Pay? Yay!

4RaghuramRajan Change agents: Reserve Bank governor Raghuram Rajan launching UPI with Nandan Nilekani, adviser to NPCI, Balachandran M., chairman of NPCI, A.P. Hota, MD and CEO of NPCI, and Dilip Asbe, COO of NPCI | PTI

Unified Payments Interface set to change the digital payment ecosystem

The digital payments ecosystem in India has been growing at a rapid pace, and Indians might see an all-new platform in a matter of months. The Unified Payments Interface (UPI) app, developed by the National Payments Corporation of India (NPCI), is expected to be available for downloads in July. The app will simplify digital payments by facilitating instant transfer of funds between two bank accounts with the use of a single detail and eliminate the need to enter bank account number, card details IFSC codes, CVV or OTP/secure code authentication for e-commerce payments. Effectively, it will reduce a four-hop payment system to a zero-hop one.

“There were a few issues in the system,” said Dilip Asbe, chief operating officer at NPCI. “One was the demands of the payments instruments, like the IFSC number and the account number, which have to be exchanged between the two parties before the transaction can happen. The second issue was there was no pull-based payment. Today, if you have to give me Rs 100, I have to wait for you to initiate the transaction. Now with UPI, I can just enter my UPI app, collect Rs 100 from your id and the notification will come to you; you will be able to just punch in a PIN and the transaction will go through. The third issue is that the check-out process for banks is quite difficult. We designed a system which, while being fully RBI-compliant, will allow you to exit the system by just entering your mPIN on your app because your app credentials are already with us.”

The app will create an effective interoperable payments interface for mobile phones. “Smartphones will reach some 500 billion people in the next few years and we thought this was the best time to launch such a system, taking advantage of app-based workflows to offer a very simplified user experience,” said Asbe.

The system is expected to offer many advantages to banks. “The inception of UPI levels the playing field. With a direct link created between UPI and a customer’s bank account, banks have the opportunity to ramp up their mobile app experience, and retrieve the market share that they had previously lost to mobile wallets,” said Vivek Belgavi, partner at PricewaterhouseCoopers. “Another challenge that UPI will address for banks is the cost associated with traditional merchant acquisition. It will reduce the cost by enabling services to be provided to the merchant via a smartphone, including the provision to make payments using 1-click 2-factor authentication.”

Banks seem to agree. Ritesh Raj Saxena, head of savings, digital and payments business, at IndusInd Bank, said: “UPI, if adopted in the full spirit by the industry, will do for the mobile as a payment instrument what MasterCard and Visa did for the now ubiquitous plastic. In doing so, UPI will help the market address the issues faced in expansion of the merchant acceptance infrastructure and hopefully solving for the dropout rates on e-commerce card transactions today.”

But will it not affect the usage of wallets created by banks themselves? “UPI essentially gives a backbone infrastructure on which the wallets and mobile banking apps will ride on. The banking wallet apps will truly come into their own as a preferred universal payment instrument, with UPI standardising online payments experience across banks, as is with cards for offline payments. Standardisation leads to manifold increase in usage by customers and merchants alike,” said Saxena.

While there were apprehensions that payments banks and mobile wallet players will come under pressure because of UPI, they rule out such concerns. Shailesh Pandey, head of strategy at the payments bank FINO PayTech, said: “By virtue of being a payments bank, FINO is part of the banking ecosystem that uses UPI. In that context, we believe UPI is going to positively impact FINO in very much the same way as it benefits other mainstream commercial banks in facilitating electronic banking transactions.”

How are the existing digital wallets planning to deal with FPI? Sunil Kulkarni, deputy managing director of the digital wallet Oxigen, said only those players that offer pure digital-to-digital transactions would be affected. “For instance, mobile wallets which only allow money to be loaded into the wallet using credit card, debit card or net banking. They do not have cash in retail as a mechanism to load the money and these are the wallet players who will be impacted because they have been using payment gateway experience as the major USP to provide a digital mobile wallet experience,” he said.

UPI is expected to affect the behaviour of the financially literate. “People who are fully banked have been using wallet accounts to avail of the cashback that it entails. Now, that will get challenged because moving money from your bank account directly to the merchant account becomes far more seamless through UPI,” said Sandeep Ghule, CFO of TranServ, which operates the mobile wallet Udio.

At this stage, it is unclear what fresh risks may arise out of UPI. “We are closely watching developments in this space. Once the UPI is operational, we will consult all the stakeholders to develop codes protecting consumer rights and enhance their experience,” said Anand Aras, CEO of Banking Codes and Standards Board of India.

User experience, though, will continue to be the name of the game. “It's a fantastic opportunity for everyone in the industry,” said Ghule. “Now, product propositions will continue getting built on top of this, and the winner will to be is whoever provides the better customer experience, because as we know, in a regulated payment industry, everybody can offer the same products.”

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