Ease in payment through UPI and the proposed availability of credit through it could boost its adoption
NPCI has added the recurring payments feature to UPI which allows deduction of fixed monthly payments
Some recent and upcoming developments on the Unified Payments Interface (UPI) platform will make it more convenient and interoperable across the entire payment ecosystem and could increase its adoption.
The National Payments Corp. of India (NPCI) is in the process of linking UPI to payment wallets, executives of companies involved in payments solutions told Mint, on the condition of anonymity. “At present, NPCI is addressing concerns of stakeholders so that everyone agrees on the modalities. UPI could be available on wallets within a few weeks," said a person involved in the discussions, on the condition of anonymity. Once this happens, individuals will be able to transfer money from the wallet of one company to another, send money from their wallet to another person’s bank account and use their credit cards to send money to another person’s bank account.
Apart from this, there are three more developments that will benefit you. One, autopay, which allows users to make recurring payments. Two, the integration of UPI on WhatsApp, which could significantly increase the user base. Three, offline payments using NFC, which will allow individuals to pay merchants over points of sale (PoS) terminals.
Payments through UPI
Autopay: Recently, NPCI added the recurring payments feature to UPI. It allows companies to deduct a fixed monthly payment from an individual’s bank account at regular intervals.
If the amount is up to ₹2,000 for each transaction, the user doesn’t even need to enter the PIN (personal identification number), as per the Reserve Bank of India (RBI) regulations. “It’s possible to set up a recurring payment of a higher amount. But that would require the user to enter the PIN for authorization," said N. Sathish, deputy chief product officer at FSS, a payments technology and transaction processing company.
Recurring payments can come handy for various things, apart from your utility bills. Consumers are increasingly using subscription-based products and services such as streaming platforms. Even e-commerce companies offer discounts on products if customers subscribe to them.
“There are other options available for recurring payments. But those come with a cost. UPI autopay is far simpler and cheaper compared with the existing methods," said Akash Gehani, co-founder, Instamojo, a payments gateway.
Users opting for recurring payments tend to be more loyal. “We have seen this with credit cards abroad. If users allow recurring payments without the PIN, it means they trust the system. This feature would make UPI sticky," said Murali Nair, president, banking, Zeta India, a fintech company that provides banking solutions.
The best part is the ease. “With existing methods, stopping recurring payments could be tedious. UPI allows users to cancel the recurring payment mandate or pause it, making it the most feasible option," said Mohit Gopal, senior vice-president and strategy head, PayU India, a payments gateway.
WhatsApp connect: Companies in the payments space expect UPI adoption to increase manifold once it is available on WhatsApp. “It can help onboard the next 100 million users faster," said Gehani.
Most of the popular UPI apps are specifically developed for payments or banking use. “No app in the country can compete with WhatsApp on engagement. If making a payment is made as simple as sending a message, it would be more intuitive. It can help UPI reach a significant scale and higher penetration," said Gehani.
The increase in adoption means more merchants would accept digital payments.
Offline payment: NPCI has been working on adding near-field communication (NFC) capabilities to its payments that would allow offline transactions on UPI at merchant stores.
But this technology could take a bit of time. “The majority of PoS terminals don’t have NFC yet. Also, most of the affordable smartphones don’t support NFC. So this would be a long-term plan," said Bipin Preet Singh, founder and CEO, MobiKwik.
NFC payment could help in financial inclusion as internet connectivity is still not available in many rural areas or is patchy. It would also be another avenue to pay at merchant stores that have not signed up for UPI but have a PoS terminal or if the customer’s network is erratic.
Loans through UPI
There have been discussions about using UPI for credit, where lenders could assess borrowers based on their payments history to give small-ticket loans, according to executives of payments company, who did not want to be named. According to Nair, loans on UPI seem like the next logical step. “If banks have to make money, credit is the only way. There is a cost to maintaining the UPI infrastructure and ensuring its security," he said.
The other way for institutions to make money in payments is through the merchant discount rate (MDR), which is the commission levied on each transaction. However, banks are not allowed to charge any fees or commission for payments over UPI or RuPay networks. “Credit is the only way to make money if you are in the payments space. MDR charges only cover the cost of transactions. That’s why we offer loans on MobiKwik," said Singh.
According to Gopal, this feature requires lien or escrow facility on UPI, for which banks need to agree. Borrowers who want to avail low-ticket loans quickly would benefit from it. “Many fintech companies are already doing it. But UPI will give them a more reliable platform," said Gopal.
What to keep in mind
There’s one hindrance, however, that can affect user experience. According to reports, NPCI could cap the transaction share to 50% in the first year, 40% in the second and 33% from third year onwards. “It is done to ensure that no single company is dominant on the UPI platform. It is to avoid concentration risk," said Singh. A balance could be maintained if payments apps stop “unreasonable" cashback offers, he added.
It’s not clear yet how NPCI will implement it and whether it could lead to apps restricting the number of transactions for each user.
NPCI could ask payments app with a higher market share to go slow on onboarding new customers, said experts. If this happens, users may need to look at signing up with alternative apps.
Additional features on the UPI platform could boost its adoption, and many new customers could become first-time users of digital payments. But the industry also needs to ensure that such users don’t fall prey to cyber frauds. A one-stop solution may also boost digital adoption in the long term.
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