On 31 January 2024, the Reserve Bank of India (RBI) directed Paytm Payments Bank Ltd (PPBL) to refrain from undertaking further deposits or credit transactions or top ups, fund transfers and other banking services from 29 February 2024. PPBL happens to be one of the major players in the UPI & FASTag transactions space.
On 31 January 2024, the Reserve Bank of India (RBI) directed Paytm Payments Bank Ltd (PPBL) to refrain from undertaking further deposits or credit transactions or top-ups, fund transfers, and other banking services from 29 February 2024, except the withdrawal or utilization of balances of existing customers. It also directed for the closure of nodal accounts and settlement of pipeline transactions by 29 February 2024 and 15 March 2024, respectively. Before this, on 11 March 2022, the RBI had already stopped PPBL from onboarding new customers with immediate effect.
Paytm or Payment Through Mobile is a familiar term and is often resorted to as the payment application (App) by millions of people every day in India. The first of its kind, Paytm began as a mobile phone financial payment service provider application (App) in the year 2009. Its payment services began with paying prepaid mobile recharges and recharges for Direct to Home (DTH) services. The PPBL is an offshoot of Paytm as a digital bank that can receive deposits but cannot lend. In a short period, the services have been extended to most of the digital transactions that we see on the current day.
Like Paytm, the decade has also witnessed the advent of several other digital payment apps PhonePe, Google Pay, Airtel Payment Banks, Amazon Pay, and other entities, which perform the intermediary role of receiving and making payments. Some of these entities also act as Digital Banks such as Airtel Payments Bank, PPBL, etc.
The advent and progress of digitalization in the contemporary world are witnessed in almost every sphere of life. Digital finances and their transactions are one of the key areas which had witnessed rapid growth in the last decade in India. Today, one can perform financial transactions very easily in real-time with just one click using payment modes such as Unified Payment Services (UPI) and others. Digital transaction entities such as Paytm and others have been pioneers of this progress.
At the same time, the issues of regulation and governance, especially relating to banking, have been one of the major causes of concern in India. The recent RBI directions to PPBL have highlighted these concerns.
In this context, we look at the trends in the digital transactions performed through UPI and NETC FASTags in India, and the pressing issue of financial frauds in India.
The data has been sourced from UPI and NETC FASTag Transaction statistics datasets from Dataful, which has compiled the same data from the National Payment Corporation of India (NPCI). The data so compiled is used for analysis in this story.
NPCI data shows exponential increase in Volume and Value of UPI Transactions
The UPI system started in the year 2016 in India. From the year 2020, the NPCI has been publishing monthly statistics data about the total number (volume) and value of transactions performed through the UPI payment system. The analysis of this data shows that UPI transactions have grown exponentially in India.
The data shows that the total volume of UPI transactions has grown from 15,003 million in 2020 to 1,19,009 million in 2023, showing an increase of 693% in 4 years. Similarly, the total value of the number of transactions performed has also increased from 27,425 billion rupees in 2020 to 1,85,429 billion rupees in the year 2023, an increase of 587%.
There are over 100 entities where UPI transactions are performed but PhonePe, Google Pay and PPBL constitute to over 90% of UPI Transactions
As of December 2023, there are over 100 entities that facilitate the payment through UPI. Though there are numerous entities, over 90% of UPI transactions were performed through Google Pay, PhonePe, and PPBL in the last 4 years.
The data shows that PhonePe dominates and stands as the most used UPI app with over 40% share in both the total value and volume of UPI transactions each year from 2021 to 2023. In 2020, it had 38% and 21% of the total volume and value of UPI transactions performed, respectively. Google Pay stands next to it with over 30% of the total volume and value of transactions from 2021 to 2023. In the year 2020, it had 42% and 23% share of total volume and value of UPI transactions performed, respectively. PPBL stood in third place with over 10% of the total volume of transactions each year from 2020 to 2023. Its share in the total value of UPI transactions has increased from 6 to 9 from 2020 to 2021, and 9 to 10 and 10 to 11 in the successive years after 2021.
Data shows that these 3 entities together have constituted over 90% of the total volume and value of UPI transactions performed from the year 2020. It is only in the year 2020 that the total value of UPI transactions performed through these 3 entities stood at about 50%, though their total volume of transactions together stood at 92% in the same year.
