UNIFIED PAYMENTS INTERFACE

Rajiv Anand

UNIFIED Payments Interface or UPI is the new boy in the payments markets and it has the makings of a blockbuster. The biggest draw for UPI is its power to make payments seamless and instantaneous by requiring the payee to only remember a virtual payment address (VPA), much like sending an email.

What is UPI

UPI has been launched by National Payments Corporation of India (NPCI) to further RBI’s vision of migrating towards a 'less-cash' and more digital society. The UPI ecosystem functions with three key sets of players: 

• Payment Service Providers (PSPs) who will provide the interface to the payer and the payee. The interoperability will ensure that, unlike wallets, the payer and the payee can use two different PSPs.
• Banks, which will provide the underlying accounts for the payer and payee. In some cases, the bank and the PSP may be the same.
• The NPCI, which will act as the central switch by ensuring VPA resolution, effecting credit and debit transactions through the Immediate Payment Service (IMPS) platform and settlement of funds across banks.

How does UPI work

UPI is a unique interface which works 24x7 across the banking system and is instant, safe, secure, cost effective and convenient to use. UPI allows a payment directly from your bank account — so no need to pre-load your money onto wallets which does not pay interest on balances. UPI allows payments to different merchants without the hassle of typing one’s card details, or net-banking password. UPI is built on top of the IMPS, which we have used to instantly transfer money between accounts with different banks. All money transfers with UPI are secured with the 2 Factor Authentications (2FA) as mandated by RBI — the first factor being your phone and the Mobile PIN as the second. UPI is capable of peer to peer transfers as well as peer to merchant transactions, including the option for merchants/service providers to ask for money.

Is UPI better than cards

UPI works on the indigenous idea of "Virtual Payment Address (VPA)" — which is something like ‘rajiv@axisbank’. You only give the merchant your VPA who can initiate a payment request against this VPA. They never even get to see the bank account number. The UPI can also be used for shopping online. Instead of entering your debit card number, expiry date, and CVV code, followed by waiting for the OTP, you'd just enter your UPI ID, and get an alert on your phone to verify the transaction.

Will UPI succeed

Banks like Axis Bank which have almost half of its branches in semi-urban and rural areas are witnessing more than 50% of transactions through digital channels and growing at over 30% every year. This clearly shows that the customer is ready to go digital provided the banks innovate and offer customer-centric solutions.

UPI will make the payment systems fully interoperable across all payment system players. The launch of UPI will usher in low cost, high volume payments and create a new ecosystem where customers and merchants will come together for faster and simpler electronic payments. UPI is likely to benefit overall payments ecosystem as the payments service can be provided by banks to the merchant with an entry level smartphone and there is no need to install POS machine at the place of business. Thus it is likely to reduce the overall merchant acquisition cost for the banks by providing a solution to the merchant that is mutually beneficial and have long-term benefits.

The most important aspect of UPI is its open architecture. With UPI, banks are free to innovate on user experience part as they deem fit.

The User Interface (UI) is fully flexible and banks are free to create most intuitive user interface.  And we have seen time and again that when players are free to innovate, customers invariably get best products and the product acceptance is far better. This innovation will also bring all the key stakeholders such as the consumer, the merchant and the banks on a common platform, creating a plethora of services that are unheard of in today’s global payment offerings.

The success of UPI is dependent on the adoption of the platform by all banks in the country which will ensure that an user can transfer money to any account of his choice. Further, the user needs to have a smartphone to effect the transfer and hence the potential userbase will be restricted to around 250mn people currently. Parallely, on the acquiring front, there needs to be an aggressive push from the PSPs to maximise newer merchants to popularise UPI as a payment option. Having said this, in future, with the way the payments industry is shaping up, we are seeing a burst of new technologies in the form of contactless payments (NFC), HCE (Host Card Emulation) technology, tokenisation that can make payments simple for consumers without compromising security and could compete with UPI.

The writer is Executive Director, Axis Bank. The views expressed in this article are his own