UPI vs Netbanking: Game of the throne đź‘‘
It was the year 2008. I was working for BankBazaar.com then. We were ruffling through the Alexa pages to find the top sites of the country. For the uninitiated, this is how we used to figure out the internet traffic trend in the country: find it here. The websites of the top banks such as HDFC Bank and ICICI Bank featured amongst the very top in the country then. It made sense for BankBazaar.com to partner with the Banks and grow the business by serving the customers who were landing in the Banks’ websites.
Fast forward to 2019, even today we could see HDFC & ICICI figure in the top 100 websites. But the story is only partially complete. The smartphone is the next big growth frontier for all of us. The trends in the mobile world are quite contrary to what is in the Desktop world! Have Banks been able to conquer the mobile world? What is the performance of Banks’ properties, especially their mobile banking apps? In particular, how is this affecting the payments landscape? This is the topic I wish to explore here.
The Good Old Days (were they really?!)
When we had just started Juspay in 2012, there were only 3 modes of payments: Credit Card, Debit Card and NetBanking. And unsurprisingly, NetBanking used to command 35% of the transaction share. Remember that I was using a feature phone at that time. My partner-in-crime at Juspay though had a smartphone, one of the earliest models!
The Big Push
Over the years, as though guided by some variation of Moore’s Law, digital payments in the country grew beyond anyone’s imagination. Our payment stories to the outside world changed every 18 months or so! We flowed in excitement from one story to another: Wallets, PayLater, UPI. Today, netBanking’s share of transactions has fallen to a historical low. It is teetering anywhere between 10% — 15%. I hear you asking, isn’t the market share of UPI also similar? Perhaps, but note that UPI is a new entrant with unstoppable growth. So, it is quite interesting to imagine how they are both going to trend from here.
Razorpay’s blog paints a more bleak picture for NetBanking transactions. They are seeing NetBanking and UPI market share at 12% and 34% respectively. That's a staggering difference in the market share! Read about it here: https://razorpay.com/blog/upi-20x-growth-april-2019/.
Acceptance woes:
Pay with NetBanking is fighting another battle on the acceptance front. E-commerce companies have begun to subtly and sometimes directly promote UPI all at the expense of NetBanking. Here is a map of the same: There is the growing tribe of apps that don’t support NetBanking (either fully or partially) as a payment method:
On one hand there is reducing acceptance, and on the other hand, there is no single force pushing NetBanking ahead in the market. It is my firm belief that NetBanking will continue to see further decline in the coming years and e-commerce companies will suppress these options until eventually a day when they will completely remove them. Allow me to explain with 5 reasons as to why I believe so:
#1 Bad UX, poor success rate
It takes about 50 touch inputs from the customer to complete a NetBanking transaction and average time taken to complete is 55 seconds. This is the most elaborate checkout method as of today. In comparison, a card transaction takes about 15 touch inputs from the customer and UPI takes about 6 touch inputs. This elaborate process causes significant dropouts and consequently, businesses see lower success rates compared to other popular modes of transaction. Our specific comparison here is cards & UPI.
Banks have repurposed their NetBanking interface for e-commerce payments. Even today, many banks haven’t optimised the experience for mobile form factor leading to poor UX on mobile, which has become the primary device for many Indians.
On average, NetBanking transactions register 10% lower success rate than cards & UPI.
#2 Bad economics; higher cost per transaction
NetBanking is the costliest debit method in the market now. Debit cards are capped at 0.9% and UPI is capped at 0.65%. Whereas, merchants pay anywhere between 1.2% to 2.0% for a NetBanking transaction. While the payment mode is different, all three of them NetBanking, Debit card, UPI ultimately debits the money from the bank account only. In other words, the underlying account remains the same for all three form factors.
This difference in pricing will have a trickle-down effect. Businesses will be seen promoting UPI subtly over NetBanking, as it makes economic sense to do so.
Note the Govt reimbursement of MDR for debit transactions less than 2000 rupees doesn’t extend to NetBanking transactions, only debit cards and UPI are covered. This creates even more of a disparity in the cost structure.
As I am writing this, there are talks in the corridors of Delhi and the RBI of further reduction of MDR charges for UPI and Debit cards!
#3 Stuck Payments; Lost refunds; Lack of Safety Net
Transactions timeout for various reasons during the payment process. In case of cards & UPI, the system enforces the Banks to respond with proper status under an SLA (sans extended outage). However, this is not the case with NetBanking. Every bank has its own way of providing status. Some banks ask to query after 15 minutes; some don’t provide such facility at all. The settlement file which arrives the next day becomes the ultimate source of truth. This leads to frustration for both businesses and consumers. The same scenario repeats in Refunds as well. Due to such delays, businesses like Myntra have resorted to processing refunds via IMPS.
While these are problems for businesses, the biggest problem for customers is the lack of safety net. In the cards & UPI world, a customer can raise a dispute on a transaction. There is a defined process, governed by an SLA to deal with the dispute. The disputes also flow through the networks (Visa / Mastercard) and they have defined the SLA that the Banks have agreed to.
However, none of this is available for a NetBanking transaction. The customer is at the mercy of the Bank to deal with the issue.
#4 Rise of UPI & further fall of Mobile Banking
With the rise of UPI, mobile banking adoption becomes a further challenge. As UPI apps are driving P2P more, the utility value of Mobile Banking apps come down further. Mobile Banking adoption has always been lukewarm. This is evident from the numbers clocked by the apps of popular banks. Banks are losing the plot while companies like Google, PhonePe & Paytm are scripting mega victories in user adoption.
Banks are hoping that the usage of UPI apps will reduce once UPI transaction charges are put in place. But I doubt if that will happen. Sure enough, some are gaming the system for attractive cashbacks. But I don’t believe that these numbers are huge. This was the window that UPI needed to grow and now there is no stopping this juggernaut.
It is easy for the banks to make UPI the scapegoat for their own shortcomings. HDFC Bank is the largest private bank in the country has struggled much with their Mobile Banking app strategy. They went through a painful phase while trying to transition to a new app. For a bank that has issued more than 2.7 crore debit cards, it has less than 10 lakh active users on its mobile banking app.
#5 The rise of millennials
This is my favourite! It is easy to stereotype a section people but it's a slippery slope, so I will tread with some caution. The next generation always seems to be impatient in the eyes of the previous generation. I was accused of the same by my parents. I still am! Guess, it is just the age factor! In my teens, I had to walk to the Bank to effect a fund transfer, typically by depositing cheque. Don’t ask me who trusted me with Cheques, somebody did back then and more people seem to trust me with nowadays! During my college days, I had to wait in the queue outside ATM for our turn to step into the air-conditioned (the saving grace, given the heat of Trichy!) facility to withdraw money.
My dad still goes to the Bank. I prefer going to the ATM for cash. I doubt if the next generation would fancy going to the ATMs too. Impatience just seems to be growing from generation to generation! The generation that grew up with smartphone will have different ideas of a smartphone. Anything that can be done with their smartphone, the millennials will do with their smartphone. The Banks won the Branch game and then the ATM game. However, they are not winning the smartphone game.
What do you think?
The impending evolution of Banks
While paying with NetBanking is inevitably hitting its expiry date, there is a silver lining. With technology evolving, we are seeing more power in the hands of the NBFCs (the growing number of new age lending companies is a testimony to this). We also have young & ambitious entrepreneurs like Sachin Bansal who want to take a stab at implementing a Bank in their own imagination. Everything that a Bank does will eventually be unbundled and Banks may look very different a few decades from now. I can’t wait to enter this future!
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