March 29, 2016
India has 250 million people who have accessed the Internet at least once and 300 million smartphone users. For a lot of people, Internet access was made available for the first time via the mobile phone. India is now quite ready for all kinds of technological and digital disruptions. The online buying revolution is in the 5th year, with e-commerce already clocking $16 billion (including online travel booking) and new categories like on-demand food ordering, taxis and on-demand task/errands kind of services are growing fast in the top cities. Yet, today, only 35 million people pay through digital channels. There are only 21.3 million credit cards and a large number of debit cards which most people have not used for online transactions (as they think that the debit card is an ATM card only). Therefore, 60% of the commerce transactions go through cash on delivery which is a bad state of things but a huge problem to solve and P2P is even worst.
Customer experience during checkout is nowhere close to seamless; transaction failure rates are very high, making the payment process weak. Net banking/Internet banking (paying from the source of funds) in which customers pay directly through the bank account from the browser involves multiple steps and is a complex process. On the mobile, the experience is even worse due to the small size of the screen.
In order to solve this concern, National Payments Corporation of India (NPCI) launched the Unified Payment Interface to provide a common interface across all payment systems, thereby enabling all account holders to send and receive money from their mobile phones with a unique identifier—mobile number, Aadhaar number or a virtual payments address—without disclosing one’s bank related information and at the click of a button. The UPI uses a single application programming interface (API)—with a series of supporting APIs—to allow users to utilize their mobile phone as the primary device for all payments. NPCI, which operates the RuPay payments network that competes with MasterCard and Visa, tested the interface in association with Axis Bank Ltd.; 29 other banks have also agreed to start UPI-based services to their customers, starting the first quarter of the next financial year.
While performing a transaction, a merchant (shopkeepers, taxi drivers, etc.) can collect money easily where the customer has to just give his virtual address instead of a bank account number or mobile number to the merchant. The customer will then have to key in their password on their phone, thereby approving the transaction.
As part of its expansion plan, NPCI is planning to launch four new products this financial year. The products include Bharat Bill Payment System (BBPS), electronic toll collections, RuPay credit-plus-debit card and a tap-and-go transit card.
The Unified Payments Interface simplifies the process of loading cash into the wallets; however, they have made them redundant. The current regulations around prepaid instruments do not allow wallet-to-wallet interoperability as well. In order to participate in the UPI, these startups might have to partner with a bank that is already on the UPI platform. Furthermore, the big positive which was in favor of wallet startups was technology; with the Unified Payments Interface, banks will also have the access to API and will be able to provide competing products similar to Paytm's and the MobiKwik’s products.
Likewise, taxi aggregators like Uber and Ola can now easily launch a new version of their app with the UPI API integrated into it, allowing customers to pay directly from their banks with a single click by using their virtual address. This ensures that the niche for mobile wallets may not exist anymore. As mobile wallet users can only store limited balance in a single account, wallets may slowly focus on moving to middle- to lower-middle-income group customers while banks focus on large deposits.