Axis Bank close to surpassing Yes Bank as largest UPI payment service provider

Axis Bank is closing in on Yes Bank as the largest payment service provider (PSP) in the UPI ecosystem and may snatch the top slot before September comes to an end, indicates data from the National Payments Corporation of India (NPCI).

NPCI operates the Unified Payments Interface (UPI), India’s most widely used real-time payments system. Third-party UPI apps, called TRAP, need to partner with banks who become PSPs to connect with the NPCI server to enable UPI transactions on their platform.

In August 2024, Yes Bank facilitated around 5.14 billion transactions as a PSP bank, while Axis Bank facilitated 5.13 billion transactions. The gap between the two lenders narrowed down to 13 million from over 1.5 billion a year back.

Yes Bank has close ties and is tightly integrated with PhonePe and rose to the top of the UPI PSP rankings. Axis works with multiple UPI apps and is the main partner for Google Pay, Amazon Pay, Flipkart UPI, Navi and Cred, among others.

Redrawing the partnerships

Three factors, according to banking sources, have helped Axis make rapid strides to the top over the last couple of years. First, the bank has managed to forge an increasingly closer relationship with PhonePe, the country’s largest UPI player.

Since crisis unfolded in Yes Bank, forcing PhonePe to stop UPI transactions for a couple of days, NPCI asked all UPI apps to reduce their dependence on multiple banks, apart from creating multiple VPAs (virtual payment addresses) for most customers.

“Axis also has a digital DNA that’s similar to Yes and hence, PhonePe decided to move a lot of accounts to it as part of the derisking strategy. Axis Bank’s transaction failure rates were also similar to that of Yes,” said a senior fintech executive who has worked closely with PhonePe on UPI.

PhonePe did not respond to Moneycontrol queries on moving customers or the nature of the company’s UPI partnership with the two banks.

“Partnerships with TPAPs are finalised based on the overall benefits that the bank can derive from the partnerships, which go beyond just the PSP transaction numbers. All large TPAPs have been working to align with the NPCI guidelines around the multi-bank model to derisk, hence some of the TPAPs who were exclusively working with one bank in the past have ended up working with multiple banks, resulting in shifting PSP bank volumes,” said Naveen Chaluvadi, the chief digital officer at Yes Bank.

The UPI apps can add or give multiple VPA to their customers with multiple PSP banks simultaneously. Depending upon the success ratio or the load of banks, the apps can direct transactions to certain VPAs.

Second, the country’s second largest UPI app Google Pay had seen a dramatic shrink in its UPI market share from 44 percent to around 32-34 percent. Axis has been the primary PSP partner and this has resulted in a wider gap between the top two PSP banks in 2022. Google Pay has clawed back its market share to 37 percent over the last year and a half.

During the initial days of UPI from 2017 to 2020, State Bank of India was the primary PSP partner for Google Pay, which had a higher failure rate compared to smaller private sector banks. The search giant’s payment app also onboarded most of the new customers on Axis apart from moving several accounts to Axis from SBI.

A more recent change was that of Paytm, which was forced by regulatory action to move all the PSP banking services from its associate company Paytm Payments Bank Limited to Yes Bank, Axis Bank, HDFC Bank and SBI.

“Our UPI technology stack is one of the best apart from the resilience, fintechs see good value in partnering with us. And when they see that our success ratio is high, they drive a lot of traffic towards us,” said Sanjeev Moghe, president and head of cards and payments at Axis Bank.

Margin game on?

The PSP banks gain a small fee of 5 paise to 50 paise for each transaction, depending on its size. The bank that holds the customer account pays the PSP fee to the PSP bank. For instance, if the customer’s bank account is with SBI and the UPI app’s PSP banking partner is Yes Bank, then SBI pays this fee to Yes Bank. Since the UPI apps bring these customers to the PSP bank, they part a portion of the PSP fee to the UPI app.

“While the details of the exact partnership are not known, Axis has probably agreed to part with a higher proportion of PSP fee with PhonePe and hence they are adding new customers with Axis apart from moving customers from existing Yes accounts to Axis,” said a senior banker with a private sector bank.

Since Axis was sharing higher PSP fees with the UPI apps, they had a higher incentive to move those transactions to Axis.

Moghe, however, denied this. “The commercial models are similar across banks and TPAPs,” he said.

While the commercials can change in the future, Axis has the potential to cross-sell these customers loans and cards. “UPI does not have a strong revenue model for the banks or TPAPs yet. And when it does, Axis and Yes have a better shot,” says a fintech consultant who has worked with banks on UPI.