BHIM loses traction as private players lure customers with cashbacks

Experts say as merchants' pay picks up, BHIM will see more transactions from smaller cities

Touted as a game-changing app in driving digital transactions, BHIM, which stands for Bharat Interface for Money, was launched by Prime Minister Narendra Modi himself in late 2016 with much fanfare. Just three years down the line, the youngest Digital India tool seems to be losing out to competition as consumers prefer private sector payment platforms such as PhonePe, Google Pay and Paytm. This is largely because of the large-scale promotions and cashbacks being doled out by these companies.

For instance, in May this year, BHIM, which is managed by National Payments Corporation of India (NPCI), posted 15.7 million transactions as compared to Google Pay which recorded more than 240 million. During this year, Flipkart-owned PhonePe had 230 million transactions while Paytm posted 200 million, according to data available with NPCI. The data also showed BHIM's market share in total UPI transactions came down to around five per cent by the end of last financial year.

"BHIM app in a way has acted as the starter app for the whole industry by creating a market for UPI-based transactions. Every player, whether PhonePe, Google Pay or Paytm, has benefitted from BHIM's market reach. But, BHIM lost midway as cashbacks and promotions offered by private players scored over it," said an industry source who wished not to be quoted.

Some experts say that friendly user interfaces and the option to do many more transactions in private apps such as Paytm or PhonePe are also making them more attractive than BHIM.

Currently, apps offered by start-ups such as Paytm or PhonePe provide multiple options to the consumer, allowing him to buy not just products from the marketplace, but even purchase gold or an insurance policy. The options in BHIM, however, remain limited. "It's all about user interface and the options of being a marketplace for the customer. If you can provide that kind of experience, then retail customers will stick to you," said an official in one of these payment platforms. "Also, as a government-promoted entity, BHIM has limitations in terms of offers like cashbacks or other incentives to users," the person added.

While retail transactions are dependent more on offers given by the payment platforms, it is not the case in bulk transactions done by merchants. Industry experts said BHIM has an advantage in the merchant transaction space, especially in tier-II and III cities, where the trust factor on the app is very high due to its government lineage. This also augurs well for BHIM, since the UPI-universe as such is seeing a rising number of merchant transactions.

According to data available with NPCI, UPI transactions dropped to 733 million in May, from 781 million in April and 799 million in March this year. However, the value of transactions done through UPI touched a high of Rs 1.5 trillion in May as against Rs 1.4 trillion in April.  

Explaining this divergence, industry experts said a larger number of merchants are opting to transfer money through UPI, leading to the spike in value transacted through this interface.

"During the past one year, the share of merchants making payment through UPI has gone up to close to 20 per cent now, from lower single digits in the beginning of last year. So, as more number of merchants pay through UPI, the spike in value is the natural outcome," an official at a Bengaluru-based payment platform said.

Apart from rising merchant-led transactions, inter-operability is another factor that is likely to boost transaction through BHIM-UPI in the coming quarters. "Most payment platforms currently allow inter-operability. So, given that merchants in tier-II & tier-III cities are more comfortable with BHIM, transactions on this app are likely to rise going forward," sources said.