A year and a half after National Payment Council of India (NPCI) launched UPI (United Payment Interface), an open-source, peer-to-peer and bank agnostic payment tool, a new and upgraded version of the UPI was recently launched.
Urjit Patel, the RBI governor launched UPI 2.0 on Thursday with new features catering to ease of use and security. UPI’s new version will allow users to send invoices, GST bills, etc., for other users to verify before paying. It also gives the freedom of adding the overdraft bank account to UPI. The new UPI also gives individual users as well as merchants the flexibility to pre-authorise a transaction and pay at a later date.
The UPI payment system facilitates real-time fund transfer between two banks or individuals without the need of providing any bank detail.
While wallets require you to add money from your bank account, UPI does away with that extra step.
According to analysts, the addition of overdraft account in UPI 2.0 will provide a lot of data to banks helping them push more products. This will also help banks and merchants build customers’ credit profiling.
When the government competes with you
With the increase in the usage of UPI and India tightening its KYC (Know Your Customer) rules for payment companies and banks, problems with the wallet industry have surged. Within a week of KYC rules kicking in, wallet usage dropped by 40-45%. As RBI barred payment companies from allowing non-KYC compliant users to add money in their wallet, many users migrated to UPI payment. By 2017-18 almost all payment companies had launched UPI in their app.
A RedSeer analysis released in August this year said the volume of UPI transactions in 2018 has increased by 55% to 236 million.
Post the infamous demonetisation of select denominations of the Indian currency by Prime Minister Narendra Modi in November 2016, the demand for online payments and peer-to-peer money transfer via mobile wallets increased substantially. RBI in November 2017 said the volume of transactions done on mobile wallets within the first 10 months of demonetisation increased by 348% from 537 million to 2,407 million.
The Indian fintech industry is going through a roller coaster ride with more and more money pouring into the industry even as the government continues to tighten its regulations. India recently asked all payment companies to store user data inside the country and made it mandatory for them to have a local office. The Facebook-owned Instant Messaging platform, WhatsApp had been piloting its payment service with a select million users but had to stop the country-wide launch to comply with the law. WhatsApp Pay has also integrated UPI for payment transactions.
Talking to The Passage earlier, Jitendra Gupta, managing director, PayU India, had said, “Everyone with a smartphone has access to WhatsApp. With its new UPI-based payment offering, it will surely emerge as a disruptor in the payments space. It has a simple UI which is convenient for Indian audience. Its massive user base could give the biggest to the adoption of UPI.”
Fintech in India According to a report by City of London Corporation, Indian fintech companies lead globally when it comes to returns on investments. “Annual returns on fintech investment in India are highest worldwide at 29%, compared to Asia's average of 25% and the global 20% standard," the report said. While Flipkart invested USD 66 million in its payment arm PhonePe, Amazon infused Rs.2.3 billion (Rs.230 crore) in Amazon Pay India.
“A lot of wallet transactions have shifted to UPI. Many merchants who were not happy with the commission that wallet companies charge, moved to UPI payments,” said Ujjwal Chaudhry, engagement manager, RedSeer Consulting.
Although in December 2016, NPCI had launched its own payment app, BHIM (Bharat Interface for Money), it took some time before it could take payment companies such as Paytm, Freecharge, Mobikwik, etc., head-on.
“UPI is not only eating into the wallet usage, it is creating new usages and demands. Earlier people who were not using wallets are now using UPI. That is why we are seeing a lot of peer-to-peer transactions shifting to UPI from wallets,” Chaudhry said.