(An edited version of this article appeared yesterday in Swarajyamag )
July 16 2022: Two weeks ago, a commentary on digital payments on the website of the US business magazine, Fortune carried a provocative headline: “ As Silicon Valley fantasizes about Web3.0, India leaps ahead on payments”. It reminded American readers that Bitcoin and Blockchain which were touted to transform global commerce, are yet to deliver on their promise. Another much-hyped technology, Web3.0 which was to make it all happen, remains a work in progress.
Meanwhile wrote the authors: India is racing ahead and implementing what the crypto crowd had promised – with its Unified Payment Services.”
UPI, the instant real-time payment system developed by the National Payments Corporation of India for facilitating inter-bank transactions, has morphed into a simple, uncomplicated mobile payments option, embraced by Indians in spectacular numbers. According to NPCI, the value of 595 crore (5.95 billion) transactions on UPI during the month of May 2022, crossed the Rs 10 lakh crore mark (10 trillion) for the first time (the exact number was 10.41 lakh crore).
By cutting out intermediaries, UPI is doing exactly what blockchain is supposed to do – and by making it (for now at least) a payment mechanism that is free of transaction charges, it has attracted 26 crores (260 million) unique users and 5 crore (50 million) merchants in India alone. And its makers at NCPI cannily placed its protocol in the public domain, so that others could build their technologies on top and customize it for their customers – a lesson well learnt from the experience of Open Source in the computer world.
As a result, the reach of UPI is near ubiquitous in India – with over 300 banks offering their linkages through the UPI users bank account. And in addition to the NPCI’s mother app, BHIM, some 50-plus third-party players offer UPI-enabled apps. The top UPI apps are GooglePay, PhonePay and Paytm, with WhatsappPay and AmazonPay growing fast. Interestingly, four of these are owned by global entities -- GooglePay (by its parent Alphabet), PhonePay (Walmart through its acquisition of Flipkart), AmazonPay (Amazon) and WhatsApp (Meta, formerly Facebook).
‘If you can’t fight ‘em, join ‘em!’
It has been a case of being reminded of an American truism --“if you can’t fight ‘em, join ‘em” --for these US based biggies. Without an umbilical to UPI, they would have lost out on a very large chunk of their business. So, it is not surprising that having tested the waters with UPI in India, some of them are sharing the learnings with their government back home: Soon after it launched GooglePay in India, Google brought UPI to the attention of the US Treasury Department, and recommended its replication for inter-back services in the US, citing its smooth real -time operation and open system.
But there is such a thing as being too good for your own good: PhonePe and GooglePay have become such big favourites with Indian users, that they have together scooped up 81% of all UPI transactions in India by volume and 84% by transaction value, as of this month. To ensure that UPI does not become a monopoly, NPCI had issued guidelines that no single UPI app should hold more than 30% share of the total market. The guidelines kick in only in January 2023 --- and it remains to be seen if it can be enforced in practice: Limits have been placed on how many UPI accounts WhatsApp can sign up – but can the owners of GooglePay or PhonePe, realistically ‘cancel’ some of their existing users to meet the ceiling?
Digital jugaad: giving UPI a voice
First demonetization, then the Covid pandemic, forced millions of Indians to embrace cashless transaction for their daily shopping and payment needs – and the simplicity of a UPI app on a smart phone of which there are 750 million in use India, has made UPI almost a default app on every handset. For millions of small traders, kirana shop keepers, hand cart vegetable vendors, mandi sellers, a UPI seller app ensured that they could continue to do business. Many of them are hard pressed to monitor the text messages that confirm that a customer has made the payment. So, in what is an exemplar of good-old Indian jugaad, the Paytms and the PhonePes have created UPI boxes for their clients – with a built-in loudspeaker that gives voice confirmation of a payment received.
But what of the other 300 -400 million – those who own a basic feature phone, ie, a non-smart mobile phone? In March this year, the Reserve Bank of India launched an initiative – UPI123Pay – which gives feature phone owners, an app that enables them with most UPI features.
And in May 2022, RBI further extended the reach and utility of UPI by directing banks to enable customers to withdraw money (up to Rs 5000) at ATMs in a card-less transaction, using the UPI app on their phones. Most big banks have already complied.
Earlier this week, international information services and credit reporting company, Experian, releasedIndia-specific findings from its Global Insights report. It found that digital payments had over taken credit card payments in India, with an overwhelming 91% of customers preferring online payments and digital wallets to traditional payment methods. Almost anticipating this finding, RBI made a somewhat surprising announcement in its Monetary Policy Committee in June this year: it allowed a linkage of credit cards to UPI payments.
Wag the dog: Credit card-UPI sangam
This was canny move: many small merchants don’t own and couldn’t afford a credit card Point of Sale (PoS) terminal, but almost all of them used a phone-based UPI payment system. Allowing credit card holders to pay using their UPI app, may turn out to be an inspired move, opening up the UPI ecosystem even further, even as it breathes life into the credit card business in India, which has been hardly growing with a 30% market share of the payments business. For starters, the NPCI-supported Rupay payment network has launched the credit card-UPI link and Visa, Mastercard, Diners, American Express are expected to follow suit for hard-nosed reasons. A case of the tail wagging the dog?
It is in times of crisis that a technology is put to real test: branchless banking and digital payments have helped customers obtain essential banking services in disaster situations like floods and cyclones. Even as floods ravage the Odisha coast and parts of the North East, innovative UPI-fueled, Aadhaar-based solutions from the Indian fintech startup ecosystem – literally – bridged the gap. In Assam last month, PayNearby, a digital payments player which has over 50 lakh micro entrepreneurs as clients India-wide, sent out an army of business correspondents, on foot or in small boats, armed with micro-ATMs and hand-held biometric devices to provide cash to lakhs of the flood ravaged, at their doorstep.
Even as UPI continues to bridge the payment gap for millions in India, its authors had a larger – global – vision. In April 2020, NPCI launched a subsidiary, NPCI International Payments Ltd (NIPL), to take UPI to foreign markets. Nepal will soon be the first to enable UPI country-wide with the backing of the Nepal Rastra Bank.
Today, merchants in Bhutan, Cambodia, Malaysia, Philippines, Singapore and Vietnam already accept UPI payments, thanks to cross border payment agreements. In April this year, the BHIM UPI app went live all over the UAE, at NeoPay terminals operated by Mashreq Bank. Indian-origin residents and tourists in Dubai, Abu Dhabi and other Gulf centres, can now pay for purchases with the same app they use in India.
The reach of UPI is not limited to Asia or the Middle East: France may be the first European country where UPI can be used: IT Minister Ashwini Vaishnaw announced last month that NPCI had signed an MOU with French payments provider Lyra Networks to kickstart UPI’s French Connection.
At home and abroad, the made-in-India digital payments system that is UPI seems to be looking at continued growth. A June 2022 study for PhonePe by the Boston Consulting Group entitled “Digital Payments in India: a $ 10 trillion opportunity” found that the digital payments industry in India was enroute to quadrupling from the current US $ 3 lakh crore (trillion) to $ 10 lakh crore by 2026. Digital non cash payments would then account for 2 out of every 3 payments in India.
“(UPI) is delivering a real revolution, that flies under the radar of (western) tech gurus”, concludes the Fortune article which is co-authored by Vivek Wadhwa, Indian-American entrepreneur, Distinguished Fellow of Carnegie-Mellon’s School of Engineering and a long-time observer of the India Technology scene. But in reality, he suggests, “India is very astutely leaping ahead of the world.”