September 2021

BEAT OF
PROGRESS

pulse.phonepe.com
Table of contents:
Chapter 1: Introduction: The digital payments
landscape in India

Chapter 2: The PhonePe journey

Chapter 3: Digital payment use cases: From

spends to investments

Chapter 4: Geographic trends: Opportunities

for depth and growth

Chapter 5: Enabling trust and enhancing the

safety of digital payments

Chapter 6: The path ahead for digital payments

Disclaimer: This content is solely for informational purposes and is based on PhonePe's internal data. All trademarks
contained herein are the property of their respective owner(s).
 2

The story of how digital

payments took off in India

It’s Monday morning and Amit, who Amit owns a kirana shop and the first
lives in Meerut is getting ready to day of the week is always busy for him.
start his week.

On the way to his shop, he stops at his Rather than fumbling for change, he just
favorite tea stall and starts sipping his scans the displayed QR code and pays
morning cuppa. the tea vendor.

Reminder
Electricity
bill due

Pay Now

Welcome to a day
in the life of India!
While sipping his tea, he gets a reminder
notification that his electricity bill is due.
He clicks on the notification and pays his
bill in just a few taps.

BEAT OF PROGRESS
Chapter 1
The digital payments
landscape in India
 4

The consumer story:

How UPI is replacing cash from
Kashmir to Kanyakumari
India has traditionally been a country that seamlessly. That’s how the Unified Payments
prefers cash. This preference stems from its Interface (UPI) was born2. UPI was envisaged
ease of use, universal availability and and launched under the umbrella of India
acceptance. Over the years, multiple attempts Stack3 - a suite of Application Programming
were made to reduce the prevalence of cash Interfaces (APIs) allowing governments,
in the country. However, it was only in 2016 businesses, startups and developers to utilise
that a confluence of factors finally led digital a unique digital infrastructure to work towards
payments to take off. presence-less, paperless, and cashless
service delivery. Aadhaar, eKYC, eSign, UPI,
Let’s discuss these in detail. DigiLocker are now all part of India Stack, each
having been introduced progressively over the
Smartphone penetration and the availability of years.
high speed data were the first big enablers of
this change, and their ubiquitous adoption UPI was solely created to solve the need for
across the country was a necessary condition interoperability between banks, but it has
for the rapid acceptance of digital payments. unleashed a payments revolution as it
The government then created via it’s Jan Dhan addresses the 5 C’s which underpin the vision
program, the largest bank account enrollment for digital payments in India4; Coverage,
program of its kind, which itself rode on the Convenience, Confidence, Cost and
rails enabled by ‘Aadhaar’ - the world’s Convergence.
biggest exercise in giving citizens an
irrefutable proof of identity. This exercise
leapfrogged India from a previously
underbanked country with poor bank account
per citizen penetration to over 80%
penetration for the eligible citizenry.
Furthermore, demonetization gave a huge
impetus with a rapid introduction to the
benefits of digital payments to most Indians.

While India’s diverse requirements

necessitated the creation of various payment
systems - EFT, NEFT, NACH, RTGS, IMPS and
more, the biggest problem was
interoperability. These systems didn’t talk to
each other. India’s payment rails needed to be
united by a system that enabled all
ecosystem entities to talk to each other

1
https://scroll.in/article/923798/over-80-now-indians-have-bank-accounts-how-many-are-actually-using-them
2
https://medium.com/wharton-fintech/your-guide-to-upi-the-worlds-most-advanced-payments-system-b4e0b372bf0b
3
https://www.indiastack.org/about/
4
https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/VISION20181A8972F5582F4B2B8B46C5B669CE396A.PDF

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 5

Another key factor in the rapid adoption of UPI has been the role played by
private players, who have been at the forefront by investing in two key areas:

Launching user friendly payment products:

Payment apps are used by a wide demographic, covering both ‘India’ and ‘Bharat’. Keeping this
in mind, digital payment apps have made significant investments in designing intuitive user
interfaces, while keeping the onboarding flows really simple. For example, first time users on
PhonePe just need to download the app, which then sends a text message to verify credentials via
their registered bank. A UPI ID gets created in seconds, allowing them to send money or pay at
their favourite kirana store. This low friction in onboarding has helped attract users from across
the country.

Investments in consumer marketing to

drive awareness:
India’s fintech ecosystem today has ambitions of a big consumer play. This has led to the invest-
ment of hundreds of crores in marketing dollars to create deeper awareness on the benefits,
safety and ubiquity of digital payments. PhonePe’s campaigns were run with the aim of expanding
PhonePe’s user base to 50+ Cr. by December ’22. Other leading digital payments players have also
made significant investments in creating awareness and driving user adoption.

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 6

The merchant story:

How QR codes have revolutionised
payments across small kiranas and
large stores
In the last five years, from small kiranas to These included:
large department stores, there has been a Customer preference for cash
rapid acceptance of digital payments aided by High set up and running costs
both pull (consumer adoption) and push (ease
Infrastructural bottlenecks
of use, low friction to set up, quick
Lack of guidance on getting started
settlements).
Fear of fraud and lack of trust
As per industry estimates5, India has over Demand from suppliers for cash
5.9 Cr. merchants. Multiple dipstick surveys6
have mentioned the barriers that needed to be Let’s take a deeper look at them.
overcome to get wide ranging adoption for
digital payments.

5
https://economictimes.indiatimes.com/industry/banking/fnance/banking/mastercard-study-shows-young- merchants-likely-to-adopt-electronic-payments/
articleshow/51812933.cms?from=mdr
6
https://www.centerforfinancialinclusion.org/the-digital-payments-push-what-50-micro-merchants-in-india-are-saying

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 7

Customers prefer cash

A Reserve Bank report7 published in 2019 explained that
traditionally, consumers in India have preferred cash because
of its ease of use, availability and acceptance. While the
pandemic has driven this downwards because of the need for
contactless exchange of money, the RBI report points out
India still has a lot of room for growth with respect to the
frequency of mobile payments usage per capita.

