UPI: Made in India, With Pride

India is currently on the cusp of fintech revolution, led by the likes of Jio, which forced the telecom market to open up in favor of the consumers and provide data at dirt-cheap rates, and Paytm, PhonePe and Google Pay, that is, the digital wallet and digital payments aggregator apps.

Thanks to them, it is now easily possible to go weeks without cash, scanning QR codes on smartphones and approving payments with the touch of a finger.

Much of the credit, however, must go to the National Payments Corporation of India, which has been one of the very few governmental agencies to have moved ahead of the technological race of the world, and actually be open to ideas and deliver something truly world class that the rest of the world wants to replicate in their home countries’ systems. We are talking about the Unified Payments Interface, which is the technology that powers most of our scan-and-pay digital peer-to-peer payments transactions that happen directly through our bank accounts.

The U in UPI stand for Unified, and rightly so.

The NPCI defines UPI as “a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the ‘Peer to Peer’ collect request which can be scheduled and paid as per requirement and convenience. It is available on all respective banking applications on Android and IOS platforms or via the BHIM application.”

The success of UPI is such, that as of November 2019, it has reached 1.2b transactions, amounting to Rs. 1.9 lakh crore, with a staggering success rate of 87%.

Considering that the transaction success rate via debit/credit cards also hovers between 90% to 95%, what UPI has been able to achieve within three years of its launch is remarkable. Most failures of transactions,however, occur due to human induced errors like wrong pin number, insufficient balance or when sometimes consumers intend to transfer more than the prescribed limit. Another major reason is the loss of connectivity, that often results in bank servers being unreachable. In other cases, the amount gets debited from one bank but the other bank does not get the credit message, which also causes failures.

While the NPCI and the payments apps are working towards fine tuning the processes further to ensure a greater transaction success rate, UPI has caught the attention of the world, and Google is already lobbying for a similar system to be put in place in the United States. Google cited the example of UPI and has recommended a similarly designed system for FedNow. Mark Isakowitz, VP, Google, and in charge of Government Affairs and Public Policy for US and Canada, in his letter to the Fed, wrote: “First, UPI is an interbank transfer system (there are now over 140 member banks, after initially launching with 9 participating banks). Second, it is a real time system. Third, it is ‘open’ — meaning technology companies can build applications that help users directly manage transfers into and out of their accounts held at banks,”

Google said that its UPI experience in India enables it to offer specific suggestions to the Fed Reserve to “support real-time low-value and high-value payments, use standardized messaging protocols with extended metadata, and provide clear standards for an Application Programming Interface (API) layer that enables licensed non-financial institution third parties to access and submit requests into this payment system”.

Bank for International Settlements (BIS) has come out with a report that recommends other countries emulate the Indian four-pillar approach of providing digital financial infrastructure as a public good, encouraging private innovation by providing open access to this infrastructure, creating a level playing field through the regulatory framework, and empowering individuals through a data-sharing framework that requires their consent. They have lauded the Aadhar-UPI integration and the resulting financial inclusion and modernisation that it has been able to achieve.

All these, coupled with success stories of Rupay payments system and its launches in countries like Saudi Arabia, and the recent gains that PayTM has made off India’s shores, certainly speaks volumes about the potential held by fintech sector in India.