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Expert Speak: Paradigm shift to digital payments imminent
23-Dec-2016

We met Mr Sanjay Saxena, CFO of National Payments Corporation of India (NPCI), to understand the payments environment in India. Post demonetization, the usage of digital payment systems has increased significantly given the cash crunch. Thus, the launch of the Unified Payments Interface (UPI) by NPCI comes at a pertinent time. Since its launch in August 2016, the UPI has 31 banks and 4m registered users onboard. The UPI aims to make instant mobile money transfers between any two parties (person-person, person-entity and entity-person) easy, secure and hassle-free. The functionality of the UPI in terms of simplicity (virtual address is the only requirement), speed (no need to wait for OTP, 1-click 2-factor authentication) and safety (no bank account details and other information like IFSC code required) cannot be matched by existing payment channels like debit cards/net banking.

UPI: Facilitating simple and convenient mobile payments

  • Transactions based on virtual address: Virtual address can be anything – e.g. mobile number, aadhar number and name  – mapped to the bank account.
  • 1-click 2-factor authentication: Money can be transferred instantly with the ‘1-click 2-factor’ feature. The two factors are 1) mobile and 2) any one other factor (password, pin or biometric). Mobile number is automatically verified at the back end by the bank.
  • Convenience: One does not need to know the recipient’s name, bank account number, IFSC code or bank branch. Only the virtual address is required.
  • Pay’ and ‘Collect’ feature:UPI enables both push/pull transactions. One can initiate the transaction to not only pay money, but also to collect money from the other party.
Could UPI be the game changer?
  • The UPI has overcome several challenges in relation to existing payments systems, and could potentially reduce cash intensity in India.
  • It solves existing merchant pain points like expensive PoS machines, inadequate payment acceptance infrastructure and change handling.
  • Inadequacy of card payments is evidenced by the fact that debit card usage at PoS accounts for only ~5% of total card transaction value. Mobile being a more personalized payment option has much higher appeal.
  • The UPI can potentially displace cash-on-delivery (COD) payment method in e-commerce (~60%), resolving the pain points of companies like Amazon, Flipkart and Snapdeal which incur huge costs on logistics and working capital requirements.