High set up and

running costs
Micro merchants typically have smaller transaction
values, about ₹200 or even lesser per transaction,
while operating with wafer thin margins. The costs
of accepting payments digitally and paying a fee
was often not palatable for them.

Infrastructural
bottlenecks
A Center for Financial Inclusion study8 showed unreliable
power supply, poor internet connections and lack of investment
in technological infrastructure as big barriers to adoption. Any
desire to provide a digital payment option would often face a
further roadblock via local banks being unable to provide Point
Of Sale (POS) machines.

7
https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CDDP03062019634B0EEF3F7144C3B65360B280E420AC.PDF
8
https://www.centerforfinancialinclusion.org/the-digital-payments-push-what-50-micro-merchants-in-india-are-saying

BEAT OF PROGRESS
 8

Lack of guidance
on getting started
Especially true in tier 3 cities and beyond,
merchants often lacked access to information
on how digital payments worked.

Fear of fraud
and lack of trust
Fear of fraud from employees handling POS
systems was often cited as a reason for
non-adoption of digital payments.

Demand from
suppliers for cash
Suppliers demanding cash can cause a cascading effect with
merchants also asking for cash payments from customers. As
per several dipstick surveys8, 78% of merchants were found to
pay suppliers either via cash or cheque.

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 9

How QR code adoption

made payments seamless
and easy
A confluence of factors came together to help Once both consumer and merchant adoption
solve all the above problems in one go. were solved as described above, the growth
in UPI numbers have been truly
These included: phenomenal:
Increase in smartphone penetration across 324+ Cr.9 transactions in July '21,
the country making UPI the fastest payment rails in the
The roll out of the 4G network world to hit such volumes.
An explosion in the growth of data usage July ’21 ending with ₹6,06,281+ Cr.9
being transacted on the UPI platform.
This finally paved the way for interoperable
QR codes riding on top of UPI, which made
digital payment acceptance attractive for In the next section, we examine the
merchants, as they could now accept PhonePe journey and our role in enabling
payments from customers, and pay suppliers digital payments for crores of Indians.
with little to no friction. This has also largely
come about due to the huge investments and
efforts of digital payment startups, in
educating and enabling merchants to set up
interoperable QR codes across the country.

Demonetization, and more recently the

pandemic, have only accelerated this
phenomenon by driving customer preference
towards safe and contactless payments
over cash.

500.00

9
https://www.npci.org.in/what-we-do/upi/upi-ecosystem-statistics

BEAT OF PROGRESS
Chapter 2

The PhonePe
journey
 11

PhonePe was started in 2015, to solve Over

2240+ Cr.
payments at scale and enable digital inclusion
for over 100 Cr. Indians. Built on the path
breaking interoperable payments stack that
was UPI, PhonePe’s vision was to build a (22.4 billion) transactions
highly scalable, extensible and open
ecosystem, pushing the boundaries of what
till date
technology can do for the market. In just 5

31.4+ Cr.
years since the app was launched, per recent
NPCI data, PhonePe has emerged as the
largest UPI-based digital payments player
enabling multiple use cases; from UPI
payments and mobile recharges to money
(314 million) registered
transfers, online bill payments, investments users till date
and insurance. Today, more than 1 in 510
Indians are on PhonePe.
Coverage across

PhonePe’s 19,098
current metrics: pin codes

Leading digital
payments in India 46%
UPI market share
(As per NPCI data)

Annualized total
payment volume of

$465+ Bn

10
Taking PhonePe's registered user base as over 300 million, and the population of India as 1.38 billion, per World Bank data

BEAT OF PROGRESS
 12

A look at our customer adoption numbers shows how we have truly democratised the adoption of
digital payments in the country.

PhonePe has seen digital transactions from over 19,098 pin codes, constituting more than 99%
of the country. We have 13.3 Cr. monthly active users as on July’21, and nearly 80% of our
transactions come from tier 2, tier 3, tier 4 cities and beyond.

PhonePe Registered Users Trend

30 Cr. 300 M
Registered users (in Crores & Millions)

20 Cr. 200 M

10 Cr. 100 M

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 13

PhonePe Pulse:
Connecting the dots with data, insights,
trends and user stories
When PhonePe came into inception five years country. We want Pulse to be the go to
back, we were constantly looking for definitive destination for every ecosystem participant;
data sources on digital payments in India. the regulators, the media, the analysts, as well
Some of the questions that we were seeking as students keen on learning more about the
answers to were - How are consumers truly digital payments space.
using digital payments? What are the top use
cases? Are kiranas across Tier 2 and 3 cities In the next few chapters, we discuss use cases
getting a facelift with the penetration of QR for digital payments in the country. We also
codes? deep dive into geographic trends and the
penetration of UPI and examine how Fintech
This year, as we became India’s largest digital players are combating fraud and building trust
payments platform with 46% UPI market in the ecosystem. Finally, we look at the path
share and the largest transacting user and ahead and share some recommendations to
merchant base in the country, we decided to take digital payments to 50 Cr. Indians.
demystify the what, why and how of digital
payments. We hope you find this attempt at organizing
all the data useful and easy to consume. For
Pulse is our way of giving back to the more information & insights, do visit the Pulse
ecosystem by creating ONE central source for website.
information on digital payments in the

BEAT OF PROGRESS
 14

Have you visited the

Pulse website?
Visit pulse.phonepe.com

Find out how India is transacting at a

district level

Read interesting merchant and

Get the latest PhonePe metrics consumer stories and insights

BEAT OF PROGRESS
Chapter 3

Use cases for digital

payments
 16

Amrith, a 28 year old from Mumbai routinely

invests ₹3000 every month in mutual funds on
PhonePe. She got into the habit of investing
regularly, having read information on the
benefits of setting up a monthly Systematic
Investment Plan (SIP).

John from Tamil Nadu, buys 1 gram of 24 karat

gold every quarter, from the comfort of his home.
Three clicks and thirty seconds is all it takes him
to complete the transaction, and he gets his gold
home delivered.

