By Harish Prasad
That India’s domestic payments system innovation has been recognised globally is indisputable; it is indeed very flattering to many of us who are closely associated with this field that India’s innovation around payments is today being emulated by other countries. The arena of real-time payments continues to see tremendous activity with countries that have been laggards moving to bring their domestic payments systems on par with leaders in this space.
The National Payments Corporation of India (NPCI) has systematically gone about establishing a highly capable multi-modal electronic payment infrastructure for India spanning the ATM interchange (NFS), domestic card scheme (RuPay), direct debit system (NACH), real-time interbank payments (IMPS), national ID-based payments (AEPS and APBS), bill payments (BBPS), toll collections (NETC FASTag), and more recently mobile payments (UPI). The runaway success of UPI caught the eye of the world and the scale and pace of adoption of this technology stunned many observers across the world. The breadth and coverage of domestic payments electronification we see in India is probably unparalleled, and the introduction of the electronic voucher-based payments (e-RUPI) last year was another move that reinforced this leadership.
The e-RUPI launch was a little different in that it was also meant to be more inclusive and directed at the neediest sections of the society, whose access to technology was still limited. While this was the starting point for the programme, and initial applications focused on addressing needs for channelling targeted benefits by the government to the needy, this is quickly taking the shape of something that can disrupt the area of benefits distribution across the government and corporate worlds.
The backdrop against the launch of the e-RUPI (initially called the UPI Prepaid Voucher) in July 2021 was that India was going through waves of the pandemic, causing disruption and taking a toll on livelihoods of its people. Having access to a leakage-proof mechanism to deliver targeted benefits in real time to the citizens was increasingly being seen as critical. In fact, e-RUPI’s initial design had special features for targeted delivery of Covid-19 relief such as a separate merchant category code (MCC) established for this purpose.
With this premise, e-RUPI in its initial shape supported the issuance of benefits vouchers or coupons electronically as messages delivered to feature phones. These electronic vouchers had an associated value and an associated purpose that these could be used for and could not be encashed in any other way than to avail the benefit at a service provider or a merchant who was enabled to accept the e-RUPI. The e-RUPI acceptance mechanism relied on the same mechanisms used for UPI acquiring and hence the base for acceptance could be quick scaled-up to offer the widest coverage.
That, coupled with the mode of delivery of the voucher—which needed a simple feature phone that could receive a text message or an image of a QR code, and there being no need for the beneficiary to hold a bank account—made this channel much more accessible.
The most obvious application of this was distribution of medical aid against the backdrop of Covid-19, and a large base of hospitals was enabled on acceptance of these vouchers for medical services rendered to citizens—be these vaccinations or treatment for medical conditions. This was, of course, extensible to other benefits, including distribution of much-needed aid via the PDS or other nongovernmental channels. The end-uses of this capability for administration are numerous and could cover, for instance, food subsidies, agricultural subsidies and various sector-specific benefits, especially where the end-beneficiary was the citizen.
While the focus initially was on enabling government departments to channel use-restricted vouchers to individual citizens, there was also a facility for the corporates to use this facility to distribute benefits to their employees, contractors and partners. The possible use-cases here were, and continue to be, quite vast.
The e-RUPI had two major constraints that were imposed at launch: One, the maximum value of a single voucher could be Rs 10,000, and two, these were for one-time use only and even if partially availed would lapse on first-use. While these restrictions were good to have at launch to allow the system to stabilise, these also had the effect of limiting adoption and sometimes made it cumbersome in that there were multiple vouchers needed to be issued for larger amounts even though the recipient was an individual.
The recent announcement by the Reserve Bank of India as part of the 2022 Monetary Policy update relaxed these restrictions and the value-limit for vouchers has been increased to Rs 1 lakh and additionally the e-RUPI now becomes a multi-use voucher that can be used till such time the value is reduced to zero, or till validity expiry or revocation.
With these relaxations, the e-RUPI gets closer to being a non-reloadable prepaid instrument with, of course, its use restricted to specific purposes or at specific merchant categories. The applications for this are quite varied across both the government and corporate segments without the significant cost associated with issuance, dispatch and management of payment cards, and could thus be an economical alternative to prepaid cards; for instance, for employee gift vouchers, food and meal vouchers, or transport and fuel vouchers.
Authorised issuers of these vouchers continue to be banks, and banks need to use this opportunity to drive adoption by making it easier for corporates to access issuance capabilities via digital channels. Additionally, offering a rich set of capabilities that allow sophisticated usage monitoring and reporting would make it a very attractive proposition for the corporates.
On the governmental side, I believe with the most recent changes, the practical issues of needing to issue multiple vouchers stands addressed, as well as the applicability of this to deliver targeted benefits to additional segments such as MSMEs and individual businesses greatly improves. Having said that, there continues to be room for further optimisation, be it embedding more specific end-use instructions for the accepting merchant or better mechanisms to authenticate the beneficiary, the possibilities are many.
The area of benefits distribution is about to be transformed, and innovation is likely not going to stop here. With the impending launch of the CBDC, there is also room for innovation around benefits distribution with possible support for issuance of end-use restricted money or wallet partitions that could enforce use of digital money for a specific purpose.
The author is Head Of Banking, India, FIS