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Digital payment poster boys like Unified Payments Interface (UPI), Immediate Payment Service (IMPS), National Electronic Toll Collections (NETC), and Bharat Bill Payment System (BBPS) reported a record plunge in volumes and values in April 2020.
Aadhaar Enabled Payment System (AePS) is the only channel that recorded an increase in transactions, driven by payouts from the government's relief fund to beneficiaries.
UPI, which has been continuously scaling over 1 billion monthly transactions, processed 99 crore transactions worth Rs. 1.5 lakh crore in April, according to NPCI data. It is a decline of 20.8% in transaction volume and 26.7% in transaction value, respectively, compared with payments processed in March 2020.
Similarly, IMPS saw the volume and value of payments plunge by a record 43.5% and 40.1%, respectively. Fastag's monthly collections in April fell by over 80% as against March. Even BBPS recorded a decline in payment volumes despite advisories by the government and regulators to customers to pay bills online.
The scale of the UPI transaction fall in 2020 was particularly striking given the trajectory the platform had been on. Monthly UPI volumes had been growing consistently for years, crossing the 1 billion mark for the first time in October 2019 and continuing upward through early 2020. April reversed that momentum sharply, and the reversal occurred across all NPCI-operated payment channels simultaneously. What the March numbers hinted at, the April numbers confirmed in full.
Essentials vs Non-essentials
While we always felt that people spent only on essentials like food, groceries, and health during a crisis, it is far from the truth.
According to Bobble AI, OTT platforms like Netflix, Amazon Prime, and Hotstar have seen a massive increase in their subscriptions and an 82.36% rise in time spent. It further adds that people have spent 71% more time on video conferencing apps like Hangouts, Google Duo, House Party, and Zoom, with a 104% increase in active user count.
Fitness applications like Lose Weight at Home, Cure.fit, and Home Workout have seen a 39.50% increase in time spent, a 14.72% increase in engagement rate, and a 104% increase in daily active users.
E-learning services like Udemy, Unacademy, and Byjus achieved an 83% increase in time spent, a 122% increase in engagement, and a 25% increase in daily active users.
Social media apps like Instagram, Facebook, WhatsApp, and Twitter saw a 46% hike in time spent, a 49% increase in engagement, and a 30% increase in daily active users.
Look at where people are spending their time, and none of it can be categorized as essential. It is mainly entertainment, education, fitness, and information. These will have to be added to the essentials of food, groceries, and health purchases when we look at economic activity and, in turn, the decline in digital payments during the COVID lockdown.
India's internet consumption has risen by 13% since the lockdown. There was massive demand for cloud productivity applications, cloud software, high-end headsets, and ergonomic furniture as part of the much-sought-after work-from-home infrastructure.
All of these needs will have to be brought under essentials and termed as the new essentials. The Indian digital payments lockdown period is throwing up several new opportunities and novel ways of looking at work itself. The digital financial ecosystem should tap into these for its revival and growth. Payment providers who recognize the new essentials early and build acceptance and checkout experiences around them will be better positioned to capture the recovery than those waiting for the old categories to return.
AePS government relief payments were a standout. For many beneficiaries in rural and semi-urban areas, AePS was the only available channel for accessing government relief funds, as banks' presence is very limited. The increase in AePS transaction volume was driven entirely by withdrawals, as beneficiaries converted transferred funds into cash.
It was a reminder that digital payment infrastructure serves multiple functions, not just merchant payments. Also, the last-mile delivery of government benefits to populations that the traditional banking infrastructure does not always reach.
Razorpay's digital transactions report indicates that transactions in logistics have dropped by 96%, travel by 87%, food and beverage by 68%, and groceries by 54%.
Spending in tourism, fashion, entertainment, and hospitality has been nil, compounding woes in digital transactions and the overall economy.
There were no avenues for instant gratification or impulse purchases, as most of those avenues were under lockdown. With the tendency towards avoiding discretionary spending, it would take a couple of quarters before things return to normal, with non-essentials starting to drive the economy and digital transactions.
The drop in NPCI transaction volume in April 2020 was a stress test that the digital payment ecosystem had not previously faced at this scale. Despite the volume swings, including the sharp decline across most channels and the surge in AePS, the underlying payment systems processed what they needed to process without systemic failure. That was a meaningful demonstration of the resilience built into the ecosystem over the preceding years.
Writing in May 2020, the author had the newest April transaction data, and the recovery outlook was uncertain. The lockdown was still in effect, and nobody could say with confidence when discretionary spending would return.
The recovery was faster. UPI volumes bounced back in the second half of 2020 and continued to grow through 2021 and beyond. It surpassed levels that made the April 2020 dip look like a brief pause.
First-time users who did digital payments during the lockdown largely stayed. The new essential categories that emerged during the crisis, OTT, e-learning, fitness, and cloud services, retained much of their digital payment volume as consumer behavior shifted permanently.
The April 2020 data remains a useful reference point for understanding both the concentration risks in India's digital payment ecosystem and how the infrastructure performed under conditions it had never previously encountered. The ecosystem that emerged was larger, more broadly adopted, and pointed toward a different set of categories than the one that entered the lockdown.
