Srinivas Nidugondi, senior VP & head of mobile financial solutions, Mahindra Comviva
Today smartphones have become more than just a device of communication or platform to use social media. Adoption of smartphones coupled with growing mobile payments technology has ushered in a new era of consumerism bridging the divide between online and offline shopping. As per a report by Google and Boston Consulting Group, the digital payments industry in India has the potential to grow ten times to $500 billion by 2020 and contribute 15% to the gross domestic product (GDP). Emerging mobile technologies like Host Card Emulation (HCE) are making mobile payments seamless, secure and compatible with legacy infrastructure. In addition, establishments of National Payments Corporation of India (NPCI) and use of Aadhaar as a digital identity platform have accelerated this growth in digital payments.
Early this year, National Payments Corporation of India (NPCI) had announced the launch of Unified Payment Interface (UPI) platform to bring digital inclusion in India. The objective of this initiative is to transform India into a cashless economy while making transaction simple for consumers. Simply put, UPI enables all bank account holders to send and receive money from their smartphones by creating a Virtual Payment Address (VPA) of their choice and link it to any bank account. The VPA acts as their financial address and users need not remember any bank account information for sending or receiving money. The UPI interface with its resilient mobile payments design is expected to become a transformative platform for making transactions digitally, as it offers a higher degree of interoperability. Using the IMPS framework, UPI enables seamless payments across various banks, businesses, merchants and customers without sharing any confidential financial data.
The two major benefits it will bring to table for consumers are:
Interoperability: The Unified Payment Interface (UPI) uses a virtual payment address and one-click payment making it a highly interoperable service. This means, the user will be able to send money to customer of any bank, which uses the UPI platform. With the availability of better interoperability, UPI offers users the freedom to use their money, the way they want to without having security concerns. It enables users to make payments using their mobile phone as the primary device including person-to-person, person-to-businesses, and businesses-to-person. The interface allows customers to make payments through a single identifier like Aadhaar number or virtual address.
Ease of doing transaction: It eradicates the complexity of third party payments. While using UPI, users will get rid of IFSC code and bank account number other details required today for making transfers. It has simplified to an extent where users need only a unique ID/Virtual ID for instant peer-to-peer payments.
Since its inception, UPI has been touted as a wallet killer for third party wallets like Paytm. UPI will not kill third party wallets; however, it will give an edge to banks over third party wallets. Banks will integrate UPI functionality in their apps and wallets enabling them to provide another channel for consumers to make P2P and P2M payments. Amongst all the payment channels, UPI will have the best user experience as customers do not need to enter bank details, giving bank wallets a clear differentiator over third party wallets. Moreover, a customer can have unique VPA’s for different bank accounts and can link multiple VPAs to a single banking app or wallet application. For enabling UPI, banks need to minimal changes in their apps or wallet, hence, they can launch the service very quickly.
Major challenge UPI can face, will be with its adoption since it is only available on Android, this will pose the limitation to other software users, so initially there can be a segment of people who will not use UPI. Other challenges will only be highlighted once people start using it and by the market reaction, it will only be clear how successful UPI is. Also, not all banks offering UPI are leveraging its complete offerings. Most of the banks are just offering VPA based transactions. However, they should also facilitate UPI transactions using mobile number and Aadhar number, which will further simplify transactions and enhance user experience.
UPI is a win-win for both consumers and banks. It offers secure, frictionless transactions to all consumers and provides banks an edge over third party mobile wallet providers.