COVID-19 second wave takes a toll on digital payments; UPI, IMPS transactions fall sharply between April and May

Digital payment transactions have fallen sharply between April and May after sustaining a rising trend till March, hit by the second wave of COVID-19 pandemic, according to the National Payments Corporation of India (NPCI) data.

The fall is most visible in Immediate Payment Service (IMPS) and Unified Payments Interface (UPI) payments. Between April and May 2021, the volume of transactions over the IMPS dropped 13.4 percent while that of UPI fell 4.21 percent.

Digital payments have been growing till March but the trend has reversed now as people are cutting down spends on account of tough economic environment and are spending only for essential needs.

In fact, the UPI payments had recorded a fall even in April over the previous month’s levels. Up to January 2021, the UPI payments had been seeing steady growth on a month-on-month basis.

In the case of IMPS too, the transactions grew every month between April and December 2020. The data suggests that the impact on spends this year has been more severe compared with the corresponding period last year, when a national lockdown was imposed in the last week of March.

UPI and IMPS are both instant money transfer services operated by the NPCI. While fresh data for April and May 2021 was not available for the Reserve Bank of India-operated Real-Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) or card-based transactions, industry officials said these channels too have seen a decline in usage. Data for these modes of payments is typically released by the central bank with a two-month lag.

Last year, all digital payments channels had seen growth between April and May, with credit card spends jumping 34 percent and IMPS payments up 36 percent. RTGS, which is primarily used by businesses for making bulk money transfers, surged as much as 66 percent in May 2020 over April 2020 with the slow resumption of economic activity in that month.

Recently, the RBI had made the RTGS and NEFT transactions round the clock.

What is hurting digital payments?

Local restrictions on movement, loss of business and surging medical expenses because of COVID infections have all had a role to play in the drop in spending, industry officials said.

According to them, there is a clear impact on the money migrants residing in cities and larger towns are sending home.

"Remittances this month dipped by 30 percent, indicating lesser funds in the hands of people to send to their family and hence lesser funds for consumption,” said said Anand Kumar Bajaj, founder of PayNearby.
“On the other hand, microATM services grew on the back of the PM Kisan subsidy programme of the government," Bajaj said.

MicroATMs are used for making cash withdrawals in far-flung areas.
Mandar Agashe, founder, MD and vice chairman, Sarvatra Technologies, said that the second wave has led to lockdowns of varying degrees all across the country, which has led to a fall in commerce across almost every industry, but especially in travel, restaurants and malls.

“The fall in economic activity has also reflected in digital payments, showcasing that that there has been a significant paradigm shift to digital payments, even as the demand for cash circulation increased,” Agashe said.

Spending may pick up

As cases fall and people get vaccinated, lockdowns are getting relaxed in all parts of the country and that should lead to a surge in consumption once again, Agashe added.

“Consumption has been postponed but not cancelled by people, and it is likely that purchases like clothes, furniture, décor and elective surgeries will see a spurt,” Agashe said. “Additionally, work from home essentials like electronic devices and mobile phones too will witness an uptake,” Agashe said.

Recently, the RBI had said that the fall in consumption could be temporary.

“Aggregate demand conditions, particularly in contact-intensive services, are likely to see a temporary dip, depending on how the COVID situation unfolds,” RBI governor Shaktikanta Das said on May 5 while announcing relief measures in view of the second wave.

“With restrictions and containment measures being localised and targeted, businesses and households are learning to adapt. Consequently, the dent to aggregate demand is expected to be moderate in comparison to a year ago,” Das said.