UPI and Its Underlying Challenges in Tier 2 & 3 Cities

UPI growth and challenges going forward

Numbers Says It All, But?

UPI since its inception has grown tremendously and has clocked a record transaction of 452 crore which amounts to around 8.27 lac crore in value till Feb 28, as per Ministry of Electronics & IT said.

Also, it is interesting to know that, in the time span of the last four overall digital payment transaction has grown from 3,134 crores in FY 2018–19 to 5,554 crore in FY 2020–21. During the current financial year till 28th February, the total number of 7422 crore digital transactions have been recorded.

Reason for UPI Surge :

So what triggered this surge in digital payment,

  1. Covid Pandemic:
  2. Widespread internet penetration
  3. UPI payment infra and ease of payment using QR code
  4. Govt reforms and RBI thrust towards safe and secure transactions

What Are The Key Challenges?

I feel there are a lot of real-world challenges especially when it. comes to tier2, tier 3 cities, and remote areas. People in these cities still prefer to do transactions in cash and you will not find UPI QR codes on every merchant or vendor shop in these small cities and towns, the reason being

  1. Poor internet quality: leads to payment mess sometimes where money gets deducted from user side but merchants are yet to get the payment confirmation, so don’t hand over the goods to the consumers. This inconvenience discourages first-time consumers from adopting digital payments, especially for micro-payments.

2. Lack of awareness about payment systems : Merchants, especially smaller ones, are wary of giving away goods and not receiving payments the next day, despite an SMS or paper slip confirming payment approval.

This stems from two causes:

  • A lack of awareness around how digital payments work and what each electronic confirmation means.
  • Cumbersome and time-consuming dispute management processes

This loophole leads to a dispute. For a small merchant who has limited time to chase disputes, this further reduces their trust in digital payments and moves them towards cash.

3. Security hacks Concerns : Looms large into the mind of small merchants and users from this small city and town. India comes second only after the US in hacking incidents and attempts. Though there is been no large security breach reported against UPI payment, still lack awareness around best security best practices while doing digital payment is an issue that needs to be tackled through massive awareness.

Food For Thought: #ChandrayanLogy

I feel these challenges can be easily tackled through a collective effort of fintech, BFSI’s and Govt where we all have to come together to launch a massive awareness campaign around digital finance to educate one and all and teach them the fundamentals of payments transactions and security measure which one need to take.

“Trust is the single most factor which drives user’s financial decision to buy and sell anything and that can only come once fintech’s and BFSI are working as a guide to them helping them to be educated and well informed around the financial instruments. “



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