The other entities that have stood among the top 5-UPI transaction entities across the years after PhonePe, Google Pay, and PPBL are Cred, BHIM, ICICI Bank, and Yes Bank. About 1% of the total volume and value of UPI transactions were performed by each of them from 2020 to 2023.
PPBL is also among the Top 3 Banks Issuing and Acquiring NETC FASTag
Along with the UPI transactions, PPBL is also among the top 3 banks that issue National Electronic Toll Collection (NETC) FASTags for facilitating FASTag transactions in India. Under the NETC FASTag system, some banks issue ETC tags to the vehicle owner and some banks acquire the Toll Plaza to facilitate the payment through ETC. As per NPCI mandate, the issuer or acquirer banks of FASTags must be members of NPCI and those registered can act as both issuer and acquirer
The analysis of the FASTag data shows that from the year 2021, over 40 banks in India have acquired toll plazas and issued FASTags. These include prominent banks such as ICICI, IDFC, SBI, Indusland, and others.
The data shows that the total volume of FASTag transactions issued and acquired by various banks has increased from 879 to 3,492 million and 864 to 3406 million, respectively, from the year 2021 to 2023. Among the banks, the ICICI, IDFC, and PPBL banks have been in the top 3 positions as both the acquiring and issuing banks since year 2021.
The data shows that out of the total volume of acquiring and issuing transactions performed, ICICI, IDFC, and PPBL together have performed the majority of transactions at 78%, 78%, and 77% during the years 2021, 2022, and 2023, respectively. Therefore, like in the UPI transactions, the majority of the transactions are performed by a few entities, even in the FASTags. PPBL is among the top three.
Beyond PPBL, effective Governance is the need of the hour
The data shows that the majority of the UPI or NETC FASTag transactions are performed through a few major entities or banks. Hence, any adverse impact on one of these entities like in the case of PPBL can affect a large population.
On 5 November 2020, the NPCI issued a circular whereby it directed all UPI Payment Service Providers (PSP) and Third Party App Providers (TPAP) to ensure that “total volume of transactions initiated through the TPAP shall not exceed 30% of the overall volume of transactions processed in UPI during the preceding three months (on a rolling basis)”, from 01 January 2021. The same circular granted additional time to existing TPAPs who were exceeding the 30% cap fixed by the NPCI. On 2 December 2022, the NPCI further extended this deadline by another 2 years to 31 December 2024.
The NPCI in a press release said that the basis for limiting TPAPs to 30% of total volume transactions is “to address the risks and protect the UPI ecosystem as it further scales up”. Adding on to this, the NPCI in its 2 December 2022 extension circular has also said “In view of significant potential of digital payments and the need for multi-fold penetration from its current state, it is imperative that other existing and new players (Banks and Non-Banks) shall scale-up their consumer outreach for the growth of UPI and achieve overall market equilibrium”
Therefore, the NPCI itself acknowledges the risks involved in allowing a few entities to garner a significant market share leading to adverse impacts. Accordingly, NPCI noted the necessity for “market equilibrium” in digital transactions.
The RBI in its press release relating to PPBL noted that “external auditors revealed persistent non-compliances and continued material supervisory concerns in the bank”. Though not mentioned in the RBI release, media reports mention that the audit reports have revealed serious issues relating to PPBL, such as Know Your Customer (KYC) details of customer missing, PAN validation failures, bank involving itself in financial transactions beyond its limits, etc.
Beyond PPBL, the major issue that has been most in India in recent times is the increasing number of financial frauds committed through digital transactions in the last few years. The recent 2023 report of a non-profit titled ‘A deep dive into Cyber Crime Trends Impacting India’ revealed that over 77% of the Cyber Crimes witnessed between 2020 to 2023 in India have been related to financial frauds. Of this 77%, the frauds relating to UPI alone constitute over 47%. Further, the 2022-23 annual report of RBI has revealed that financial frauds relating to Cards and the Internet have increased from Rs. 119 crore to Rs. 276 crore in the year 2020-21 to 2022-23.
All these issues together highlight the need for more efficient mechanisms to prevent and control the commission of financial fraud with effective regulation systems in place. As mentioned, the data shows an exponential increase in the UPI transactions performed each year. At the same time, it also shows the bulk of financial frauds were that of UPI in India, among others. While some initiatives such as Citizen Financial Cyber Fraud Reporting and Management System and others have been launched, the data calls for more initiatives to comprehensively prevent and regulate financial frauds.