In this section, we examine trends on how

payment apps are increasingly being
trusted to power diverse use cases. We look
at this by analysing customer adoption and
preferences across different categories on
PhonePe. These include peer-to-peer
payments (sending money to a
contact/number), mobile recharges and bill
payments, offline merchant payments
through a QR code, online merchant
payments and finally, financial services.

BEAT OF PROGRESS
 17

Peer to Peer (P2P) payments -

the initial reason to download UPI apps
The P2P category, or money transfers, has been
fuelling the rapid adoption of UPI across the
country. A P2P payment is one where the user
sends money to another user, through UPI. Over
60% of first time transactions on the PhonePe app
are P2P payments, confirming that the category
acts as the initial reason for customers to
download a UPI based app. To share a sense of the
scale of growth, PhonePe registered 182% growth
in P2P transactions and 72% growth in P2P
customers from Q2 ’20 (Apr-Jun ‘20) to Q2 ’21.

The graph below shows the month-over-month

growth in P2P transactions, for FY 21:

PhonePe P2P Transaction Volumes

60 Cr.
54.6
Number of P2P transactions

45.4 44.7
40.6 41.7 42.7
40 Cr.
33.7
28.4 29.6
24.4
21.2 22
16.8
20 Cr.

0 Cr.
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
20 20 20 20 20 20 20 20 20 20 21 21 21

Month

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 18

This category continues to grow rapidly, not just in the number of customers and transactions,
but also in the value of money being transferred. PhonePe saw growth of 182% in P2P TPV
(total payment value) year on year between Q2 ’20 (Apr-Jun ‘20) to Q2 ’21.

Did you know?

5 states - Andhra Pradesh, Karnataka,
Maharashtra, Telangana, and Rajasthan
contribute to nearly 58% of P2P
transactions.

BEAT OF PROGRESS
 19

Recharges & Bill Payments:

Growth through the pandemic
The chart below shows how prepaid mobile recharges and bill payments, both popular use cases
for digital payments, trended through 2020 and 2021.

Recharge & Bill Payments Transactions on Phonepe

20 Cr. 19.6
# of recharge + bill payment transactions

17 Cr.
17.1
16.6
16 Cr. 16 15.7 16.4
15.4 15.6
14.6

14 Cr. 14.4 14.6

13.1 13.5

12 Cr.

10 Cr.
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
20 20 20 20 20 20 20 20 20 20 21 21 21

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 20

Prepaid mobile recharge transactions began 100% online coverage for all 73 electricity
showing a significant upward trend in Mar ‘21, boards (both public and private sector) in the
and this trend continued into Q2 of 2021. country.
Compared to transactions in Q2 ‘20, the
number of recharge transactions in Q2 ‘21 Next, let’s examine DTH recharges. Consumer
grew by 51%. The growth was driven by a shift behavior for this category is strongly
in customer behaviour. Since stores offering influenced by events. For example, DTH
mobile top-ups were shut due to state level recharges in Apr ‘21 and May ‘21 grew
lockdowns, more users traditionally significantly compared to Q1 (Jan-Mar) in
recharging offline moved to online recharges. 2021, due to the Twenty20 cricket events held
Also, a large number of users were not only in Apr ‘21 as well as the state-wide lockdowns
recharging for themselves, but also for their in May ‘21. TV became the primary source of
friends and family. This is indicated in the entertainment for consumers, making DTH
growth of unique phone numbers recharged recharges a must.
per customer, which increased by 10-20% in
these periods. The trends in Q2 ‘21 are similar FASTag recharges are another important use
to those we observed in Apr ‘20 and May ‘20, case for digital payments. FASTag being made
during the first wave of the pandemic and mandatory for cars travelling on national
nationwide lockdowns. highways, concerted awareness campaigns
by the government and private players, and
Let’s next look at Bill payments and examine consumer preference for a truly convenient
how it has fared through 2020 and 2021. With and cashless solution, have led to an
safety being a primary concern, more and explosive growth for this category. The
more users chose to pay their bills online, number of FASTag recharges on PhonePe in
with timely reminder notifications also Q2 ‘21 (Apr-Jun ‘21) were over 15 times the
influencing customer behavior. As a result, bill number in Q2 ‘20.
payment transactions grew by 85% from Q2
’20 (Apr-Jun ‘20) to Q2 ’21.

Electricity bill payments have emerged as

the largest category within bill payments,
showing strong growth across billers. A key
factor contributing to this growth has been the

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 21

Merchant payments
Payments made to merchants have grown significantly month-on-month, post the first wave of
the pandemic, as shown in the graph below. Merchant payments consist of two categories,
payments made at offline stores and online payments.

PhonePe Merchant Transaction Trends

60 Cr.
Merchant transactions

40 Cr.

20 Cr.

45.8
35.5

43.5

57.2
27.3

37.2
16.4
16.2

18.7

21.2
7.9

40
12

0 Cr.
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
20 20 20 20 20 20 20 20 20 20 21 21 21

Payments at offline stores

Offline merchants are the brick and mortar offline outlets did not show a significant
outlets, where a customer can typically pay change, and therefore, the dip is largely due to
by scanning a QR code (eg. petrol bunks, stores being shut. In fact, in June ‘21 offline
restaurants, grocery stores etc.). payments have begun recovering, and are
again on a strong growth path post the
Post the first nationwide lockdown in unlocking of the economy.
April-May 2020, this category grew steadily
month-on month, until March 2021. As the
nation unlocked from May 2020, growth in
this category was enabled by two main
factors - consumers preferring contactless QR
payments over cash for safety reasons, as
well as sustained efforts by PhonePe in
increasing the acceptance of digital payments
at offline stores.

