Demonetization: Holding companies are growing, but where is the UPI?
In August, the rollout of the unified payment interface, UPI, began with 21 banks across India. UPI is a payment system that allows you to quickly and easily transfer money from a linked bank account – and although all the different banks release their own UPI apps, the beauty of the system, which is powered by the National Payments Corporation of India, NPCI, is that they are all interoperable. This means that you can connect your Axis Bank account and your Yes Bank account to your ICICI Pockets app, or whatever app you are using. Also for e-commerce this is beneficial as you don’t need to link your platform to dozens of different banks – just log in to UPI and you can authorize money transfers from all banks connected.
UPI works much like using a mobile wallet – you create a virtual identity (which could be something like yourname@here) using one of the many UPI apps and link it to a bank account functional. Most banks have also enabled UPI functionality in their apps, so you can use the app you normally manage your account from and create a UPI ID there. When you need to pay someone, just open the app, choose send money and enter their virtual ID, then the amount.
The UPI makes it possible to pay towards a virtual identity, towards an account number, or to pay via a QR code; you can also choose to collect funds on your virtual identity, where you can send a payment request to someone using only their virtual identity – the money is only transferred once the person paying accepts the request ; this method could also be used online.
(Also see: What is UPI – applications, fees and everything you need to know)
Since UPI allows you to transfer money instantly from one bank account to another, it is the digital equivalent of paying cash. The money doesn’t go to a wallet, from where you have to transfer it to your bank – it goes directly to your account; you don’t need to keep charging the wallet to spend your money, and you don’t have to worry about whether the provider prefers Paytm, FreeCharge or MobiKwik; each wallet is its own walled garden right now, and the funds in each are kept separate from the others. With UPI, the money is in your bank, which means you can write a check, withdraw money from an ATM, or spend it with your debit card.
So why are we stuck in queues to receive cash from ATMs that are closed most often, and queuing outside banks that don’t have enough cash for everyone? Provided you have a bank account, shouldn’t the UPI be a simple solution to the problems posed by demonetization?
We’re seeing an increase in registrations for wallets – but the government’s own solution, UPI, is something most people we’ve spoken to lately weren’t even aware of. Why is it?
On the one hand, it’s still very new – mobile wallets have been around for years now. They continue to grow slowly, but that’s thanks to huge valuations and large-scale advertising campaigns. The day after Prime Minister Narendra Modi announced the demonetization of Rs. 500 and Rs. 1000 notes, newspapers featured 10 full-page advertisements – including several before the front page of news – for the various mobile wallet companies. On the other hand, when was the last time you saw an ad promoting UPI?
The UPI rollout didn’t begin until late August, and as late as October we were hearing of companies running “alpha” tests to see how to implement the UPI. UPI. Given a few more months, it’s possible the infrastructure may have been in place to actually benefit from demonetization, but the government’s sudden move means its own tools weren’t ready, leaving the field open for wallets. to steal more walking.
The other issue is of course that UPI is bank driven right now – for wallets, that’s the only business they operate in, but banks have to grow in a dozen different directions. For them, the UPI is only part of the picture; as more third parties enter the fray, no doubt including holding companies, we can expect UPI to be used more broadly and become truly useful. For now, it’s just a more convenient NEFT.
Flipkart is one of the companies investing in UPI – its PhonePe wallet has garnered a lot of praise for its ease of setup and use. But you can’t pay using UPI on Flipkart. If one of the biggest e-commerce companies in India fully adopts UPI, it would go a long way towards the adoption of this system.
There just aren’t many systems in place to use UPI for payments, and at the same time, it suffers from some of the same restrictions that exist for wallets. To use the UPI, you still need a smartphone with the app installed, an internet connection, and you need to create a virtual ID. This is a significant obstacle for many.
Lately, we know someone who’s switched to UPI to pay their rent because it’s easier to manage than wire transfers. We came across a doctor’s office that accepts payments through UPI. You simply enter their virtual ID and transfer the Rs. 300; confirmation occurs in real time. But it is rare and spaced. Using the UPI is simple and painless; does not create additional complications because the money is safe in the banks; and it’s fully interoperable no matter what UPI app you’re using, unlike wallets where both parties need to be in the same ecosystem.
UPI still has the potential to ease the transition to digital currency and offers many benefits. What is needed now is for the banks to start working together, and for the government to lend a hand, encouraging the adoption of this system and helping to spread education about it, as a viable alternative to cash.