India?s Unified Payment Interface: All you need to know

New Delhi, IndiaWritten By: Vrinda AggarwalUpdated: Sep 02, 2016, 10:00 AM IST

The ?Pocket? app of ICICI bank, Axis Bank?s Axis pay etc. are the new Unified Payments Interface-enabled (UPI-enabled) apps launched on Playstore. Photograph:(Getty)

At present, the number of annual non-cash transactions per person in India stands at just six. According to the World Payments Report, Finland, with 451 non-cash transactions per person in 2013, is ranked first. The United States comes second with 390. China also had 50 non-cash transactions per person in 2013. Compared to India, China has pulled ahead in its attempt to switch to a non-cash economy.

The ‘Pocket’ app of ICICI bank, Axis Bank’s Axis pay, Bank of Maharashtra’s MahaUPI, Federal Bank’s Lotza are now available for downloading. These are the new Unified Payments Interface-enabled (UPI-enabled) apps launched on Playstore. In a few months’ time, these will be available on iOS as well. The National Payments Corporation of India (NPCI), which initiated and designed UPI, has approved 21 Indian banks to launch their UPI apps.

UPI, in a way, is a better and improved version of the present mobile/e-payment tool, IMPS (Immediate Payment Service). UPI enables an individual to transfer funds from one account to another in two simple steps. After downloading the app of any bank, UPI generates a virtual payment address (VPA) that is unique to each account. While transferring money to any other account, one just needs to know the VPA of that account. One needs to authenticate it with a password and it’s done.

Similarly, if someone wants to buy a book online, the e-commerce site will ask for the purchaser’s VPA to receive the amount, then authenticate the transaction with a password and complete the payment process. Thus, a person need not fill his/her card details or follow a two password and an OTP process for buying anything online. Similarly, there is no requirement of any account number, IFSC (swift) code, branch name, etc. for doing an account to account transfer.

Another important feature of UPI is that one doesn’t need to use the app of the bank in which a person holds the account. The UPI app of any bank can be used for any account in another bank. One can also link multiple accounts in multiple banks to one UPI app.

The Interface will be in competition with the existing online tools such as Net banking, NEFT, RTGS, etc. and will increase the competition within the banks as well. This may improve the efficiency of the banks. However, with UPI, one can do a transaction to the tune of a maximum of 100,000 Indian Rupees ($1500 approximately).

Will it make the Indian economy cashless?

UPI is being perceived as a major step towards pushing India in the direction of a cashless economy. However, in order to use UPI, one needs to have a bank account. According to a report by the Bank of India, 41 per cent of the population in India does not access banking facilities, of which 40 per cent is in urban areas and 61 per cent in rural areas. New Delhi has recently launched a scheme called Jan Dhan Yojana that aims to bring banking to the masses. But while the number of accounts has increased, reports suggest that most of the new accounts are lying dormant.

Also, UPI requires one to have a smartphone, internet connection and basic digital literacy. Last year, this journalist went on a field survey in the central Indian state of Madhya Pradesh. The interaction was mainly with people of three income classes in villages just 20 kilometres from the city of Bhopal. People across the income classes carried smartphones but they had never heard about google or e-mail. The phone was just used for calling, messaging and watching videos on youtube. So, there is a large section of the Indian population which has bank accounts and smartphones but are not literate enough to use the UPI app.

But the UPI app may push several digitally and financially literate people to move more towards a world of cashless transactions. Also, in the long run, it may benefit small businesses such as corner stores, cloth shops etc. Currently, a fraction of the 10 million plus retailers in India accept card payments. As of today, only 0.6 million do. Since, both the number of transactions and the value of transaction in a small retail shop per day is low, it is expensive for them to maintain card payment gateway. However, with UPI, they can now easily do cashless transactions at a very low cost. According to a NPCI report, it is less than Rs 0.45 for each UPI transaction.

So, a cashless economy may be a distant dream as of now but a less-cash economy is certainly a distinct possibility.

How will it impact the e-wallet industry?

There are two types of e-wallets in India with their differing business models. One is like that of ItzCash that accepts physical cash at its centres, converts it into digital currency, safekeeping in a wallet and then transferring it to any part of the country. According to Naveen Surya, the managing director of ItzCash, “Our businesses won’t get affected due to UPI. We cater to the unbanked section of the population, mainly daily wage earners, agriculture labourers, etc. Since the prerequisite for using UPI is having a bank account, it won’t affect us.”

However, there are other types of e-wallets such as Paytm, freecharge, mobikwik, instamojo etc. where an individual transfers money from his bank account to the wallet to make payments for cab rides, movie tickets, etc. With UPI, people can easily bypass these e-wallets unless they have an incentive. The incentives mean discounts, rewards or cashbacks from the e-wallet companies. But that is unsustainable in the long run. Right now, NPCI has approved UPI only for banks.

According to Ruchir Kanakia, head, business development & operations, Instamojo, "It is too early to say what will be the impact of UPI on the mobile wallet industry. But UPI is better for sure. One does not need to give personal details to transact through UPI and it will hopefully bring more people online. How much it will impact us remains to be seen."

How many people know about UPI?

For the success of any new platform, awareness is essential. People should know about it. While WION was trying to contact banks for a quote, this reporter talked to five individuals of five different banks who were into retail banking. None of them knew about UPI. The retail bankers communicate with account holders in the banks and usually apprise them of new developments. So, it is important that all 21 banks first make their employees aware about UPI.

(ItzCash is part of Essel Group, the company that owns and operates WION and