UPI has an identity problem that prevents it from taking off
Although there is much debate about the effectiveness of the demonetization initiative that took place in India in November last year, one tangible result seen is the increased adoption of digital payments by merchants, large and small. For example, few of us would even bother to ask our vegetable vendor or hairdresser if they accepted electronic payments before November 2016. Whereas today it has almost become implied that businesses accept digital payment methods.
Along with credit and debit cards, digital wallets were seen as a simpler alternative for paying for rudimentary purchases. Indeed, unlike other methods, wallets do not require the merchant to acquire specialized equipment like a swipe machine to accept payments – only a smartphone is enough.
It was obvious that Paytm was the biggest benefactor, as the use of its wallet service led to demonetization after demonetization. But beyond wallets, there is yet another digital money transfer standard introduced several months before November 2016. We are, of course, talking about the Unified Payments Interface, or UPI.
How UPI Works – Apps, Fees, and Everything You Need to Know
Created by the National Payments Corporation of India (NPCI), a non-profit organization owned by a consortium of the country’s major banks, UPI is a system that simplifies the transfer of funds between two bank accounts. While traditional online banking protocols such as NEFT or IMPS require details such as the recipient’s bank account number and IFSC code, UPI simplifies this process by only requiring a VPA (virtual private address).
A VPA is a bit like an email address – you can get your own VPA from any UPI-based application. So, if you are using the Yes Bank app, you will get an “abc@ybl” VPA, while an ICICI Bank app user will end up getting an “xyz@icici” VPA.
The important factor is that UPI apps are meant to be interoperable – this means you can have an Axis Bank VPA and use the Axis Bank app, linked to an ICICI account. And, just like email, ‘abc@ybl’ can transfer money to ‘xyz@icici’ or vice versa. This is an advantage over wallets, from where you cannot send money directly, say your Paytm wallet to your MobiKwik wallet.
Additionally, you need to use e-banking, debit or credit cards to put money in a digital wallet so you can pay someone. On the other hand, since UPI is essentially a system that simplifies netbanking, there is no virtual “wallet” – money transfers from one bank account to another directly.
All of this makes you wonder why you still need to use those “intermediate” digital wallets, right? Well, in theory, UPI may seem like all sunshine and rainbows, but it has an identity problem that it needs to solve before it can be adopted in droves. Talk to people, and you mostly get blank stares when you mention UPI, for several reasons.
UPI’s trademark problem
First and foremost, the concept of wallets predates UPI – for example, Paytm’s wallet was introduced in 2014, and the Paytm brand has been around since 2010, while UPI was only introduced last year. . There’s also the fact that most wallet apps serve more than one purpose. You can use them to charge your phone, pay your electricity or gas bills, etc. Some of the apps also include features like ticket booking and e-commerce. To be fair, some UPI apps also offer similar functions, but they aren’t as well developed and are limited in what you can do. Also, frankly, some of the apps themselves aren’t really designed for easy interactions, burying useful functionality behind many layers of menus.
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Then there’s the outdoor brand – based on personal experiences, we’ve seen more Paytm QR codes in places like restaurants, toll booths, paan beedi stores, and so on, than any of the UPI-based apps. Asking merchants if they accept UPI payments often resulted in a blank stare, but asking if they accept Paytm was much more likely to get a positive response.
Herein lies the crux of the matter – since the UPI is just the underlying framework, branding is bound to be fragmented.
But how many stickers do you think a typical business will put on their door or wall?
Instead of a single, easily identifiable logo, more than 20 UPI apps operating today are vying for brand awareness. But how many stickers do you think a typical business can put on their door or wall, letting customers know they’re open to UPI payments? Suppose the merchant has an Axis Bank UPI QR code sticker or sign – only people who really know how UPI works will know that the PhonePe app on their phone can also be used to make a payment there.
Worse still, there are already some strange infighting between UPI platforms, and the NPCI doesn’t seem able to bring about a quick resolution. Recently, ICICI decided to block UPI access to Yes Bank – and specifically Flipkart’s PhonePe app, which is Yes Bank’s UPI platform, due to “security issues”. Since then, the NPCI has reportedly spoken to both ICICI and Yes Bank and demanded changes to address the issue.
That should have been the end of things, but then ICICI said it would only stop blocking after Yes Bank followed orders, and more recently the PhonePe team boldly published a blog post , “It is worth mentioning here a small legal fact that NPCI has no direct legal jurisdiction to “order” PhonePe or Flipkart to do anything”. With something like this happening, it’s hard to imagine a united effort to promote UPI.
…since you don’t know if the person is using a UPI-enabled app, by default you say “let me pay for it”
Even when it comes to transferring money to individuals – since you don’t know if the person is using a UPI-enabled app, you by default say “let me pay it to you”, knowing with near certainty that the person will have the app installed. This is a classic chicken and egg situation that UPI seems to be stuck in at the moment.
There has been progress in this direction, however – NPCI, the company that created the UPI standard, developed BHIM – a UPI-based payment application inaugurated by Prime Minister Narendra Modi with the aim of boosting digital payments. The app gained popularity in the early days, thanks to government support. But for UPI-based digital payments to work, it’s imperative that people understand the difference between UPI and apps that use the system.
It’s only once the air around this mixed messaging has cleared that UPI may become a household term.
We discussed the ICICI-PhonePe block and the future of online payments in India in an episode of Orbital, the Gadgets 360 podcast. You can subscribe via iTunes or RSS, or just hit the play button below -below.
Disclosure: Paytm’s parent company, One97, is an investor in Gadgets 360.