Analysing the market for digital payments in India using the predator-prey mode

Abstract

Technology has revolutionized the way transactions are carried out in economies across the world. India too has witnessed the introduction of numerous modes of electronic payment in the past couple of decades, including e-banking services, National Electronic Fund Transfer (NEFT), Real Time Gross Settlement (RTGS) and most recently the Unified Payments Interface (UPI). While other payment mechanisms have witnessed a gradual and consistent increase in the volume of transactions, UPI has witnessed an exponential increase in usage and is almost on par with pre-existing technologies in the volume of transactions. This study aims to employ a modified Lotka-Volterra (LV) equations (also known as the Predator-Prey Model) to study the competition among different payment mechanisms. The market share of each platform is estimated using the LV equations and combined with the estimates of the total market size obtained using the Auto-Regressive Integrated Moving Average (ARIMA) technique. The result of the model predicts that UPI will eventually overtake the conventional digital payment mechanism in terms of market share as well as volume. Thus, the model indicates a scenario where both payment mechanisms would coexist with UPI being the dominant (or more preferred) mode of payment.