The revenue models of payment firms in the context of free Unified Payments Interface (UPI) transactions in India are evolving and diversifying. Despite UPI transactions being free for users, payment firms are finding innovative ways to generate revenue. Here’s a detailed analysis:
- Introduction of Convenience Fees: Major players like Google Pay, Paytm, and PhonePe are introducing convenience fees for specific transactions. For instance, Google Pay has started charging convenience fees ranging from Re 1 to Rs 3 for mobile recharges over Rs 100. This shift aligns with the industry trend of charging fees for certain services to diversify revenue streams and maintain profitability.
- Subscription Services: Paytm, for example, has reported a significant increase in revenues driven by merchant subscription services. They offer devices like Paytm Soundbox and Point of Sale (POS) systems on a subscription basis. The number of merchants paying for these subscriptions is increasing, contributing to Paytm’s revenue growth. By the end of January, Paytm had 6.1 million merchants subscribed to their payment devices, an increase of 0.3 million in a month.
- Gross Merchant Volume (GMV) and Payment Volumes: Paytm’s total merchant GMV in Q3 FY 2023 was ₹3.5 lakh crore, a year-over-year growth of 38%. They focus on payment volumes that generate profitability either through net payments margin or from direct upsell potential. This approach has led to the expansion of their registered merchant base, which stood at 31.4 million at the end of December 2022.
- Cross-selling Financial Services: Paytm leverages its ecosystem to cross-sell high-margin financial services and merchant services. They provide a variety of tech solutions for merchants to accept payments and offer lending products like Paytm Postpaid, personal loans, and merchant loans in partnership with financial institutions. This cross-selling approach is a significant source of revenue for Paytm.
- UPI Transaction Data: UPI registered 9.33 billion transactions in June 2023, with a total value of over INR 14.75 trillion for the month. The value of all UPI transactions as of 2023 is over INR 83.14 trillion, showing the enormous scale and potential of the UPI market.
- Market Share of UPI Apps: The top three UPI apps, namely PhonePe, Google Pay, and Paytm, collectively accounted for a significant 94% of UPI transaction volumes and 96% by value in March 2023. These figures indicate the dominance of these players in the UPI space and their ability to leverage this position for revenue generation.
In conclusion, although UPI transactions themselves are free, payment firms are monetizing their platforms through convenience fees on specific transactions, subscription services for payment devices, focusing on payment volumes, cross-selling of financial services, and exploiting their significant market share in the UPI ecosystem. These strategies enable them to navigate the complexities of the fintech landscape and maintain profitability despite the zero-fee nature of UPI transactions.