While this category saw a dip in transactions

in Apr 2021 and May 2021, due to a series of
statewide lockdowns, our analysis indicates
that the number of customers transacting at

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 22

Online payments -
Trends to watch out for
Turning our attention to online payments, the pandemic hit, initially transaction volumes
some interesting trends emerge if we compare dropped to less than one-third of the previous
the data between 2020 and 2021. Online numbers, since safety and accessibility were
payments are defined as payments made to big concerns for consumers. However,
merchants with whom TPAPs (third party through the second half of 2020, most
application providers, like PhonePe) and players in these segments invested heavily in
payment gateway companies are integrated safety measures, and expanded their services
as a payment method on their app/site to include all consumer essentials. Cut to Q2
(eg. online food delivery companies, ‘21, through the second wave of the pandemic,
e-commerce companies, etc.) transactions in these two categories grew
month-on-month.
The past year has been a year of spectacular
growth for online payments, with the Another important use case which drives a
transactions in Q2 ’21 (Apr-Jun ‘21) showing high volume of online transactions is Gaming
almost 2.5x growth over Q2 ’20. To & Entertainment. Cricket events are big
understand this category better, let’s go contributors to the surge in transactions for
deeper into some of the use cases. this segment. This trend was visible in Apr ‘21
during the last Twenty20 cricket season,
Online food delivery and online shopping are when transactions increased by over 70%,
two of the biggest use cases for online compared to Mar ‘21.
payments and they both showed a similar
usage pattern through the pandemic. When

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 23

Financial services -
Penetration across India, with
huge room for growth
We next deep dive into financial services on are making insurance and investment
the PhonePe platform, which includes gold, products more accessible to users across the
insurance and mutual funds. Financial country.
Services have seen rapid traction across Tier
2, Tier 3 cities and beyond on PhonePe, with Furthermore, the average transaction values
many first time investors and insurance since the launch of these categories (spanning
buyers. insurance, investments and gold purchases)
have almost doubled across the board. This
Interestingly, PhonePe’s insurance offering is indicates increasing customer awareness as
largely purchased (close to two-thirds) from well as confidence, in purchasing these
customers in Tier 3 cities and beyond. traditionally ‘push’ only products over a digital
medium. This confidence is also translating
The PhonePe platform has also seen gold into customers purchasing more
purchases from over 99% pin codes and comprehensive plans for insurance, and at the
mutual fund investments from over 95% pin same time, setting aside an amount to invest
codes in the country. These statistics are a and grow their wealth.
clear indicator of how digital payment apps
IN
S
U
R
A
N
C
E

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 24

Gold remains a popular

investment across India
India’s love for gold is well known. Indians not only invest in gold as a long term investment, but also
consider it an auspicious totem to welcome new beginnings. Our data shows that a major driver of
gold purchases are festivals. As indicated in the graph below, we can see spikes around Akshaya
Tritiya (Apr’20) as well as around Diwali (Nov’20) in the value of gold purchased on the platform.
Another strong driving factor for gold purchases are sharp changes in price, seen in Aug 2020, Feb
2021, and March 2021.

Value of Gold Purchased on PhonePe month-on-month,

relative to Nov 2020

100%

75%

50%

25%

0%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
20 20 20 20 20 20 20 20 20 21 21 21

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 25

Interestingly, Kerala, while being the

state that buys the largest overall
volume of gold10 in India has not taken to
buying it online as yet. Maharashtra,
West Bengal, Uttar Pradesh, Andhra
Pradesh and Telangana are the top
states when it comes to buying gold on
PhonePe.

Top 10 states that buy gold on PhonePe

13%

10%
% Customers

8%

5%

3%
11% 10% 10% 8% 8% 8% 6% 6% 5% 5%

0%
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as
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a e ar Ra
ah es ta
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M W Ut dh dhy
A n a
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With rapid awareness, digitization and a recovering economy, we believe the trend of customers
investing in diversified assets will only continue to accelerate.

Let us next look at geographical trends and the penetration of digital payments across various
states in India.

11
As per an NSSO survey

BEAT OF PROGRESS
Chapter 4

Geographic trends:
Opportunities for
depth and growth
 27

Anita, a mom and busy executive in

Delhi, uses PhonePe to pay her bills
safely in a contactless manner.

While Kupamma, a cook in Dharwad

who works in multiple houses,
receives her salary and pays her
monthly rent using UPI.

Both find UPI easy and convenient to use - it serves their needs for a fast, convenient and safe
mode to exchange money digitally.

That’s the magic of what UPI has done for the country - it has democratized payments, cutting
across socio economic divides, gender, geography, education levels, income levels and more.

Before we dive in, let’s take a step back to remember how diverse our country11&12 really is:

28 states and 8 union territories

122 major languages and 234 identifiable mother tongues
More than 40 cities with a population of more than ten lakh, 396 cities with a population
between one to ten lakhs
19,100 unique pin codes in India
8,529 cities in total

Let’s now explore how digital payments have taken root in the country in the last few years.

12
https://knowindia.gov.in/states-uts/
13
https:data.gov.in/catalog/all-india-pincode-directory?fiters%5Bfield_catalog_reference%5D=85840&format=json&offset=0&limit=6&sort%5Bcreated%5D=desc

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 28

Digital payments have a wide

geographical spread
A whopping 80%+ of PhonePe’s monthly Monthly Active Users
active users (MAUs) are from Tier 2, Tier 3 - Geographical Split
cities and beyond. The same can be seen in
the graph on the right side.

Examining transactions across categories

such as peer-to-peer payments (P2P),
recharge & bill payments, online & offline
merchants, we see slight variations in trends
across city tiers. While the recharge & bill pay
and P2P categories are indexed slightly
higher in Tier 2 cities and beyond, the opposite
is true for the offline & online merchants Tier 1 18.1% Tier 2 15.9%
category, which is more indexed in Tier 1 cities. Tier 3 & beyond 65.9%

Tier Wise Distribution Of Transactions Across Categories

Merchants (Online & Offline) Recharge & Bill Payments Peer to Peer

100%

52% 45% 32%

75%

19%
50% 14%
11%

25%
36% 41% 49%

0%
Tier 1 cities Tier 2 cities Tier 3 cities
and beyond

Across locations, P2P transactions constitute a significant percentage of the total transactions, with
the share going up as one moves from Tier 1 to Tier 3 cities. Interestingly, P2P contributes to nearly
50% of transactions in Tier 3 cities and beyond.

