Blog post

India is gearing up for a post-UPI digital payments revolution

There is a broad consensus in the financial world that India’s Unified Payment Interface (UPI) is one of the most important and impactful financial technology innovations in the world. Most countries still do not have an equivalent or similar system for free, real-time interbank payments and a growing number are actively evaluating the implementation of UPI in their own jurisdictions.

Now, two new fintech innovations from RBI are likely to even surpass UPI in their grassroots impact; bring all the advantages and advantages of digital payments to a whole new category of users who do not have a stable Internet at all times; or are feature phone users without any mobile internet connectivity. According to a 2020 WEF report, almost 700 million people in India are still unconnected, which means that around 50% of the country’s population still lacks internet access.

In early January, the Reserve Bank of India released its framework to allow offline digital payments of up to 200? per transaction with an overall limit of ?2,000. This framework enables digital payments to take place without internet connectivity (offline mode), which is a huge boon to building trust in digital payments in remote, rural or semi-urban areas that often suffer from poor mobile internet connectivity.

To protect consumer safety, RBI not only set a reasonable limit, but also required that these transactions be conducted only in face-to-face mode (with the account holder or beneficiary present). However, they can still be made using any of the popular payment channels or methods, including debit cards, wallets or mobile devices. As transactions are offline, users will receive SMS or email alerts when connected to a network. Additionally, these transactions will not require an OTP or any other additional authentication factor (AFA).

In the case of smartphones, offline digital payments could be enabled through an “on-device” wallet in the user’s preferred UPI app. Recall that in December last year, RBI proposed to enable wallets in UPI applications specifically for low-value transactions, in order to conserve banks’ system resources, without any change in the transaction experience for the user.

Boost to digital payments

The regulatory nod to offline digital payments has once again firmly established India as the hub of world-class digital financial services innovations. We also believe this is one of the biggest developments in digital payments in recent years anywhere in the world. In terms of impact, we believe it could be as significant as the introduction of the Unified Payments Interface (UPI) in 2016, a free digital interbank funds transfer system that has played a significant role in propelling the India at the forefront. in digital payment transactions around the world.

Today, UPI is the nation’s largest retail payment system by transaction volume, and monthly transactions on UPI exceed those on debit and credit cards combined. Moreover, 50% of all UPI transactions are up to Rs200 in value anyway. UPI has in fact proven to be so successful that several countries around the world, including Brazil, Singapore, Saudi Arabia, the United States, and the European Union, are looking to replicate the system in their jurisdictions.

Also note that the RBI nod to offline digital payments came closer to the introduction of e-RUPI, an e-voucher based digital payment system, last year. e-RUPI is built on the UPI platform and is delivered in the form of a prepaid voucher redeemable on a beneficiary’s mobile phone in the form of an SMS string or a QR code. The voucher is so far redeemable at specific acceptance centers, but does not require the presence of a debit or credit card, mobile app or even online banking, making it a first-of-its-kind digital payment system for basic phones (non-smartphone users).

Digital payments on feature phones

The second major innovation is perhaps even more revolutionary. The National Payment Corporation of India (NPCI) under RBI has piloted a voice payment service for basic mobile phone users, which will allow users to make payments by simply listening to instructions through an Intelligent Voice Response (IVR) system ) and pressing buttons. on the keypad of their mobile phone.

It is important to understand why enabling digital payments through feature phones is so important. Almost a third of India’s mobile handset sales include feature phones. Indians bought 80 million feature phones in 2020 and even though the market is shrinking, sales in 2021 are expected to be around 70-75 million, according to IDC. Industry estimates put the total number of feature phone users in India at 350 million. It’s simply too big a market to ignore.

The voice-based payment technology will run on the UPI payment ecosystem and use dual-tone multi-frequency (DTMF) signaling, as well as a two-factor authentication (2FA) flow for peer-to-peer transactions (P2P). Additionally, the IVR will be available in multiple regional languages, allowing users to easily understand instructions in their own language. RBI and NPCI would also test additional pay-by-phone solutions.

What this means for the Indian Fintech ecosystem

India’s banking and financial regulator has rightly encouraged the development of robust and scalable digital payment solutions in recent years that do not need expensive devices, including smartphones, or even internet connectivity, to operate. The intention is clear: to extend the reach and usefulness of digital payments to those without smartphones or access to stable internet connectivity.

Bringing digital payments to feature or basic phone users, or those who do not have a stable internet connection, represents a huge and still emerging opportunity for the Indian finTech ecosystem, as the enabling systems and infrastructure would require the deployment of several advanced and scalable technological interfaces. Additionally, this opportunity is not limited to rural or remote users, as we expect offline digital payments to be as widespread in urban areas as in remote areas, due to the massive popularity of UPI. for small ticket purchases.

For fintech companies that can find a role for themselves in achieving this goal; it is a rare opportunity to build in India but not only for India; but also for the rest of the world.



The opinions expressed above are those of the author.