UPI adoption and usage patterns by small merchants: a study

Abstract

The use of Unified Payment Interface (UPI), a payment system developed by National Payment Corporation of India, has grown markedly in the last few years,  garnering widespread attention for promoting financial inclusion into the digital economy across industries and income strata. This paper investigates the chief drivers of UPI adoption amongst small scale merchants through a survey of local grocers and street vendors in a suburb of Mumbai. Responses showed that merchants had no significant preference between cash and UPI. Instead, the primary reason for using UPI was to convenience the customer. UPI adoption was led by payers instead of merchants on this scale. The survey was hence extended to lower and higher income payers in the region. Customer usage of UPI was found to depend on context of transaction. UPI was preferred in situations where the payment mode was physical, due to a behaviour that initially arose during COVID. UPI was also more preferred for smaller transactions than larger transactions. Patterns of usage unique to lower-income users included lending of money between friends and family and to send money back to home villages. Payment service providers can expand UPI amongst the rural and lower-income demographic by highlighting the convenience for villagers to receive remittances from family members working in cities and to lend money quickly. For quicker adoption, UPI marketing to merchants should focus on its importance and necessity for merchants who want to stay competitive in an evolving payment ecosystem rather than marketing zero Merchant Discount Rate.