– By Anup Nayar
In the post-Covid-19 world, there has been a transformational shift towards acceptance and usage of digital payment methods since they are quick, easy, and contactless. As the country’s payments ecosystem evolves, the Unified Payment Interface (UPI) has emerged as the most widely used payment method. According to the National Payments Corporation of India (NPCI) data, the platform clocked 7.82 billion transactions worth Rs 12.82 trillion in December last year.
However, with a huge number of transactions being recorded every minute daily, these UPI transactions keep going back to the respective bank’s core banking system (CBS). This ends up not only pressuring the bank’s CBS, but also increasing the number of transactions in the daily account updates, and piling up end-users’ bank passbook/bank statement entries.
How UPI Lite came into being
UPI Lite came into existence to ensure that the huge number of UPI transactions stop pressuring the backend systems. To support the functioning and make payments more efficient, the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI) launched UPI Lite to simplify and accelerate low-value transactions on the UPI platform. UPI Lite is a wallet stored in your UPI BHIM App and a customer doesn’t need to go online for every transaction. UPI Lite is a solution that ensures small-value transactions below Rs 200 happen directly from this on-phone wallet and helps underwhelm the infrastructure. That has been the driving reason behind the launch of UPI Lite.
More than 50 percent of the transactions have been recorded by the platform as small-value transactions under Rs 1000. Those numbers explain how much load can be taken off from the backend systems of the banks once the acceptance of the UPI Lite increases. UPI Lite will bring a lot of headroom from a transaction standpoint as it removes the banks’ need to invest heavily in their CBS. As a result, it’s more of a cost-efficiency arbitrage from the banks’ standpoint.
What is UPI 123Pay
In March 2022, the RBI launched UPI 123Pay. While consumers need a smartphone for UPI and UPI Lite, you can transact via UPI 123Pay by simply using a feature phone. You can call a customer, use an IVR methodology to make a transaction, choose services such as money transfers, or pay the electricity bill. The user must first choose the service before adding the recipient’s phone number in order to send money. The sum and PIN will then be combined. The user has four options to make payments by using 123Pay. The first is to use the app, the second is to pay via a missed phone call, the third is calling an IVR (interactive voice response) number and the fourth is proximity sound-based payments.
Though the usage of smartphones in the country is quite high but still 30-35 percent of the consumer base is still using featured phones in urban and rural India. UPI 123Pay will help enhance the digital banking experience and eliminate the dependency on the internet. Surely, the introduction of solution-driven projects like UPI Lite and UPI 123Pay will help digital payments grow in rural areas with low network and internet connectivity and will also play a role in increasing financial inclusion.
Transaction Limits
The maximum amount that can be transferred via UPI Lite is Rs 200 and the maximum amount that can be in your UPI Lite balance at any given moment is Rs 2000, or any additional limits that may occasionally be set by NPCI. Whereas in UPI 123Pay, the per day transactions limit is Rs 1,00,000 and the per transaction limit is Rs 5000.
Driving financial inclusion in rural India
Since the demonetisation of banknotes in 2016, India has experienced a surge in digital payments. The pandemic compelled even the smallest of businesses across India to digitize their processes. Since social distancing is here to stay, contactless online transactions will continue to be driven by safety, innovation, convenience, and trust not only in urban areas, but also in rural India.
Moreover, inclusion and innovation are two strategic objectives of the RBI’s ‘Payment Vision 2025’, which aims to establish India as the powerhouse of payments globally. A part of the population is still underserved and unbanked which makes it essential to bring everyone to a level where they are able to have access to efficient payment systems and affordable financial services.
In fact, financial inclusion is a huge focus area for the microfinance industry. Many NBFC-MFIs are moving towards digitization and already do a large share of transactions through cashless modes. Though rural areas are mostly cash-driven, the microfinance industry is encouraging customers to switch to Aadhaar-enabled payments, mobile wallets and pre-paid cards to name a few. As per RBI data, 39 percent of the total disbursements in 2016-17 by NBFC-MFIs were through cashless methods, improving significantly to 92 percent during 2019-20.
Ushering the next big moment for the payments ecosystem
As the country continues to adopt digital payment methods, UPI Lite and UPI 123Pay will be a giant leap forward towards mass inclusion and could potentially take us many steps closer to realising India’s trillion digital economy goal by 2025. The players must be waiting in anticipation to get any transactional number around the UPI Lite and UPI 123Pay platforms. Since UPI Lite is a secure, low-cost mode of payment, its near-cash-like characteristic will go a long way in improving consumer confidence as a preferred option for small retail payments.
Both platforms will surely permeate a lot of the digital flow of transactions in tier-3 and tier-4 locations and bring a positive drift in digital payments. Eventually, the customer journey of the end-mile users will carve the story of UPI Lite and UPI 123Pay, especially toward financial inclusion in rural India.
(Anup Nayar is the CEO- Domestic at In- Solutions Global Ltd. Views expressed are the author’s own.)