UPI is almost like being on a highway without toll gates: Nandan Nilekani
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Nandan Nilekani, former chairman of the Unique Identification Authority of India (UIDAI), says India has a unique edge over other countries when it comes to payment systems in the battle for supremacy in the fintech resolution. Nilekani’s observation comes at a time the National Payments Corporation of India (NPCI) is preparing to launch an upgraded version of the Unified Payments Interface (UPI), called UPI 2.0, by early next year. Nilekani, who serves as an honorary adviser to NPCI on innovation and public policy and was one of the key brains behind UPI, said that once some of “the teething issues” with the current version of UPI are sorted out, the system will be ready to take off in a big way, especially in e-commerce. In an interview, he spoke about how UPI was created in the first place, the role played by the likes of NPCI and the Reserve Bank of India (RBI) in its development, and what’s next for UPI. Edited excerpts:
How was UPI conceptualized in the first place and how did you go about building it?
The foundation of UPI is really the highly successful IMPS (Immediate Payment Service) that NPCI launched five-six years ago—around 2011. This was a remarkable innovation because for the first time it gave you 24x7 instant credit. For example, in a very short period of time, in less than five years, the volume on IMPS has gone to Rs24,000 crore a month and it has become the de facto way of doing remittances in India. That’s the great success story that NPCI created and is really the first product to do instant credit. But it couldn’t be used for merchant payments because for that you need instant debit… Then some of us got together and were discussing that with the rise of smartphones, there was a need to build on the success of IMPS and to build something which was world-class, could do both credit and debit, smartphone-to-smartphone, etc. Then NPCI appointed me as an honorary adviser on innovation and public policy so that I could share my inputs and entered into an MoU (memorandum of understanding) with iSpirt (software product industry lobby group)... This all happened in late 2014. Then in February 2015, we had the launch of UPI by (RBI) governor (Raghuram) Rajan, who was always a big supporter of the idea. It took them a year to get the software built by RS Software, etc. So it was basically built as a layer on top of IMPS with debit. And then all these great innovations came, like virtual payment address (VPA), push-and-pull payments, etc.—all that was the work of the iSpirt and NPCI teams... It took us more than a year to get it done. Then the actual launch happened in April 2016. Then another two-three months to test out everything and get all the banks going. And finally they went live about a month ago.
What were some of the triggers behind the creation of UPI?
We felt we were in a unique position because there was an organization like NPCI which was a very strong organization on payments, set up by the banks and owned collectively by the banks. And this organization had come into being coincidentally around the same time as UIDAI—both came up in 2009. There has been a very close working relationship between UIDAI and NPCI, which led to the creation of Aadhaar payment bridge, etc. Since it was a bank-owned utility, it was well-geared to offer an interoperable system. RBI was supportive, not just the governor but also the department of payments.
How is UPI different from other payment systems in countries like the US and China?
In the US and China, it’s like a walled garden where a couple of key players control the system. For example, in China you have the likes of WeChat and AliPay. With UPI, anyone can build on top of it and innovate—it’s open and inclusive. It’s almost like being on a highway without any toll gates.
What’s your assessment of where UPI is at right now? What are some of the things that still need to be fixed?
This is a mammoth task— taking a country’s payments system and make it go into the completely 21st century online real time...across smartphones, fully secure, encrypted, virtual payment addresses, etc. This is a major thing—there are bound to be teething issues. There are some teething issues in onboarding customers and so on, but I think it’s all par for the course. It’ll take a couple of months to settle that down. But as more banks like SBI (State Bank of India) and HDFC (Bank) come online, more and more of India’s banking terms will be on UPI. And then once all these teething issues are sorted out, I’m very confident it’ll take off because it is such a superior value proposition. Both for online and offline merchant payments and both for online B2B (business to business) payments.
What’s next for UPI? What should we expect in the next 6-12 months?
The idea is that in the next couple of months all the technical issues, all the onboarding issues, all the user interface issues would have been shaken out—any concerns that people have. All the banks will be live. All the major merchants should be live. There will be a few hundred thousand customers who will be ready to transact with their VPAs and apps. And there will be choice for consumers to select very attractive apps from a number of banks. Once you have that, you have the ground conditions for take-off. My sense is that the first take-off will happen in the online, e-commerce world. And then the same thing will migrate to the offline world...The big thing to remember is that in the typical card world, you went from offline to online. In the UPI world, we’re going from online to offline.