September 22, 2024, New Delhi: Last month the Prime Minister of India at a fintech festival highlighted the significant impact of Unified Payment Interface (UPI) on India’s fintech landscape. Availability of various easy and convenient digital payment solutions via UPI have facilitated ease of living for citizens, financial inclusion, and growth of business and economy. During the pandemic, availability of contactless digital payment solutions such as BHIM-UPI facilitated social distancing and continuity of business for merchants.

The National Payments Corporation of India (NPCI) posted a record 57% rise in the volume of transactions and 44% rise in value in the 2023-24 fiscal year, compared to the previous fiscal year. For the first time UPI transactions crossed 100 billion and closed at 131 billion in a financial year, compared to 84 billion in 2022-23, while in value it touched INR 199.89 trillion, compared to INR 139.1 trillion. In the first three months of the current fiscal year, UPI transactions have grown over 36% to INR 66 lakh crore, Minister of State for Finance Pankaj Chaudhary told Lok Sabha. “4,122 crore UPI transactions worth INR 60 lakh crore took place between April-June 2024-25,” he stated. Globally India has the highest real-time transaction volume which is threefold of the closest challenger China. Starting with 21 banks in 2016, the UPI or the country’s digital payments ecosystem has today expanded to 381 banks, enabling billions of digital transactions each month. Last year was a great year for UPI be it the number of transactions or their total value. Digital payment transactions have seen significant growth in recent years.

As UPI transactions are growing, fintech industry players and banks have been pushing the Government to permit a Merchant Discount Rate (MDR) on UPI transactions. In other words, permit them to levy a fee on merchants/businesses for UPI transactions similar to how it is levied on merchants in the case of debit and credit card transactions. However, this has led to small merchants and consumers expressing their discontent on social media including LocalCircles.

Consumers believe that if MDR charges are introduced for merchants, they will in turn pass it on to them, just like it happens in the case of credit and debit cards. It is quite common for small merchants to demand a processing charge from consumers who are using credit or debit cards to make payments. To understand the consumer pulse on UPI usage and UPI transaction fee, LocalCircles conducted its six monthly survey which received over 44,000 responses from consumers located in 325 districts of India. 65% were men while 35% respondents were women. 44% respondents were from tier 1, 33% from tier 2 and 23% respondents were from tier 3, 4 & rural districts.

38% of those surveyed indicated that they are conducting over 50% of their payment transactions via UPI

The first question in the survey sought to understand how much consumers are using UPI. It asked them, “What percent of the number of payment transactions done in the last 12 months by you were via UPI (versus cash, debit or credit card)”. The query received 13,340 responses with 38% of those surveyed indicating that they are conducting over 50% of their payment transactions via UPI. The breakdown of data shows 24% of respondents are using UPI for over 75% of their transactions; 14% indicated they are using it for 50-75% of their transactions; 15% use it for 25-50% of their transactions; 6% use it for 10-25% of their payments; and 21% favour it for only 0-10% of payments. In addition, 18% of those surveyed indicated that they don’t use UPI at all and 2% of respondents opted for “can’t say”. To sum up, 38% of those surveyed indicated that they are conducting over 50% of their payment transactions via UPI.

37% UPI users surveyed are now conducting over 50% of their payment transactions via UPI

The next survey question sought to understand the usage of UPI in terms of value. It asked consumers, “What percent of the value of payments done by them in the last 12 months were via UPI (versus cash, debit or credit card)?” Out of 13,070 respondents to this query 37% were found to be conducting over 50% of their payment by value via UPI. The breakdown of data shows that while 22% of those surveyed don’t use UPI at all; 28% use it for over 75% of their transactions by value; 9% use UPI for 50-75% of their transactions by value; 16% do it for 25-50% of their transactions by value; 8% do it for 10-25% of transactions by value and 17% do it for up to 10% of their transaction in value terms. To sum up, 37% of respondents were found to be conducting over 50% of their payment by value via UPI.

Only 22% UPI users surveyed willing to bear a transaction fee on payments; 75% will stop using it if a transaction fee is introduced

Focusing on the concerns of UPI users, some of whom believe that if a MDR is levied on merchants, it will lead to transaction charges being introduced for consumers also. The survey asked, “According to you, if charges were to be introduced on UPI transactions, what format should be used?” Out of 15,598 UPI users who responded to the question 75% stated “there should be no charge on UPI transactions, and I will stop using if a charge is introduced”, while 5% of respondents stated that there should be “fixed fee per transaction”; 6% stated they are agreeable with “fee that is a percentage of the transaction value”; 11% stated they are agreeable to “fixed fee up to a certain threshold and a percentage of transaction value above that” and 3% of respondents did not give a clear answer. To sum up, only 22% UPI users surveyed are willing to bear a transaction fee on payments; 75% of respondents stated that they will stop using UPI if a transaction fee is introduced. Also, it must be noted that the percentage of UPI users unwilling to pay a transaction fee has, in fact, marginally increased from 73% to 75% since the last survey in March 2024.

In summary, as technology penetration and smartphone users rise in India, the use of UPI for digital payments too is rising, both in terms of transactions and value. As the survey shows 38% of respondents indicated that they are conducting over 50% of their payment transactions via UPI and 37% were found to be conducting over 50% of their payment by value. With UPI rapidly becoming an integral part of nearly 4 in 10 consumers, there is strong resistance to any kind of direct or indirect transaction charges being imposed. The survey finds that while 22% UPI users surveyed are fine with a transaction fee being levied, 75% UPI users are completely against any transaction fee being levied and claim they will stop using UPI if it is introduced.

LocalCircles will escalate the findings of this survey with Ministry of Finance and Reserve Bank of India (RBI) so that pulse of the UPI user is taken into account before any MDR charges are permitted.

Survey Demographics

The survey received nearly 42,000 responses from consumers located in 308 districts of India. 63% were men while 37% respondents were women. 41% respondents were from tier 1, 30% from tier 2 and 29% respondents were from tier 3, 4 & rural districts. The survey was conducted between July 15th, 2024 and Sep 20th, 2024 via the LocalCircles platform, and all participants were validated citizens who had to be registered with LocalCircles to participate in this survey.