Cashless economy: UPI apps provide ease of use and freedom to transact

Prime Minister Narendra Modi's message in the latest Mann Ki Baat program on All India Radio was loud and clear. He exhorted the nation to start transitioning from less cash to cash less economy. This sounded like a big boost to the cards and digital wallet industry. In fact, this may not be true. India may soon not only be moving to cashless economy but might be moving towards card less economy. Digital wallets tied to specific banks or provided by specific merchants too may soon be history.

Dealing a deadly body blow to the card industry and proprietary digital wallet industry are two indigenous innovations. One is the purported move to have Aadhar chip embedded in smart phones which support Iris scans. And the other is the launching of Unified Payment Interface (UPI) by National Payment Corporation of India (NPCI).

In current scenario, when a purchase is made using a card it is swiped on the point of sale machine and a pin is entered to authenticate the card. This affects money transfer from the customer’s bank to the account of the merchant. In cases where money has to be transferred using a digital wallet, it is done using the digital wallet app. Money from one digital wallet can be transferred to another digital wallet provided they subscribe to the same provider ie PayTm, HDFC Chillr etc. This scenario is now set to change.

Representational image. Reuters

Representational image. Reuters

Iris scan supported Aadhar card enabled smart phones provide for authentication through the mobile phone. Process is simple. If a transaction has to be made once the Iris is scanned, Aadhaar chip embedded in the phone will communicate with Aadhaar servers and provide instant authentication. Once the authentication is done, money transactions can be done. There will be no need of either a point of sale machine or a card for the purposes of transaction.

Alongside proposed Aadhaar enabled mobile phones, UPI, launched by NPCI with Reserve Bank of India is revolutionising the way digital wallets get used and transactions are made. Using UPI app, people can create their digital wallets and have a virtual private address. This virtual private address could either be the Aadhaar card number of just the mobile phone number of the person.

In case of any transfer to be affected, it can be done from one VPA to another without the restriction of these digital wallets being of the same bank or the same provider. Money in case of UPI enabled wallets always remains with the banks and transactions involving transfers are free. This is unlike the current digital wallets where money gets out of the banking system and in case money has to be sent to the bank there are charges for the same. With this ease of use and freedom to transact across participating banks it’s only a matter of time that UPI enabled apps will replace proprietary digital wallets.

UPI is also enabling person to person (P2P) transactions besides person to merchant (P2M) transactions. In P2P,  people transact among themselves using UPI enabled digital wallets. Once this happens even the 2.1 lakh ATMs may become redundant. Each mobile will become a payment device both accepting and making payments.

Making this a reality, are the current 371 million mobile internet users (35 percent of the population as of June 2016) in India, and approximately 108 crore Aadhaar card holders (as per UIDAI). These numbers coupled with an estimate 50 Million internet users getting added each year; Narendra Modi's wish for a cashless economy may well get realised much sooner than anticipated.


The author is Currently Additional Director General Home guards, Mumbai and former Controller, Legal Metrology, Maharashtra.

Updated Date: Dec 03, 2016 11:28 AM

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