Credit and Finance for MSMEs: Jodhpur-based Ghanshyam Ojha, who has been running steel utensil manufacturing and supplying business Shri Ram Metals since 2012, has been relying partly on cash or cheque to receive payments from some of his customers who continue to be comfortable with feature phones. Despite having other digital payment options such as net banking, his retail store clients “prefer cash or cheque payments. They are aware of UPI as well but they want to stick to feature phones. Moreover, they don’t want to keep a smartphone as their second device to pay digitally,” Ojha told Financial Express Online. UPI enables users to make or receive payments via their smartphone using a QR code or phone number.

Currently, Ojha has around 600 retail customers across Rajasthan and most of them are comfortable with UPI payments, thanks to the increased smartphone adoption in the country. For those still clinging to feature phones, Ojha hopes the recently launched payment instrument UPI 123PAY by the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) will do the trick and also save him time in settling payments.

“There is a risk in managing cash and also the wait time involved in payment settlement via cheque is up to 48 hours. We would try to explain this new solution to our customers who rely on feature phones,” said Ojha who is also planning to reward such customers who pay via the new feature throughout the year. “The reward can be, let’s say, some discount on goods sold to them,” he added. 

The decision to introduce a new payment option for feature phone users was taken by the RBI to pass on the benefit of UPI payments to those who continue to use these devices either due to the ease of use or affordability factor. According to the RBI, there are more than 40 crore feature phone users in the country. The multilingual service UPI 123PAY allows users to integrate their feature phones with bank accounts to pay digitally without internet connectivity, except via scan and pay method.

Experts claimed the move will significantly improve the adoption of digital payments among small merchants, micro enterprises, and individual businesses. “This was the low hanging fruit in order to expand the base of the digital economy. Many people and small businesses across small cities and a few in urban areas as well are on feature phones. UPI transactions are likely to touch Rs 100 trillion this year and we hope we can double the pace to Rs 200 trillion next year with the new solution that is expected to bring more merchants into the digital fold,” Vishwas Patel, Chairman, Payments Council of India told Financial Express Online.

The scalability of the new solution seemingly rests on its ease of use. According to NPCI, UPI 123PAY is a three-step process of Call, Choose, and Pay. Through the IVR service, users would have to call 080 4516 3666, select their preferred language, tap the ‘1’ key on the phone to transfer money, confirm the bank name through voice-based command, again tap the ‘1’ key to transfer the amount, enter recipient’s mobile number and the amount followed by the UPI PIN to authorise the transfer. The UPI PIN can be set up on the call through debit card details before transferring the amount.

“The idea is to provide more payment options to consumers who are largely on feature phones and then allow the market to experiment and innovate further to enhance digital payments. If there is an ease of use and safety in using a solution which is relevant to the end consumer and if you also build trust in it, the solution speaks for itself and scales up with network effect,” Arif Khan, Chief Digital Officer, NPCI told Financial Express Online. 

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Importantly, UPI 123PAY isn’t the first-of-its-kind initiative by the RBI to bring feature phone users onto the UPI bandwagon. NPCI had brought UPI to feature phones in 2016 via the *99# dialling option through USSD-based services. USSD was unstructured supplementary services data that allowed users to avail mobile banking services such as fund transfers, checking account balances, generating bank statements, and more without a smartphone and internet connection.

However, the USSD-based service has been found to be cumbersome and not all mobile operators allow such services, RBI Deputy Governor T Rabi Shankar had said during the launch of the UPI 123PAY service. “*99# service faced challenges from telcos. It isn’t an interoperable solution. If I have to send money to someone and we both are on two different networks, then both telcos would have to enable the service for the transaction to complete. Charges are also very high. You are charged Rs 50 upfront after dialling *99# whether you use the service or not. Hence over time, its usage remained very low and no one actively promoted it,” Vivek Singh, Co-founder of sound-based payments service provider ToneTag told Financial Express Online. 

ToneTag had last week launched the voice-based UPI payment solution for feature phones after the RBI had announced the UPI 123PAY solution. In association with NSDL Payments Bank, ToneTag launched its IVR 6366 200 200 for fund transfer, paying utility bills, balance enquiry, recharging DTH, prepaid mobile connections, FASTag, etc. The technology uses sound waves to enable contactless communication between devices or in other words, use high-frequency ultrasound waves for transferring data between devices.

The payment use case with feature phones has further highlighted the significance of these no-frills low-cost devices. While their adoption has certainly dropped with the smartphone revolution over the past few years, their long battery life, which lasts even more than two-three days depending on the usage, has remained a key factor behind their existence.

“People think feature phones will go away but that’s not the case. Their long battery life is the reason why they are still in use. If you are a salesperson, feature phones are more handy than smartphones,” added Singh. They are also cheaper and hence save costs for small enterprises who buy them for their employees. 

The new UPI 123PAY feature is also expected to boost not just person-to-merchant (P2M) transfers digitally such as paying for groceries to an offline store but also peer-to-peer (P2P) transfers between two people via payment apps like Paytm, PhonePe, Google Pay etc. Hence, the business and personal use cases of transferring money via feature phones are significant. Nonetheless, experts said that among the biggest challenges in getting small businesses into the digital payments fold has been the tax net. 

“From the merchant ecosystem perspective, taxation is one of the key issues deterring businesses to get the digital highway. Unlike in India, the governments in South Korea, Norway or Sweden give merchants tax incentives for accepting online payments. Today let’s say a kirana owner doesn’t want to come under the tax or GST ambit and hence prefers cash transactions. Some tax incentives are required from the government to get more micro enterprises to accept digital payments,” added Patel. The current GST registration threshold limits are Rs 40 lakh in annual revenue for businesses supplying goods. The limit was enhanced from Rs 20 lakh in 2019.

UPI transactions in India have maintained an upward trajectory on the back of affordable internet and smartphone penetration. The transaction volume jumped 97 per cent in February 2022 to 452.7 crores from 229.2 crores in February 2021 along with a 94 per cent growth in value to Rs 8.26 lakh crore from Rs 4.25 lakh crore during the said period, as per data from NPCI. “In FY21, the total value of transactions done on UPI was around Rs 41 trillion. In FY22 so far, the total value of transactions is Rs 76 trillion,” RBI Governor Shaktikanta Das had said at the launch of UPI 123 Pay. RBI had also launched a 24×7 helpline called DigiSaathi for feature phone users to resolve their queries around using the digital payments service.