While city tier wise trends are useful, looking at the pin code wise penetration lends an even
clearer picture of the spread of digital payments in the country. In the year 2020 and 2021, we saw
users and transactions from over 19,098 pin codes in the country, representing over 99% coverage
of the overall pincodes in India.

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 29

State wise penetration indicates

huge variance and room for growth
As per the Credit Suisse India Fintech Report Feb '21, there are over 60 crore smartphone users in
India, and over 50% of these users are using a digital payments platform. PhonePe has over 30 Cr.
registered users. A registered user is defined as someone who has downloaded the PhonePe app
and accepted the usage terms and conditions. PhonePe’s registered user base is strongly indicative
of the state wise penetration of digital payments in the country.

Looking at the number of registered users on PhonePe as a percentage of the population of the
state they come from, gives a clear idea of the user penetration each state has achieved.

LA 21% JK
10%
State wise PhonePe
HP
registered user penetration
PB 22%
19% UK
CHD 38% 25% SK
HR
35% 23%
55%
16%
UP AR
RJ
21% 12%
BR
AS 10% 9% NL
11% 6%
ML
11% 55%
JH MN
WB
GJ
MP
14% 8%
17% 16% MZ
23% CG 32%
15% TR
OR
19% 11%
DD 8% MH
29% 6%
TG
42%

GA 36% KA AP
34% 32% No. of PhonePe registered
User users in the state
=
PY 24% penetration
TN Population of the state
21%
KL 19%
AN
LD 8%
14%

The illustration above indicates that only 8 states and UTs have more than 33% population
registered on the PhonePe app, indicating significant head room for growth across the country.

For example, West Bengal, Uttar Pradesh and Bihar show up among the states where a majority of
citizens haven’t gravitated to paying digitally. While these three states make up 34% of India’s
population, they only constitute 22% of the total registered users on PhonePe across the country.

In contrast, the top 10 states & union territories have 40% registered users on PhonePe, while
accounting for just 24% of the population.

BEAT OF PROGRESS
 30

If we look at state wise distribution of digital transactions, the graph below shows Maharashtra,
Karnataka and Telangana contribute to more than 40% of the total number.

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16%

Karnataka

Maharashtra

Telangana

Andhra Pradesh

Rajasthan

Uttar Pradesh
State wise transactions distribution (Mar ‘21)

Madhya Pradesh

Delhi

Tamil Nadu

Bihar

West Bengal

Odisha

Gujarat

Haryana

Jharkhand

Kerala

Chhattisgarh

Punjab

Uttarakhand

Assam

Himachal Pradesh

Jammu & Kashmir

Goa

Chandigarh

Puducherry

BEAT OF PROGRESS
 31

What does the growth rate

by state look like?
PhonePe customers across India grew by than before.
50% between Mar’20 to Mar’21. Nagaland
saw the highest customer growth rate of 106% In an interesting trend, Mizoram, Assam and
while Delhi saw the lowest growth rate of Manipur from the North Eastern states were
37%. These numbers are also skewed by the the ones that saw over 100% growth in digital
small population size of Nagaland. transactions. Among them, Manipur registered
the highest transaction growth at 231%.
For the same time period from Mar’20 and
Mar’21, we saw a 159% growth in transactions Andaman & Nicobar followed by Jammu &
across India, with 13 of the 36 states and Kashmir were the two regions with the highest
union territories registering growth rates transaction growth rate at 408% and 365%
better than the all India average and 30 states respectively among all states & union
and union territories registering more than territories, albeit on much smaller Mar’20
100% growth. This higher growth rate of base numbers.
transactions, relative to the customer growth
rate of 56% shows that customers are now This is depicted in the graph below.
using digital payments more frequently

Transaction Growth by State

(Mar '20 - Mar '21)
500%

400%

300%

200%

100%

0%
Is
l ir oa ur ry sh a an ar nd tra nd nd na lhi sh ka na ha sh ar du am rat rh rh kh b l
sh sh ra im ya ep
r al g a am ja ga
ar shm G anip he ade Ker sth Bih kha ash kha ala nga De ade ata rya dis ade Na l Na Ass uja isg diga ada zor un en ade ade ripu Sikk ala we
b a c r ja r r a g e r n a O r i G t t L i P B r r T h d
ico K u
M d aP Ra a a r N a
Te
l P
a Ka
r H &
r P ar Tam ha Cha
n M t P P eg ha
N &
Pu hy Jh ah tta hr tta ad es hal hal M Lak
& mu d M U d U Ch W c c
an D a na
m Jam
a An m
M Hi Aru
da
An

In the next section, we take a more detailed look at improving trust within the digital payments
ecosystem.

BEAT OF PROGRESS
Chapter 5

Enabling trust and

enhancing the safety
of digital payments
 33

Srilatha

Comfy Sofa ₹20,000

FOR SALE

Upload

Srilatha, a retired school teacher in

She posted photos on a re-selling app.
Hyderabad, wanted to sell her sofa.

John Doe

Scan QR Code
John Doe
Hello!
I saw the photo of the sofa, I would like to buy it!

Srilatha
Thank you for being interested in the sofa!

John Doe

QR code

I would like to make an advace payment of ₹10,000,

please scan this QR code & enter your UPI pin to
receive your payment.

Within minutes, she was contacted by a

Excited that the sofa was getting sold so
buyer who sent her a QR code, requesting
quickly, Srilatha quickly scanned the QR
her to scan and enter her UPI pin to receive
code via her payment app.
an advance ₹10,000

Transaction blocked
suspected fraudulent
transaction.

The payments platform had just

To her surprise, she saw a message that this saved her from being defrauded.
transaction was blocked due to a suspected
fraudulent transaction.

