The move is expected to expand UPI’s reach to offline merchants by tapping the PoS ecosystem and thus trigger more peer-to-merchant transactions
The National Payments Corp. of India (NPCI), which operates the Unified Payments Interface (UPI), plans to add near-field communication (NFC) capabilities to its payments infrastructure and is in talks with payment aggregators to push the product across point-of-sale (PoS) devices.
The move is expected to expand UPI’s reach to offline merchants by tapping the PoS ecosystem and thus trigger more peer-to-merchant transactions, said two people aware of the discussions, requesting anonymity.
The NFC capability will allow UPI to take on rival private payments networks, such as Visa and Mastercard, which have been expanding their contactless payments network based on NFC over the past year through tap-on-go payment systems, they said.
Card networks use the tap-on-go facility through NFC-enabled cards, which allow users to pay at PoS terminals, by tapping the card, instead of swiping it. Enabling NFC on UPI will also help it compete with NPCI-operated RuPay, which offers similar services.
NPCI also aims to directly embed this function into NFC-enabled smartphones and is expected to reach out to manufacturers, one of the persons mentioned above said, adding that it plans to deploy NFC-enabled UPI service at large-format stores.
“After spreading the network quick response codes in the market, NPCI wanted to target the 5 million PoS machines in the country, which are also doing well and registering high-value transactions. Enabling NFC on UPI was the only way to tap into the PoS market and increase the value of payments transacted on the UPI network. However, it will face resistance from offline payment aggregators and PoS manufacturers," said a senior banker, seeking anonymity.
Visa and Mastercard have strong partnerships with banks and PoS providers, and also provide added incentives to banks for setting up PoS acceptance infrastructure, the banker said.
“PoS manufacturers and offline payment players aren’t very happy with this move, as they have strong alliances with card networks, which will now be challenged. Now, it is yet to be seen how NPCI incentivises the offline payment ecosystem to adopt this offering," he said.
After tapping on the NFC-enabled PoS device, the new UPI service will ask smartphone users to choose their preferred UPI payment app and enter a pin to make the payment on their device, said the other person mentioned above. There were 5 million POS devices in India as of May, and the average ticket size of a transaction on the UPI network was ₹2,000, according to data released by the Reserve Bank of India, .
NPCI also aims to allow partner banks to issue prepaid-cards and vouchers on the UPI network to help people make payments. It is pegging this as an alternative to QR-codes and aims to target feature phone users, who had so far been left out of the UPI ecosystem.
“These functionalities are in line to add more use-cases to the UPI infrastructure. With zero merchant discount rate (MDR) now being a pressing issue, NPCI is looking at newer revenue streams for players and partner banks," said a payment analyst who also did not want to be named.
MDR is the cost paid by a merchant to a bank for accepting payments from their customers via digital means.
A transaction fee will be applicable for this UPI-based prepaid instrument, which will be made by remitter bank partners to payee payment providers and banks. NPCI might also allow banks to issue the pre-paid instrument through payments apps such as Google Pay and PhonePe.
UPI-based payments hit an all-time high, clocking 1.49 billion transactions in July.
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