How Unified Payment Interface can mean lesser hassles compared to mobile wallets

Unified payment interface (UPI) system is disrupting mobile wallet space for good


With the emergence of numerous online payment and mobile wallet options in India, each passing year tech-savvy Indians are adapting themselves to newly designed payment modes. A number of banks have also set up their personalised tech-enabled payment systems. Although money-on-the-go payment method has brought financial transactions to a click of a button, customers are still vulnerable to a variety of problems such as technical glitches, connectivity issues and security concerns.

With the recently launched Unified Payment Interface (UPI) system, there is hope towards garnering smooth financial transactions. Initiated by the National Payments Corporation of India (NPCI), an umbrella organisation for all retail payments system in the country, the UPI system promises to empower customers with lesser hassles, compared to those posed by the current mobile wallets in the country. Given the nature of NPCI’s member base consisting public, private and foreign banks, UPI is a great platform. Its success is dependent on the number of products and services that banks and other payment system participants shall offer when using the UPI. However, unlike current payment modes—mobile-based or otherwise—wherein one needs to maintain multiple credentials in the form of customer IDs, account number and passwords, UPI allows you to carry out your transactions on the basis of a ‘virtual address’. With this address as the payment identifier, one can send or collect money and also conduct push and pull transactions for various purposes such as remitting money, paying a utility bill, sharing bills among peers, etc.

This is a central capability system wherein a number of participants can work with one another. To cite an example, if both SBI and Axis Bank are connected to UPI, then the customer can remit or transfer funds, collect payment, etc, using UPI. All that the customer requires is an identifier (such as a mobile number, Aadhaar number or payment address) of the payee and then UPI will carry out the subsequent steps to finish the transaction. Overall, it promises to simplify the payment procedure. A transaction does not require an IFS code or bank account numbers of the two parties involved in it, just the UPI identifier, and money exchanges hands in a jiffy. It also enables miscellaneous expenses such as paying utility bills, over-the-counter payments, donations and even school fees.

With so many customer-friendly options, it is pertinent to analyse if the UPI system will trump other mobile wallet players. Whether it will or will not depends on how large a market space it is able to create for itself? An excellent example of how a mobile phone-based money transfer, financing and micro-financing service captured the market is that of M-Pesa in Kenya. It was able to develop an entire ecosystem comprising a large user base and a strong network of merchants, catering to customer requirements within the ecosystem. It will be interesting to see how mobile wallet providers respond to UPI and are able to build a significant scale. Leveraging over its competitors, UPI stands to gain in terms of credibility as it is developed by NPCI. Moreover, as NPCI is at the core of payment systems and operates national-level large payment systems such as NFS, APBS, IMPS, AEPS and BBPS, it already has capabilities to efficiently and securely operate UPI.

Another advantage for a UPI user is to make payment through the system, instead of paying cash-on-delivery to online shopping portals. In India, the cash-on-delivery method is popular with online shoppers, due to which e-commerce retailers incur additional logistical costs. While many e-commerce players are contemplating setting up their own mobile wallets, adopting UPI can help cut logistical costs. This way they can concentrate on honing their core business of delivering good quality products on time.

As we transform to a less-cash, more digital network, the UPI system offers a number of opportunities. As a result, it stands a strong chance to attract more customers on board. After all, players involved in financial transactions are not expected to let go of a ubiquitous service available with reduced payment hassles, which also fulfils their payment needs.

The author is partner, KPMG in India. Views are personal