Push for a UPI ecosystem minus debit  cards  as RBI  vows  inclusion

  • One needs a debit card to set up a UPI handle but many rural customers don’t get one, say analysts
  • A debit card is mandatory to set the UPI PIN, under the existing mechanism

Shayan Ghosh
Updated10 Mar 2022
The new UPI service will allow 400 million feature phone users to make digital payments through the network.
The new UPI service will allow 400 million feature phone users to make digital payments through the network.(Photo: HT)

Registrations for unified payments interface (UPI) must be independent of debit cards to further the adoption of digital payments in India, experts said a day after the Reserve Bank of India (RBI) launched UPI123Pay, which will allow users to make offline digital payments through feature phones.

A debit card is mandatory to set the UPI PIN, under the existing mechanism. A customer must key in debit card details to receive a one-time password on his phone to log into the system. As such, customers who have bank accounts but do not have debit cards cannot use the homegrown payments network.

“Yes, there is a demand that UPI payments should be allowed without debit cards. There are many people who have debit cards, but do not know how to use them except for withdrawing cash. Then there are others who do not use them at all,” said Parijat Garg, an independent fintech expert.

UPI essentially leverages the existing bank account infrastructure and uses the debit card pin to verify the credentials of an account holder. However, phones are shared by more than one individual in a segment of customers, making authentication difficult, Garg said. “Going by what RBI launched yesterday (8 March), a customer intending to use UPI needs to key in details on a feature phone by following instructions on IVR. That itself will be difficult for many,” Garg said.

The Jan Dhan scheme has given significant impetus to financial inclusion, allowing millions to access bank accounts, but there is a gap in debit card issuance. The Pradhan Mantri Jan-Dhan Yojana (PMJDY), launched in August 2014, is a financial inclusion programme that envisages universal access to banking facilities with at least one basic account for every household. Around 448.2 million people have benefited, but the number of Rupay debit cards issued under the scheme is 314.6 million, according to 2 March data.

UPI has transformed India’s payments system but the number of unique customers is still far below India’s population, Natasha Jethanandani, co-founder, Kaleidofin, a fintech platform for the under-banked, had said during a Mint webinar in January. “A few challenges are there. One needs a debit card to set up a UPI handle but many banks in rural areas do not issue debit card,” she had said.

The new UPI service will allow 400 million feature phone users to make digital payments through the network. Feature phones, or basic phones, typically allow voice calling and text messaging. Out of India’s 1.18 billion mobile phone users, only 740 million have smartphones.

However, a section of experts said it is unfair to conclude that as UPI for feature phones still requires debit card details, it defeats the purpose of simplifying the registration process. The idea behind the policy mandating two-factor authentication is to ensure better security, they said. “Anyone familiar with digital payment processing knows that there is a need for authenticating the customer with a second factor authentication apart from the mobile number to initiate a transaction,” said A.P. Hota, former chief executive, National Payments Corp of India.

“This principle cannot be compromised even if the customer is a feature phone user. Else, feature phone users will be exposed to risks of fraud,” Hota said. Once back-end artificial intelligence-based verification alternatives are available, UPI registration will be further simplified, he said.

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