BEAT OF PROGRESS
 34

Many of us are now familiar with such In this chapter, we examine the fraud modus
anecdotes. The rise in digital payments has operandi and how the ecosystem participants
also led to an increase in fraudsters, taking can protect customers. We also look at what
advantage of gullible customers unfamiliar else needs to be done to boost trust in the
with or new to digital payments. digital payments ecosystem.

For the Indian payments ecosystem, there

needs to be a continuous effort around
making payments easy, trustworthy and safe
to bring the next wave of users into the digital
payments fold.

The Fraud Modus Operandi

Frauds in the digital payments ecosystem can be classified into 4 types - based on the
victim’s experience.

1. Victim shares information with the fraudster

Phishing - Fraudsters send fake emails/messages etc.

hoping users will part with personal information.

2. Victim’s critical information is stolen by the fraudster

Social Engineering - Fraudsters give incorrect details on

websites/apps, intercept calls/emails and steal the
customer’s personal information.

Card & OTP theft - Fraudsters get hold of a user’s OTP after first
stealing the credit or debit card details. Using the OTP they are
able to purchase items on the internet and get it delivered to their
address.

BEAT OF PROGRESS
 35

KYC fraud - Fraudsters send users messages about their KYC

expiring and try to get their personal details.

SIM theft - Fraudsters get users to share their 20 digit SIM card
number, which gives them access to confidential OTP messages.
They use this information to deactivate the victims’ SIM card and
defraud them.

3. Victim’s device is compromised by the fraudster

Screen sharing - Fraudsters get users to download a

screen sharing app to access personal information.

4. Victim pays the fraudster

Via fake cashback - Fraudsters lure customers with fake 100% CASHBACK
banner adverts on websites.

QR code to steal UPI PIN or UPI PIN request to receive money -

Fraudsters get users to share their UPI PIN in the context of
sending users money or get users to scan a QR code in the
context of depositing money in a user’s bank account.

Fake shopping offers - Fraudsters lure customers with

offers that look too good to be true and get them to click
on an offer and place an order.

BEAT OF PROGRESS
 36

Education, technology &

reporting: The three pillars
to protect customers
In order to protect customers from falling a victim to fraudsters, there needs to be a concerted
effort on three main fronts:

Consumer education around the common modus operandi adopted by fraudsters

Using technology to protect consumers seamlessly and continuously in the background
Instituting an easy mechanism to report frauds and get swift redressals so that consumer
confidence in the ecosystem remains high

Let’s examine each of these in detail:

Education -
the first line of defence
Digital payment companies realise how Additionally, the RBI, NPCI and payment apps
important it is to educate customers on safe have engaged in multiple
transactions. From running consumer marketing/awareness campaigns to educate
education blogs and communication through customers about the methods adopted by
emails and notifications, there is a constant fraudsters to defraud them and steps they
effort to nudge users to transact safely. need to take to safeguard themselves.

Beware of

SCAM

BEAT OF PROGRESS
 37

The Ministry of Home Affairs’s (MHA)

Technology - Financing Coordination Centre (FCORD)
the second line of defence developed CyberSafe, operational from
August 2019. It connects over 3,000 law
With fraudsters continuously evolving enforcement agencies (LEAs), including
and creating more sophisticated police stations, in 19 states/UTs with 18
methods to defraud victims, payment fintech organisations online and in real
companies need to strengthen their time. The mobile phone numbers of
defences, while continuing to keep the fraudsters are the key to CyberSafe.
end user experience seamless. There is a When a victim contacts the authorities,
constant trade off between tightening the information is entered into CyberSafe
fraud rules to weed out fraudsters while in real-time. The movement of funds is
keeping the user experience for the vast detected and communicated.
majority of users simple and intuitive.
Until now, this software has recorded
For example, payment apps have 65,000 phone frauds, with 55,000 phone
evolved a sophisticated set of fraud numbers and several thousand bank
prevention mechanisms which can be accounts of fraudsters identified. Soon,
classified as follows: NPCI will integrate with CyberSafe,
broadening the scope of real-time
cybercrime protection to the UPI domain ,
Fraud and business rules that thereby amplifying its success in crime
flag/block transactions matching prevention. CyberSafe runs a website
certain criteria https://cybersafe.gov.in, which provides
Multiple real time anomaly detection access only to law enforcement
machine learning based models using authorities and fintech entities.
historical user information, user and
device relationships, and real time The MHA also launched the India Cyber
signals to flag and block suspicious Crime Coordination Centre (I4C) that acts
transactions. as a nodal point in the fight against
Continuous studies around reported cybercrime. The objective of this body is
frauds, to upgrade detection methods to identify the research problems/needs
and detect new, evolving methods of of LEAs and take up R&D activities in
fraudster modus operandi. developing new technologies and forensic
tools in collaboration with academia /
While enabling checks and balances research institutes within India & abroad.
along with robust fraud prevention The body also suggests amendments, if
measures it is important to keep in mind required, in cyber laws to keep pace with
that customers should not face any fast changing technology.
inconvenience or delays.

The government too has consistently

taken steps to protect customers by
leveraging technology.

BEAT OF PROGRESS
 38

Fraud reporting & redressal - the on-line filing of complaints. It provides

features such as acknowledgement through
last line of defence SMS/Email notification(s), status tracking
through unique registration number, receipt of
By simplifying the process of reporting frauds
closure advises and filing of Appeals, where
and sharing data that bring fraudsters to
applicable. It also solicits voluntary feedback
justice, we can create an environment of
on the customer’s experience.
deterrence and reduce the number of
fraudsters working to find loopholes in the
CMS has self-help material (in video format) to
system. The other significant benefit is that it
guide the users of the portal; videos on safe
allows continuous feedback via high instances
banking practices; and on the regulatory
of ‘reported transactions’ which can then be
initiatives of RBI.
fed into the digital payment companies' fraud
fighting arsenal and block out new evolving
In summary, the above initiatives are critical to
modus operandi.
keep the trust in the ecosystem intact, and
continually enhance its reputation, enabling a
A “Complaint Management System (CMS)”
favourable comparison with all other methods
was launched by RBI in June 2019, designed
of exchanging money, especially cash.
to facilitate the RBI’s grievance redressal
processes. Members of the public can access
This is also imperative as the ecosystem
the CMS portal at RBI’s website to lodge their
players attempt to reach more users and
complaints against any of the entities
convince them to adopt digital payments.
regulated by RBI.

