– By Dilip Modi
Ten years ago, India was a cash-driven economy, and digital payments were nascent, mainly restricted to big-ticket cash transfers and online banking transactions. That has changed now. The India digital payments story is a massive success, and the Unified Payments Interface (UPI) has led the way and transformed how Indians transact, making digital payments instant and accessible. It is integrated with multiple digital wallets and banking apps, offering a unified platform for peer-to-peer and merchant transactions.
Recent research underscores that digital wallets have become the preferred payment method for a whopping 55% of retail purchases in India, with 80% of these users choosing UPI. Another report said mobile wallets and their usage will reach Rs 531.8 lakh crore ($6.4 trillion) by 2028.
NPCI data shows transactions worth Rs 19.78 lakh crore were processed during March 2024, 40% up on a year-on-year basis. In FY24, UPI handled 13,115 transactions totalling Rs 199.29 lakh crore. UPI is not only an Indian success story but is also becoming more popular abroad.
It made the RBI policy call in March this year, allowing third-party UPI access for Prepaid Payment Instruments (PPIs) to enable digital wallets to participate directly in the broader UPI ecosystem. This move is a game-changer that fosters competition and innovation.
In essence, it lets customers make payments from PPIs using UPI via any third-party app and does not need to depend on the wallet issuer.
Power to the people
The RBI proposal is great news and offers many choices for users. Earlier, PPI users could make UPI transactions only through the app provided by their PPI issuer. It has now changed, and they can link their wallets with any third-party UPI application, getting access to a broad range of options and features. Consumers can put funds in their PPI wallets and avoid frequent debits from their savings accounts for small transactions. They can also use funds from their wallets like traditional bank account holders, with a digital, paperless KYC using eKYC authentication with minimal documentation, encouraging more people to participate in the digital economy. Additionally, PPIs can provide targeted financial products such as insurance, and savings schemes tailored to the needs of the underbanked population. These new norms could bridge the infrastructure gap and aid financial inclusion in rural India. Interoperability, as mentioned, earlier opens up multiple opportunities for users to use their wallets with different applications and is bound to increase adoption of digital payments.
Empowering small businesses
In the same context, these measures are bound to help small businesses. Traditional banking services involve high transaction fees and complex onboarding, which can be challenging for small merchants to match. This move will help small businesses accept digital payments more flexibly and offer a streamlined and transparent payment process.
Moreover, it will intensify competition among various digital wallet providers. Competition will help innovation as providers look at superior user experiences and beef up security measures, designing better-looking and easier-to-navigate apps. As mentioned earlier, we can also see apps offering personalized financial services to users. It also incentivises wallet providers to reduce transaction fees, especially in a price-sensitive market like India.
Sorting the security conundrum
As mentioned earlier, security has been a bugbear for many PPI wallet users. Third-party UPI apps will let users leverage robust security protocols, such as two-factor authentication (2FA), combining a PIN and a phone for authentication. Measures such as end-to-end encryption to secure data transmission, biometric verification for additional security layers, and advanced algorithms to monitor and flag suspicious activities will ensure transactions are conducted quickly, and users have assured money and personal information remain protected. Reliable transactions are also critical, as the UPI superstructure ensures transactions are processed swiftly and accurately. This minimizes errors and delays, providing a seamless user experience.
The future of digital wallets in India looks promising with the advent of third-party UPI access for PPIs. Combined with the recent RBI move allowing credit lines on UPI, it will empower users, promote financial inclusion, and drive the next wave of growth and innovation in digital payments. We must ensure that these changes benefit all segments of society, paving the way for a more inclusive and digitally empowered India.
(Dilip Modi is the Founder & CEO of Spice Money.)
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