Paytm, MobiKwik, Oxigen watch out! UPI set to eat up your lunch

But one needs to see how the UPI platform itself works. A project as massive as this one may have its fair share of hiccups. Even as he was launching the UPI, the governor warned that a resolution system needs to be put in place for the user to recover her money if a transaction fails.


While flagging off the Unified Payment Interface (UPI) on Monday, the RBI governor said “a banking revolution is upon us”. “Revolution” is a word with  an element of magic about it, and it probably ill-fits the Indian banking system currently with its load of bad loans. But, the governor wasn’t exaggerating. The UPI can, in a very short time, make a huge difference to the way Indians pay one another.

In a few weeks most banks will have a payment app that we can download on our phones or desktops. The app will allow us to register our unique ID which we may link to two or three of our bank accounts. Soon most of whom we transact with will register their own identifiers – starting from the electricity company to the mall to the taxi driver. Thereafter, paying any of these persons or entities will just involve sending a text on this app with a direction to pay to or withdraw from. The payer’s and the receiver’s banks will connect with the UPI server, which will authenticate the payer and the receiver’s identities and complete the payment.

Currently, the various wallets such as Paytm, HDFC Bank   ’s chiller, ICICI Bank   ‘s pockets and SBI   ’s buddy do much the same. But, they are small islands of people who are registered with the same bank’s wallet. Once UPI is up and we all have our IDs in place, wallets won’t be needed. UPI incidentally doesn’t allow interoperability of wallets on its platform. So wallets probably will die away like the good old pager unless they can re-invent themselves in some fashion. But they get a lead time. Today, wallets are a craze because of their simplicity and ease of use. UPI’s apps may take time. One hears that some of the banks which have signed up with UPI have already launched apps which are temptingly easy to use. But one needs to see how the UPI platform itself works. A project as massive as this one may have its fair share of hiccups. Even as he was launching the UPI, the governor warned that a resolution system needs to be put in place for the user to recover her money if a transaction fails. So as of now we may prefer to pay our Ola cabs for a few more months with our wallets.

Chances are the legacy banks will fiercely adopt the UPI and compete to offer friendly apps so as to stave off competition from the wallets. NPCI says that Federal bank , Axis Bank   , RBL, Yes, Oriental Bank of Commerce   , Union Bank   , ICICI Bank, HDFC Bank, PNB   and Canara Bank   are ready with their apps. Ten others have also signed up to join. As one can see, even those banks with wallets have joined in. Clearly these banks want to stave off the competition that is likely from the payment banks as well.

So who will be the casualties of the UPI. It is possible that the UPI, if successful, will blunt the competition from the payment banks. But the payment banks obviously have a larger role. They will still be relevant in connecting the unbanked: the migrant from Bihar working in Mumbai and remitting money back to his family which lives in a village that probably doesn’t have a brick and mortar bank will perhaps more likely use the payments bank. Incidentally, account holders in two different payment banks will also use the UPI to transact.  But clearly the payment banks were hoping to make more of their money from the urban customers and they will continue to be relevant if they offer attractive add-ons like selling loans, insurance or trading in shares.

Only their payment service margins get  impacted by the competition from UPI.

The other huge impact of the UPI is that it gives a fresh lease of life to the mid and small PSU and private banks. The state-of-the-art payment wallets and payment banks were all set to bleed them, but now suddenly the UPI makes the playing field level for all banks.

To be sure the Federals and the DCB s will jump up to grab this lease of life. It remains to be seen if the Denas and IOBs also wake up and smell the coffee.

It is tough to see why the UPI won’t succeed. Its founding fathers include Nandan Nilekani, the Reserve Bank of India and a dedicated team at the National Payments Corporation which has already learnt a lot about scaling up after the rupay-jandhan experiment.  Also, the entire band of high profile private and public sector banks including SBI, ICICI, HDFC, Axis, BoB and PNB will jump in to ensure the success of UPI.

As Indians start to pay not only electricity bills, school fees and telephone bills through UPI but also for taxis and meals and pizzas and fruit, imagine the audit trail they will leave behind, the database they will create from which business analytics can draw a zillion trends. A billion apps are set to be launched to use this data. Tax authorities can sharpen their codes as well.

From the governor’s point of view, another minor advantage: may be more money will be paid from bank to bank and cash leakage will be less, leading to greater impact of monetary policy. Not surprising he said a banking revolution is on us.