India Sparks A Real-Time Payments Revolution

The Indian government's mobile payments platform sees 1.3 billion transactions per month.

India took a big step into the digital future in October 2016, when its government and the Reserve Bank of India launched the Unified Payments Interface, a real-time nationwide digital payments platform. Regulated by the RBI, the UPI facilitates interbank transfers, allowing the instant transfer of funds between two bank accounts on a single mobile platform.

The platform was a first-of-its-kind innovation, and as of now it’s enjoying significant success. In January, the total number of monthly transactions hit 1.3 billion, with 148 public- and private-sector banks participating through 48 different mobile apps. That’s up from 10 million monthly transactions with nine participating banks in October 2016. The government’s target is one billion transactions a day, underscoring its zeal to digitize the economy.

The UPI may not be alone for long. Google’s top management recently presented a letter to the US Federal Reserve asking it to consider a real-time national payment mechanism based on the Indian design. The Bank for International Settlements said in a recent study that the Indian payments system demonstrates how a central bank can be a proactive and equal partner with private-sector counterparts in fostering technological innovation in finance.

Google’s interest in extending the concept is understandable; Google Pay, Paytm and PhonePe (owned by Walmart and valued at $7 billion) are the top three digital payment apps in India, with a 90% market share. Google calculates that 10% of India’s GDP now flows through the UPI. Already there is a global investment demand for startups in the Indian payments space: In December, Paytm reaped $1 billion (reaching a $16 billion valuation), which remains India’s largest private-equity raise.

With the UPI functioning smoothly, financial services distribution and consumer lending are expected to be key drivers for these payment apps. Paytm has already started distributing IPOs, and PhonePe launched mutual fund sales via its mobile app. In an October 2019 report, Morgan Stanley projected that transactions through the UPI could reach $2.5 trillion annually by 2029, or 26% annual growth from 2019.