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Home >Money >Personal Finance >UPI, card or wallet: what is your default digital payment option?

In its recent monetary policy, the Reserve Bank of India (RBI) announced that the limit for contactless card transactions will be increased from 1 January 2021, from 2,000 to 5,000. The limit was enhanced as the banking regulator feels that it’s safe and convenient to use contactless cards in the midst of the covid-19 pandemic and will also give a push to the adoption of digital payments.

“Considering that most of the transactions are below 1,000, the new limit is generous. It ensures that customers have a frictionless payment experience where they don’t have to enter passwords and PINs (personal identification numbers)," said Nitya Sharma, co-founder and chief executive officer, Simpl, a platform focussed on pay later service.

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RBI has a monetary limit for contactless payment as it does not require the cardholder to punch in any password or PIN. The regulator has made it mandatory for all transactions above 2,000 ( 5,000 from 1 January) to be authenticated twice. When an individual is using a card for any transaction above 2,000, besides keying the card details, the issuer authenticates the transaction through another means such as by sending an OTP (one-time password). The extra security layer is used to curb frauds and make electronic transactions more secure.

Besides cards, there are already different options for contactless payment. Some of these include the UPI (Unified Payment Interface), payment wallets and IMPS (Immediate Payment Service) through mobile banking apps. Each of these modes of payment has its merits and demerits. Let’s look at which one works best for contactless transfer of money.

CARDS

At the beginning of the year, RBI had issued a notification in which it had outlined steps that every issuer must take to make all types cards more secure. According to the notification, when banks are either issuing or re-issuing cards, by default, the customer should only be able to use them at domestic ATMs and contact-based payment at point of sale (PoS) terminals.

For all other transactions—such as for online transaction in India or abroad or for contactless payment—customers must call up the issuer and ask them to enable the card for specific use.

For existing cards, RBI asked issuers to use their discretion. But cards that were never used for online, international, or contactless transactions, had to be mandatorily disabled for such transactions. Banks had to implement this from 1 October.

If an individual wants to use his card for contactless payment, there are chances his card is blocked for such payments. In such a case, he will need to call up the bank and get the facility.

To make contactless transaction, the payer will need to keep the card close to the card machine (PoS terminal) or tap on it. They are safe as contactless payment works only when the card is within 4cm of the card reader and has multiple layers of security, according to Visa’s website.

“This is the best payment experience for individuals. When you add additional security in the form of PIN and password, you also get higher failed transactions due to different factors," said Sharma.

What works? The customer doesn’t need to enter any password. Further, the cardholder is not dependent on the mobile network and there is no initial setup required. It’s the quickest payment option and is easy to understand even for seniors who may not be well-versed with digital transactions.

What doesn’t? If a cardholder loses a card, low-ticket unauthorized transactions are possible until it is blocked. There are about 5.1 million PoS terminals in the country, according to RBI data. Also, since contactless payment is a new technology, banks will need to upgrade PoS terminals.

BANKING APPS (IMPS)

As technology in the payments space has progressed with breakneck speed, IMPS can be termed as the traditional online payment channel, though its only a few years old.

To make a transaction using IMPS, a bank customer requires the account details of the receiver. To avoid frauds, most banks require customers to first add the receiver as a beneficiary before the money can be transferred. Many banks don’t even allow money transfer for a few hours after the beneficiary is added or they restrict the amount a customer can transfer in the first 24 hours.

For bigger amounts, this is still the preferred option. But for smaller payments, IMPS may be cumbersome.

Most banks allow up to 2 lakh limit for each transaction. However, there is a cap on the maximum transfer that can be done through IMPS, which is 10 lakh a day. The minimum transaction can be as low as 1.

What works? There is no initial setup required in these. Most banking apps work with netbanking credentials. IMPS allows transfer of higher amounts and works on any device.

What doesn’t? It requires the customer to enter too many details of the beneficiary and there are multiple steps involved to make a payment.

WALLETS AND UPI

Wallets were once popular as they offered discounts on transactions and were easier to use when making payments. But the popular ones have incorporated UPI and are now primarily payments apps. Then there are apps such as Google Pay, which only focus on UPI payments.

After the launch of UPI, the use case for wallets reduced. Most customers preferred UPI over wallets. That’s because wallets involved an additional step where users need to first add money to it before using it. In UPI, on the other hand, money gets directly transferred from one bank account to another.

UPI was launched for small transactions. The number of transactions done through UPI are far more compared to other electronic transfers and the number has been growing. “For merchants, it’s the most cost-effective way to receive money. They don’t need any machines. Neither the payer nor the receiver need to have any infrastructure," said Prakash Kumar, co-founder, KhaaliJeb, a payments app.

“All they need is a QR (quick response) code, which the payer can scan and pay. For person-to-person transfer, it can be done through a unique identifier or UPI ID," Kumar added.

KhaaliJeb targets youth. According to Kumar, most of their customers don’t prefer to carry cards. Mobile is their preferred payment option.

The maximum funds that an individual can transfer through UPI is 1 lakh for each transaction and that’s also the daily limit for all transactions combined. Also, only a maximum of 10 transactions can be done in 24 hours via UPI.

What works? This is easily accepted by merchants, and is even available with small merchants such as fruit and vegetable vendors these days. The transaction cost is low and it requires a one-time setup.

What doesn’t? Unlike contactless cards, it requires a password for all transactions, irrespective of the payment amount. It is dependent on the mobile network, which may sometimes cause problems at merchant stores if the connectivity is bad. If you change your device, you will need to set it up again.

According to both Kumar and Sharma, the future of payments is NFC (near-field communication). It works like a contactless card, where the payer taps his mobile on either a PoS machine or on the receiver’s mobile. According to reports, the National Payments Corp. of India, which runs the UPI network, is working on integrating NFC with UPI.

But this is still some years away as most mid-range and low-cost mobiles don’t have NFC yet. Until that happens, contactless card works out to be more convenient, whereas UPI is more practical.

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