Keeping the convenience of the customers in

mind, CMS has been designed to enable

BEAT OF PROGRESS
Chapter 6

The path ahead for

digital payments
 40

The last few years have seen the accelerated adoption of digital payments across the country.
As per Credit Suisse India Fintech Report Feb '21, there are over 60 crore smartphone users in
India, and this number is set to grow rapidly. While less than 30% (based on PhonePe internal
estimates) of these users use a digital payments platform in a month, the scope for expansion is
still immense. With payment players also entering new categories such as financial services,
and enabling a whole host of new digital use cases for users, we believe digital transactions will
soon be the norm for every Indian to interact with money.

Enabling digital payments for 50 Cr. Indians

The next phase of growth and innovation in
digital payments will need the participation of
all stakeholders within the ecosystem. We
also believe that the current growth in the
payments industry can only be sustained and
accelerated, by a mix of infrastructural
investments, merchant acceptance, regulatory
changes and building trust in the ecosystem.

Let’s examine these in detail:

1. Sustained investment in 3. Solving for Bharat: The next phase of

infrastructure: Reliability, convenience growth for digital payments is being fuelled by
and speed are key drivers to enable the users from tier 2, tier 3 and beyond. TPAPs
adoption of digital payments in the country. will need to build specific payment products
The next phase of growth will need banks, that meet the needs of the next wave of
TPAPs, and other ecosystem players to Indians, being introduced to digital payments
continue investing heavily in technical for the first time. Solving for language
infrastructure. Lack of infrastructural localization, consumer education, simplified
investments would lead to more failed onboarding etc., will be key in driving user
transactions and a loss in consumer and adoption.
merchant confidence, thereby stalling digital
payments adoption. 4. Improving trust in the ecosystem:
A significant focus area of the ecosystem
2. Improving merchant acceptance: needs to be around improving consumer trust.
Merchant acceptance is as critical as This includes reducing fraudulent transactions
consumer adoption to ensure the success of and security breaches, as even a single bad
digital payments. TPAPs and payment experience can make a user hesitant to use
aggregators will need to work closely with the digital payments again. As detailed in Chapter
merchant ecosystem, and enable ubiquitous 5, this will need efforts on three fronts:
acceptance of digital payments across focussed consumer education on
multiple use cases. This would mean avoiding/reporting fraudulent exchanges,
designing and developing more building robust technical systems to prevent
merchant-focused products, along the fraudulent transactions, and providing
broader themes of digitization (for offline adequate redressal mechanisms to affected
merchants) and growth. consumers.

BEAT OF PROGRESS
 41

5. Regulation: Regulation plays a pivotal

role in ensuring that the benefits of digital
payments reach all the stakeholders. In
addition to the several positive steps taken by
the regulators, the following regulatory
changes will allow TPAPs, payment
aggregators and other ecosystem players to
innovate more, provide for a better consumer
and merchant experience, and increase the
reach of the digital payments:

Bringing back MDR on UPI transactions: The

Merchant Discount Rate (MDR), is a fee paid to
banks, payment aggregators and TPAPs for
rolling out the UPI infrastructure across
merchants. Currently, MDR, by regulation, is
zero, and therefore no revenue can be earned
by processing UPI transactions. This implies
reduced investments from banks, TPAPs and
other ecosystem players on multiple fronts -
the technical infrastructure needed to process
transactions, improving the acceptance of UPI
within the merchant network, as well as new
features/innovations to solve for customers.

Bringing back MDR will enable more Digital payments in India are at an inflection
infrastructural investments leading to better point and there is tremendous room for
transaction success rates and offering users a growth. At PhonePe we have always believed
superior digital payment experience. This will in harnessing the power of technology to
also serve as an incentive for TPAPs and transform lives, while building simple, scalable
payment aggregators to actively continue the and innovative products for every Indian. From
digitization effort across offline stores, kiranas deep investments in tech infrastructure
and to go deeper into rural areas. offering the best in terms of reliability and
scalability, to building India’s most
Simplifying KYC for digital wallets: Today, comprehensive financial services platform,
KYC norms are one of the core friction points and expanding the merchant acceptance
for the adoption of digital wallets. Per current network across tier 2, tier 3 and beyond,
regulation, permanent KYC for digital wallets PhonePe is committed to making digital
can only be done through the submission of payments for all Indians a reality. The path
physical documents or through an in-person ahead for digital payments is certainly
live Video KYC process. Permitting fully digital exciting, and we are looking forward to the
methods for permanent KYC (eg. eKYC using journey.
an Aadhaar OTP) will allow Wallet Issuers to
roll out the benefits of digital wallets to a
much larger audience, across multiple use
cases.

BEAT OF PROGRESS
Methodology
 43

Report Methodology
The foundation of Pulse was laid at the promise of making data on digital payments
beginning of our journey, when we were accessible to all. We started working on Pulse
struggling to find credible data sources towards the end of 2020, when transactions
representative of payments in India. We on our platform were seeing massive growth,
promised ourselves that once we had enough with customers and merchants across the
data on our platform, we would open it for country preferring to go cashless. Pulse was
anyone who wanted to get deeper insights on the culmination of months of research and
the payments industry and its evolution. As analysis by Business Analysts, Marketers,
we turned five this year and also emerged as Designers, Writers, Engineering and Business
India’s largest payments platform with 46% teams across PhonePe.
UPI market share, we decided to fulfil our

The insights and analysis in Pulse

have been drawn from three main
sources:
PhonePe transactions data: Data
mined from over 2240 Cr. PhonePe
transactions over 5 years, cut by region,
customer demographics, categories and
cohorts.

