All that Glitters is not Gold

The February 2018 UPI numbers have been published by NPCI, and as always there is much to cheer about. As India’s first and largest non-banking UPI app, we are thrilled to see UPI grow from strength to strength. Its exponential growth in the past year has surpassed everyone’s wildest expectations.

Understandably, UPI’s meteoric rise has caught the fancy of consumers, investors, media and the payments industry alike. Suddenly everyone is clamouring to jump onto the UPI bandwagon. Wallets want UPI interoperability. Banks want to launch new age mobile apps. Global giants like Google, Amazon & WhatsApp are launching UPI-based payment services in India. Even the Government of India launched a payments app. Fair to say that the innovation rocketship that UPI has fueled in India is here to stay for good, and we’ll all be the better off for it as Indian consumers.

However, we also believe that the recent media narrative has been narrowly focussed only on UPI Transaction Volumes — which only tells half the story. In addition to Transaction Volumes, a balanced scorecard of UPI should also include Total Transactions, Number of unique customers as well as the implied metrics of Average Transaction Value (ATV) and Average Transactions per Customer (ATPC).

This is how the overall numbers stack up based on available public information.

At a cursory glance, Paytm definitely seems to be leading the market. 40% of market share on transactions is no mean feat. But what about their other metrics? This data is not publicly available…

Luckily for us, 21Mn transactions out of Paytm’s total 68Mn transactions were money transfers made by Paytm customers sending money to PhonePe customers (with a @YBL VPA handle). So we decided to try and find some answers about their ATV, ATPC etc.

Here’s what we found!

To put this in context, just 40,000 unique consumers did 500+ transactions each in February on Paytm.

Paytm’s average txn value is less than Rs 40.

In contrast, 6,000,000 unique customers did 5 transactions each in February on PhonePe.

Our average transaction value is over Rs 1,800.

The only logical explanation for this huge difference in ATV (Rs 40 on Paytm vs Rs.1,820 on PhonePe) and Paytm’s startlingly high ATPC (525/user/month) is that Paytm’s transaction volumes are clearly influenced by significant per-transaction cashback incentives that appeal to a very small population.

There are three conclusion we can draw from the above:

1. Broad based adoption of UPI has not happened on Paytm yet: If 40,000 unique customers are doing 21Mn transactions, by extrapolation this would imply that the total UPI transacting base for Paytm is 40,000 * 68 / 21 = 1.3 lakh customers.
2. Transaction numbers for customers do not reflect typical UPI use cases: The average PhonePe customer does about 5 transactions per month, while the comparable figure for Paytm is 525. This is simply not representative of normal user behavior on the UPI network.
3. The average value of Paytm transactions is much lower than average: At an overall network level, UPI’s overall transaction value is Rs. 1,116 / transaction. For Paytm the number is a paltry Rs. 38 which further corroborates these are all cashback triggered low ASP transactions.

For these combination of reasons, we believe that Paytm’s claim that they are the largest on UPI is both uni-dimensional and misleading.

We believe the market narrative needs to shift towards the wider adoption of digital payments in India which is essentially more unique customers, and higher overall transaction value flow. We welcome the fact that NPCI has been so transparent in sharing the total volume and value of transactions. It would be great if they considered publishing the number of unique customers counts to enable the larger ecosystem to form a more holistic picture of the health of the rapidly growing digital payments ecosystem.