In the New Year, a new UPI Beckons

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January 01, 2021 5:15 AM

In the case of UPI, the model was so successful, Google recommended that the US Fed use a UPI-based system to build a new inter-bank real-time-gross-settlement service (RTGS), and the Bank for International Settlements (BIS) recommended that other countries emulate the Indian approach. Happy New Innovations!

Presently, no charges are levied on transaction done through UPI.Presently, no charges are levied on transaction done through UPI.

Last year’s big story, apart from the Covid havoc, has been the fall from grace of top tech majors like Google and Facebook; both are facing US government anti-trust lawsuits that seek to curb their monopoly power and, in October, the US House Judiciary Committee also accused firms like Amazon and Apple of similar anti-competitive behaviour. This year’s big story, with global ramifications, is the series of Indian innovations—Bengaluru-based think-tank iSpirt is involved in several of them—that are offering solutions to the need for curbing the monopoly power of tech firms without affecting their capacity to deliver services/innovation.

As was the case with UPI that has grown nearly 4,000 times in the last four years and has outpaced (debit and credit) card transactions by a huge margin—Rs 386,107 crore and Rs 168,169 crore, respectively, in October 2020—the new innovations are also based on an open architecture that allows any entity to start leveraging it, provided it uses the protocols prescribed. The first such innovation to be rolled out over the next week or two, Sahay GEM, figured in the last Budget that said “an app-based invoice financing loans product will be launched (to fix) the problem of delayed payments … for the MSMEs”.

To understand how the Open Credit Enablement Network (OCEN)—the next big disruption in lending—works, recall how UPI transactions take place. UPI has a set of fintech and bank members and, based on a set of pre-defined rules or protocols, anyone can transfer money from one bank account to another with the possibility of using barcodes as well. There are already seven banks including SBI, HDFC Bank, ICICI Bank and Axis that are enrolled on Sahay GEM and, over time, presumably, others will enrol as well. As soon as anything is supplied on the Government e-Marketplace (GEM), the fintechs on Sahay GEM will use the invoice generated to lend to suppliers that will get to choose from all seven—for now—banks on it.

Later, OCEN will be extended to other products—30 cash-flow lending products have been identified—including GST-based lending. Unlike in a standard closed model where borrowers deal with just one bank, or only those who are members of a particular platform, OCEN is open to everyone. As in the case of UPI where users decide to use a PhonePe or a Google Pay depending upon the additional facilities these offer, this will be the clincher for OCEN as well. With so much competition and instant comparisons of the products offered by banks, this should keep lending rates competitive.

The same open principle will apply to telemedicine; Open Health Services Network (OHSN) is to be handled by the National Health Authority. As in the case of OCEN, doctors, hospitals, pathology labs, pharmacies, etc, are free to join, and patients are then free to choose whose service they want to avail. Since electronic health records are not always portable, standards will be laid down to ensure this, and a health data consent manager will ensure consent is taken and privacy maintained. For OHSN to really work well, though, will take time since a system of rating doctors and medical facilities will need to be put in place.

Equally interesting, though it is not clear how soon this will start, is the extension of the open network to online shopping, food delivery or taxi cab services. Beckn, co-founded by Aadhaar founder Nandan Nilekani, is working on open protocols that can allow, say, a restaurant to have its menu not just on a Swiggy or a Zomato but on a platform that is accessible to a wide range of persons; as journalist Una Galani puts it (, “think about ordering a taxi on the Uber app and having it fulfilled by a driver working on Lyft or another aggregator”.

If the move is successful, it means the large profits earned by companies who follow a closed model—one that displays only their clients’ offerings—will disappear and, instead, with a big dose of competition injected, prices will remain as low as possible. Indeed, over time, as trust rankings are developed—how do you rank Driver A and his cab?—in much the same way that people look at user reviews of products, it may even be possible to do away with the one/two-aggregator model in vogue today for a lot of services.

As in the case of UPI, you will still have firms/brands—Google Pay, PhonePe—that will find ways to differentiate their offering by adding in more frills/services, but the hope is that, as OCEN/OHSN gain traction, even existing players may want to be part of them, and that, in turn, will give them more heft. A good example of this in India is Paytm. While it was initially a wallet that was meant for its subscribers only, as UPI gained traction, Paytm too offered UPI services; you can now use the Paytm wallet and the services that it offers, and you can also be a part of the larger UPI network while using Paytm.

A key feature, to make these protocols work, needless to say, is dispute resolution. When you buy a product on Amazon, it doesn’t matter who the seller is, Amazon guarantees the good will be returned if you don’t want it; even without Amazon, you can always e-mail the seller and hope for a refund, but who will want to take a chance by placing an order with a firm you have never heard of and one not even in your city? In an open model, which no one really owns, how are returns/refunds to be done? It is early days, but one way to fix this is for the system to auto-generate a ‘fact-file’ whenever there is a dispute, and for each player to sign off on pre-agreed actions that are hard-wired into the system.

Having designed an open system to solve a monopoly problem the world is grappling with is another feather in India’s cap after its successful conceptualisation/execution of Aadhar, UPI, Digilocker, eSign, etc ( In the case of UPI, the model was so successful, Google recommended that the US Fed use a UPI-based system to build a new inter-bank real-time-gross-settlement service (RTGS), and the Bank for International Settlements (BIS) recommended that other countries emulate the Indian approach. Happy New Innovations!

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