjusted for peer-to-peer transfers, which would not qualify as consumption as measured in gross domestic product.

  • For cards, transactions at ATMs were excluded from the calculations.
  • In the case of UPI, according to estimates from the industry and officials familiar with the platform, about 35% of payments are made to merchants while the rest are peer-to-peer transfers. As such, 35% of the UPI volume was included.
  • Nearly 90-95% of the IMPS volumes are peer-to-peer transfers. As such, the assessments only includes 10% of IMPS volumes.

The cumulative volume of peer-to-merchant transactions is then compared with private final consumption expenditure reported as part of GDP data.

The Outcome

When computed as above, retail digital payments made up 25.42% of private consumption expenditure in the April-June quarter, BloombergQuint’s calculations show.

This was higher than 21.3% in the April-June 2019 quarter and 14.85% in the April-June 2018 quarter.

Over a two-year period, the share of digital payments has risen by 10 percentage points but the bigger boost came between 2018 and 2019, perhaps due to the increased adoption of platforms like UPI, Bharat Bill Pay and FasTag.

Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said digital payment solutions have become a lot more popular so it’s obvious that more people are using these for consumption. “The UPI network would possibly account for relatively small-ticket consumption expenditure, while other payments platforms would be used for transactions with a higher value,” he said.

The consistent rise in UPI in terms of value and volume showcases a definitive change in consumer behaviour regarding digital payments, said Mandar Agashe, founder and vice chairman, Sarvatra Technologies, a solutions provider to financial technologies.

“Restricted movement and fear of community transmission has successfully led to a systemic shift towards contactless payments and the pandemic lockdown has provided the opportunity for people to realise the ease and convenience of transacting digitally,” he said.

The growth in digital payments due to Covid-19 will continue going forward, said Vivek Belgavi, partner and fintech leader at PwC India.

“While consumers first used UPI for peer-to-peer transfers, over the last few quarters peer-to-merchant transactions on UPI have increased primarily through payment gateways,” he said. “As more businesses offer UPI-based payments, consumers will use it for buying various products as we have seen during the last few months.”

Due to the lockdown and restrictions on physical movements, consumers increasingly used digital payments platforms to buy medicines, groceries, education, pay for utilities, food and beverage and even financial services, showed a July 10 blogpost by Razorpay, which regularly analyses data on digital payments.

“The macro trend in India is that UPI and mobile wallets will rapidly gain market share from retail cash transactions, as has been the trend in China. In our view, these new payment alternatives will not cannibalise spends from card transactions, but rather act as a feeder source for new card customers who are comfortable transacting digitally,” said Macquarie Research in a report dated Aug. 21.

Also read: RBI Annual Report 2019-20: Shock To Consumption Severe, Will Take Time To Mend

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