Merchant and customer interviews:

Stories from the heart of India! Qualitative
aspects through extensive customer and
merchant conversations on how they use
digital payments, and how it impacts their
lives.

External data sources: In-depth study

of other research reports, newspaper
articles, databases and publicly available
sources to get the broader context of
payments in India which laid the ground-
work for understanding the overall
payments ecosystem.

Do visit the Pulse website at http://pulse.phonepe.com for more.

BEAT OF PROGRESS
Glossary and Metric
Definitions
Glossary and Definitions :
Key terms used in the report
A sender’s bank account
API: An Application Programming Interface
defines interactions between multiple
software applications or mixed
E
EFT: Electronic Funds Transfer allows
hardware-software intermediaries, abstracting customers to send/receive money from one
away the need to know the specifics and account to another electronically over a
internal information of the applications in computerized network
question

Auto pay: A feature allowing customers to

enable a mandate based payment - that is,
G
Gold customers: The total number of
enable recurring payments with a one time registered users who made a successful
authentication (eg. for EMIs etc.) payment to buy gold on PhonePe

B I
Billpay: An action of paying a bill online, IMPS: Immediate Payment Service (IMPS) is
through the PhonePe app. In the PhonePe an instant interbank electronic fund transfer
context, the number of bill payment system that allows fund transfers from one
transactions would be the total number of account to another, in real time
successful utility bill payments (eg. Electricity,
internet, telephone bill payments etc.), net of
reversals, made on the PhonePe app. K
KYC/e-KYC: Know Your Customer especially
C in the financial services industry to ensure
that the financial institution confirms that the
CAGR: Compounded Annual Growth Rate, that customer is really who they claim to be.
is, the total growth % over a period, annualized Specifically 2 things need to be confirmed to
to a year complete the requisite “KYC” norms - Proof of
Address (do you live where you say you do)
Category: The broad need under which a and Proof of Identity (are you who you say
transaction occurs. For example, utility bill you are?)
payments, mobile recharges etc.

Customers: In the context of PhonePe data,

this means users that performed at least one
M
MAU: Monthly active users, that is, the count
transaction on the PhonePe app, within a of unique users who have opened the
specific period PhonePe app or initiated a PhonePe payment
outside of the PhonePe app, at least once in a
D month
Digital payments: Any monetary exchange Merchant transactions: The total number of
between a sender and a receiver where the successful payments made to merchants, net
money leaves the sender’s bank and arrives of reversals, made on the PhonePe app. The
directly to the receiver's bank account, merchant can be one that has a purely digital
executed via a digital instruction given to the presence (eg. an e-commerce website), or one

BEAT OF PROGRESS
that has a physical presence as well (eg. a Online transaction: A transaction occurring
supermarket). digitally and over the internet, such as paying
on an app or a website.

N
NACH: National Automated Clearing House is P
a centralised web-based payment solution P2P transactions: Peer to peer payments, or
that helps customers make bulk payments in the total number of successful money transfer
one go transactions, on the UPI framework, wherein
the sender transfers money to an existing
NEFT: National Electronic Funds Transfer is an phone contact, a phone number not stored as
electronic fund transfer system that facilitates a contact, or directly to a bank account
direct one-to-one payments across the number.
country, as long as the sender and receiver
are with banks that are participants of the
NEFT scheme. Payments are processed in Q
batches, and not in real time QR Code: A machine-readable code (called
Quick Response Code) consisting of an array
NPCI: An umbrella organisation for operating of black and white squares, typically used for
retail payments and settlement systems in storing URLs or other information, read by the
India, is an initiative of Reserve Bank of India camera on a smartphone. In the UPI context,
(RBI) and Indian Banks’ Association (IBA) this contains the merchant’s information,
under the provisions of the Payment and allowing an easy transfer of money to the
Settlement Systems Act, 2007, for creating a merchant’s bank account
robust Payment & Settlement Infrastructure in
India.
R
Recharges: In the context of this report, top up
O of talk time/buying data packs, by pre-paid
Offline merchants: Brick and mortar outlets mobile users
that PhonePe has on boarded as merchants,
either using QR codes or a collect call as the Registered Users: The number of unique
payment method (eg, petrol bunks, users who downloaded the PhonePe app, and
restaurants, grocery stores etc.) accepted the Terms and Conditions displayed
during the onboarding process, within a
Offline transaction: A transaction that occurs specific period. The user is identified by
digitally (without cash being exchanged), but his/her mobile phone number - each mobile
occurs where the sender and the receiver are phone number is treated as a separate/unique
typically face to face. Example: A payment user.
made at a kirana by customers using a UPI
app such as PhonePe. RTGS: Real Time Gross Settlement refers to
an electronic funds transfer system that
Online merchants: Merchants with whom allows for the instantaneous transfer of
PhonePe is integrated as a payment method money from one account to another on a
on their app/website (eg, Flipkart, Swiggy, etc.) real-time basis, without delays

BEAT OF PROGRESS
S
SIP: Systematic Investment Plans that allow
consumers to invest in a preset and periodic
format, typically into mutual funds, allowing
for rupee cost averaging.

T
Ticket Size or ATV (Average transaction
value): The average value in rupees of a
transaction, that is, the total value of
transactions divided by the total number of
transactions

TPV: Total Payment Value is the total

amount/value (in rupees) of transactions
processed in a given time period. In the
PhonePe context, total payment value is the
total value of successful payments processed
by PhonePe, net of payment reversals.

Transaction: A payment, wherein a sender

sends money to a receiver (can be a contact, a
phone number, a merchant etc). In the
PhonePe context, overall transactions are The
total number of sucessful payments
processed by PhonePe, net of payment
reversals.

TPAPs: TPAPs are Third Party Application

Providers, who are service providers
participating in the UPI via PSP banks. Eg.
PhonePe is a TPAP.

V
Value of gold purchased: The total value of
successful payments made to purchase gold
on the PhonePe app, net of reversals.

BEAT OF PROGRESS
pulse.phonepe.com