It’s a hyperconnected, flat world. Platform businesses such as Amazon, Uber, and Airbnb have made it so. All you need is available at the click of a button. Closer home, UPI is the answer to a platform business in the payments world.
UPI, or Unified Payments Interface is an instant, secure, cost-effective and convenient payment method that makes sending money to someone as easy as sending an email.
With the launch of UPI, India became one of the only 18 countries worldwide to have a real-time P2P payment system (across different banks) way ahead of the USA and some of the other developed countries. Since its launch in Aug’2016, UPI has seen tremendous growth with 114 Banks live on UPI, approx. 50 million customers and 235 million transactions being processed through it in July’2018.
Currently, we are seeing increasing customer adoption of digital modes of payments, which is evidenced by the fact that the value of retail digital transactions as a percentage of cash in circulation has gone up from around 32 percent in FY16 to 99 percent in FY18 and could go up to 150-200 percent by FY19. The other data to consider is that monthly UPI transaction volume grew by almost 180 million over a 12 month period (from May’17 to May’18), during which monthly ATM transactions only grew by 90 million, thus signaling a move to a less cash economy, driven by convenient payment methods. UPI 2.0 creates further hooks for the customer to transact digitally.
The first phase of UPI introduced a slew of benefits for the customer such as introduction of a VPA (Virtual Payment Address) negating the need for customers to share bank account numbers, IFSC Codes etc. to effect transfers, push and pull payments so payments can be initiated by payer or payee, real-time validation that the payer and payee’s accounts exist and immediate settlement and notification of successful payment.
UPI 2.0 is the cool new avatar which has introduced and has under works many features that will enhance the experience for customers and businesses.
After easing person to person (P2P) payment transactions, the new features improve the experience for the person to merchant (P2M) and credit-related transactions. Further, NPCI in its new release has embedded digital signatures to make transactions more secure.
To ease P2M transactions, UPI 2.0 has introduced mandate transactions. Mandates are used by customers for regular payments such as EMI payments, mobile bills, utility bills etc. so the service provider can claim the dues easily as per the authorized duration and amount. As of now, mandate creation requires filling of lengthy forms and registering the same with your bank. UPI 2.0 has simplified this process with the customer just needing to enter his UPI PIN. For the execution of the mandate, the payee has to send a collection request and the same will be instantaneously settled. Further, as soon as the mandate is created, the mandated amount will be blocked from customers account.
This is a first step in reducing friction for regular payments. Currently, the mandate is active for a single payment only, the most significant area this will impact is the ASBA process in IPO applications. This feature will improve the experience of IPO applications for retail investors, thus also boosting adoption of UPI.
Further impact of mandate simplification will be seen when it acts as a Standing Instruction, or even allows for multiple debits from one mandate so frequent use payments such as paying for cabs or food deliveries can become easy.
The other feature that eases bill payments is called ‘Invoice in a Box’, with UPI 2.0 merchants and businesses can send Invoices over the UPI app itself, making it seamless for the customer to view the bill and make the payments.
On the credit side, it allows linking of overdraft accounts to UPI IDs, which makes using overdraft funds and repayments much easier. With digitally savvy customers typically being a lower risk category for banks, this feature can be further extended by banks to provide pre-approved loan limits to customers, thus increasing penetration of loans by servicing new to credit customers.
UPI 2.0 pushes forward the digitisation agenda of the nation. It brings the banking ecosystem on a single platform, which has made payments interoperable. Now with easing the linkage between business and customers, and extending features on the credit side, it is emerging as a more holistic solution. With the next wave of UPI based innovations, we will see linking of credit cards to UPI and ability to withdraw cash from ATMs using the UPI app amongst other features which will further push the frontier on digital payments and transactions.
( The author is ED & Head of Retail Banking, Axis Bank)
Updated Date: Oct 22, 2018 16:22 PM