Investors prefer UPI route to join IPO frenzy

Unified Payment Interface (UPI) is emerging as the favourite mode of payment for small investors flocking to initial public offerings, comprising 42% of all retail applications in IPOs in June. However, payment failures continue to frustrate users on UPI, two years since the payment system was opened to IPO applications.

According to data from the National Payments Corp. Of India (NPCI), which created UPI, 1.9 million retail investors applied for IPOs through UPI in June of the total 4.7 million retail IPO applicants during the month as calculated by Prime Database. Retail investors are those with share purchase applications of up to 2 lakh, which is also the upper limit for UPI transactions in IPOs.

“The present volumes show investors are gradually getting the hang of using UPI for IPO applications, and that one might see it double in three to four years. As the percentage of younger investors increases, such new methods of investing will pick up,” said Mihir Gandhi, partner and leader (payments transformation) at PwC.

Adding some extra features to UPI apps and the application process could increase the use of this payment mode, Gandhi said. For instance, if the number of clicks to file an application can be reduced without compromising on security, customers may find it more useful.

Among IPOs in June, Shyam Metalics and Energy ( 909 crore) received the highest retail subscription (10 times), followed by Dodla Dairy (9.7 times), India Pesticides (9.66 times), Krishna Institute of Medical Sciences (2.13 times) and Sona BLW Precision also known as Sona Comstar (1.21 times).

Concerns, however, remain, given that some public sector and cooperative banks have seen significant transaction failures. The most failures were seen in UPI transactions over Indian Overseas Bank and Punjab National Bank in June, NPCI data showed.

“Although UPI is considered safe and quick, there are some doubts. Firstly, the high rejection while using UPI as a payment solution: 28% of applications made by retail investors in Zomato’s IPO through UPI were rejected. In comparison, only 5% of non-UPI retail applications—those coming from bank-backed brokerages—were rejected,” said Jill Deviprasad, partner, investor relations practice, EY India.

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