Use of the Unified Payment Interface (UPI): urban upsurge, rural downturn

Do you remember when our local kirana shop gave us sweets or chocolate instead of loose change? As children, we were quite delighted with this unexpected treat delicately pressed into our little palms, however, for adults, this situation could be quite annoying. Cut to today; With a wide range of convenient digital payment channels, it only seems natural that digital payments will soon be available in every corner of the country.

Several recent news articles indicate that Indian digital payments are currently showing excellent trends overall and will reach 217 billion transactions by 2026. This is a huge increase from 59 billion in 2022. 1 UPI (or Unified Payments Interface), dominates this space, leading growth with a staggering 22 billion transactions in 2021. A PwC report predicts UPI transactions will reach 169 billion by 2026. That’s a compound annual growth rate 122% since 2018!

Most of India’s population (nearly 70%) resides in rural areas. Although mobile phones and internet penetration have spread to even the most remote parts of the country, digital payments have yet to catch on.

A recent field research conducted by 1Bridge, 4 one of India’s leading village commerce networks, to understand the preference and use of UPI payment models in rural areas has yielded unexpected results. According to the survey, only 3-7% of rural India are actively using any UPI platform to make payments.

The additional data collected is both instructive and discouraging.
Around 40% of rural respondents have absolutely no knowledge of UPI and/or digital payments. In simple words, they don’t know how to use it or they are also afraid of losing their hard-earned money by exploiting such payment platforms, which they don’t understand or trust.

Accustomed to cash transactions since time immemorial, 20% express a preference for cash spending. About 10% of respondents cited a low bank balance or inactive bank accounts, which is clearly linked to the preference for cash transactions.

Cash credit being quite common in rural areas, 11% of digital transactions are loans or repayments between individuals. Only 15% of recorded transactions are online payments. 6% are direct cash payments, intended for someone else without an UPI. This only demonstrates the general lack of trust in the system.

An encouraging trend observed was that the average transaction value for UPI payments was INR 1450, which is a significant amount. We could interpret this to mean that once people started transacting online, they felt comfortable using the platform.

The main share of rural digital payments is for goods and services in stores, accounting for 40% of all transactions. UPI usage is highest in hotels, grocery stores, and hardware stores.

Interestingly, some merchants are now using UPI to give change instead of relying on sweets and candy as a substitute!

The critical dialogue to have now is: what can be done to improve rural digital payment trends? What can be done to make digital payment platforms more accessible, and preferable, to the rural population?

Although, catalyzed by the pandemic, India is accelerating the digitalization of all sectors, there is still a lot of work to be done to improve the infrastructure of UPI as well as other digital payment platforms. Especially in rural areas, several financial institutions have yet to be set up with proper infrastructure to support digital transactions. In many cases, online transactions fail, causing great anguish to new users. Thus, providing adequate rural infrastructure to facilitate digital payments is the need of the hour.

In the momentum of accelerating financial and digital inclusion in rural India, what is vital is raising awareness and helping people while helping them to truly understand the system and appreciate its uses. There is an opportunity to push UPI penetration by nearly 25% over the next year.

Organizations such as 1Bridge, with a strong presence in more than 10,000 villages across multiple states, have partnered with WhatsApp and the State Rural Livelihoods Mission to advocate for digital and financial inclusion, assisted commerce and delivery of the last mile. Thus, they are best equipped to facilitate the generation of more income by offering deliveries, assisted trade services and supporting financial transactions in the villages.

It is imperative to interact on the ground with people in rural areas to resolve the problems, fears and reluctance to adopt the UPI payment system, face to face. With sustained efforts on this front, rural people will be able to recognize the benefits of UPI, thereby increasing penetration across rural India.



The opinions expressed above are those of the author.