The Wonderful By-Effects of Unified Payments Interface (UPI)

If 2016 should be remembered for something, it's the launch of the first Visa/Mastercard/SWIFT-free payments system – the Unified Payments Interface (UPI) by the National Payments Corporation of India (NPCI). UPI is an open-source platform designed for the mobile age that helps with easy integration of various payment platforms. UPI is powered by a single payment API and a set of supporting APIs. It has a fantastic value proposition including a simple authentication process, simple issuance & acquiring infrastructure, national interoperability and more.

But UPI is much more than a breakthrough in payments – it's a whole new model of the financial services industry ecosystem.

For starters, UPI might just kill it for all other mobile wallets that were struggling to really take off in the first place. Excitement over the growth of mobile payments perpetuated the phenomenon of disconnected islands and disjoint experiences. With UPI, there is no need in any other payment app at all. On the other hand, if one wants to keep a particular mobile wallet, UPI could enable the interoperability of wallets allowing users to transfer funds from one wallet to another.

Since RBI has allowed only banks to become Payment Service Providers of UPI service, mobile wallets are out of the picture at the moment. So, if mobile wallets represented any threat to proprietary solutions, UPI comes as a boon for them.

Further, UPI reshapes entity-entity relationships (whatever entities those are – merchants, payment gateways, banks, network owners). As Harshil Mathur, Co-founder and CEO of Razorpay, explains, ...instead of having to build 57 bank relationships a gateway has to build right now, it needs to build only one relationship with the UPI. So it will ease our efforts and help out the merchant.

As a result, little to no efforts will be needed to establish the payments funnel with any bank in the UPI network, which will boost the business efficiency and refocus gateways on other important tasks. For banks, it will significantly reduce merchant acquisition cost by providing a solution to the merchant that is conducive and has long term benefits.

UPI, in a widespread adoption, may squeeze out cards from national use or eliminate the necessity to use/carry/have one. UPI will be especially important for countries where a relatively small fraction of businesses is armed with card payment facilities and the adoption of mobile devices is on the rise. In India with over 25 million merchants, only 1.2 million have card readers, for example. With UPI, they won't even need those archaic machines.

Speaking of smartphone adoption and mobile payments, let's look at Africa, where a range of countries are leading the world in terms mobile money adoption with Kenya, Ghana and Tanzania expected to be the hottest mobile money markets in the world by 2020. Launched on the continent, UPI could do wonders for businesses, skipping the stage of adoption of card payments right to cashless mobile-based transfers. The same goes for any other country with cash-heavy payments industry and a large small and micro-business community.

We can't forget about the fees here. Since UPI is free from money-eaters such as Visa and Mastercard, transaction charges would be less compared to what customers currently pay with regular cards.

Above all, UPI would be good for the economy as it would give a way to mass cashless payments. Use of currency notes would come down and the economy would become more transparent, amenable to the compilation of authentic data. As Sangram Singh, SVP and Head of Cards & Merchant Acquiring Business at Axis Bank, commented recently, "Digital payments have been growing quickly in the country, but they are still a fraction of the overall payments. Most of the high-frequency small transactions are still in cash. The ease and convenience UPI offers will help individuals prefer to pay their maids, milkman, newspaper vendor, etc., digitally than in cash."

Today, many find bank visits cumbersome. With UPI, we will feel the same about visiting an ATM," he added.