UPI Lite needs more push from banks

These are early days for UPI Lite – the platform launched by the Reserve Bank of India (RBI) in September to enable real-time, low-value transactions up to Rs 200.

While most transactions that happen in India come under its purview and it is beneficial to both banks and customers, the expansion of its user base has been gradual.

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A circular released by the National Payments Corporation of India (NPCI) showed that around 75% of the total volume of retail transactions in India are below Rs 100 in terms of value while around 40-50% of overall UPI transactions are below Rs 200.

Currently, UPI Lite comprises a mere 2-3% of total UPI transactions. UPI transactions rose 43% year-on-year (y-o-y) to a record Rs 14.1 trillion in value terms during April.

IndusInd Bank consumer banking and marketing head Soumitra Sen believes that banks, payment service providers and the NPCI will have to drive its adoption through widespread customer and merchant awareness campaigns.

Initially, eight banks adopted the UPI Lite feature. These were Canara Bank, HDFC Bank, Indian Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India, Union Bank of India and Utkarsh Small Finance Bank.

Since then, Axis Bank, Paytm Payments Bank, and Central Bank of India have also adopted UPI Lite at a time when the core infrastructure of several lenders has been burdened by a steady flow of digital transactions.

In May, PhonePe, one of the popular digital payments platforms, incorporated the UPI Lite feature in its platform. The new feature allows users to make small-value transactions without entering a personal identification number (PIN).

“UPI Lite, by design, is for low-value transactions that require customers to deposit up to a total limit of Rs 2,000 in their on-device wallet, which requires additional steps for setup. But we expect customer awareness to improve with time,” says Deepak Sharma, chief digital officer at Kotak Mahindra Bank.

Through UPI Lite, users can make and receive payments in near offline mode. Here, payments can be made in offline mode, whereas credits into the account will be received online.

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The upper limit of UPI Lite payment is Rs 200 and users need not enter their personal identification number for these transactions. The total limit of UPI Lite balance for an on-device wallet is Rs 2,000.

“In case of UPI Lite, transactions hit the wallet and do not come into core systems. Because of this, the transaction is much faster and banks see a lesser load on their system,” says Sanjeev Moghe, president and head of cards and payments services, Axis Bank.

“The benefits of UPI Lite for customers are that transactions are much faster and the success rate is higher. It remains to be seen how many take to it.” Also, UPI Lite transactions do not appear in the bank statement of customers, hence it prevents their bank statements from overcrowding, say experts.

“Since September 2022, we have seen almost <0.5% of digital transactions via UPI Lite, which has reduced the load of core banking,” says Sharma.

The NPCI is expected to enable UPI Lite transactions in complete offline mode. Utkarsh Small Finance Bank managing director and chief executive officer believes that UPI Lite will see traction from senior citizens and non-digitally savvy customers due to the security and near-offline payment feature it offers.

Additionally, UPI Lite may also present an opportunity for banks to boost their revenue.

“There has to be a one-time effort from customers to load the funds into the UPI wallet. Once that is done, you can quickly pay for different transactions,” says Mihir Gandhi, partner-payments transformation, PwC India.

“If UPI Lite is treated as a prepaid wallet, banks can effectively charge a merchant discount fee. If you are not able to do that, then monetisation is a challenge. We will have to explore that.”