A new and improved UPI

India’s flagship digital payments system UPI is all set for a revamp that will make payments to merchants a seamless experience for customers

Looking forward to that next big IPO? Soon, you could use your mobile phone to block funds for the same and even pay for the allotted shares through the unified payments interface (UPI), if the proposed revamp goes through. Dubbed UPI 2.0, the next version of India’s flagship digital payments system is awaiting final approvals from the Reserve Bank of India.

The ability to subscribe to IPOs through UPI is one of the first steps that the Securities and Exchange Board of India (Sebi) is taking to bring the payment interface in the financial markets because of its proven customer track record and growing acceptance among merchants.

One more important feature which is expected to be rolled out soon after the launch of UPI 2.0 at the end of this month electronic mandate or e-mandates which will do the job of collecting money for the merchants without much hassle. E-mandates are collection requests automatically raised by merchants on the generation of a bill to collect money from their customers.

These e-mandates work across applications and have a wide variety of use, including collecting monthly subscriptions for platforms such as Amazon Prime and Netflix to paying for automatically generated bills by radio taxi services.

The user may revoke the e-mandates at any point of time. Industry insiders say the system works a bit like post-dated cheques. The only difference is that since e-mandates aren’t part of the Negotiable Instruments Act, if dishonoured, it is not an offence under the law. However, there are indications that regulators might look at bringing e-mandates under the ambit of the Act once their utility is proven in the market.

Thanks to the e-mandates, customers will not have to go through the lengthy process of adding a beneficiary to their internet banking account or raise an electronic clearing system (ECS) mandate. Instead, companies will be able to create these mandates on their own and send them to customers for approval.

Once approved, the mandates will automatically kick in as per the terms and conditions, with the customer’s account being debited and the merchant account being credited in real time.

E-mandates have already found many takers in the fintech space, especially among payment companies and digital lenders who are already experimenting with the technology with the sandbox provided by the National Payments Corporation of India (NPCI), the umbrella organisation for all retail payment systems in the country.

Alok Mittal, founder of digital lending company Indifi, says his outfit plans to roll out the product as soon as it is launched by UPI. Similarly, Raghavendra Singh, co-founder of i2ifunding, a peer-to-peer lending company, says that he too is looking to use UPI 2.0 once it comes into effect. “The creation of the emandate is very flexible and it doesn’t require paperwork or wait time. So it will improve our customer experience,” he says.

Naveen Surya, chairman of the Payments Council of India, says that several members of the council are excited about UPI 2.0. “I think if they roll out all the proposed features, it’s going to be pretty interesting and exciting. It offers a lot of convenience and ease of collection of payments for the merchants,” he says.

Launched in August 2016, the UPI has had a dream run post demonetisation. It has undergone several updates since its launch, making it compatible with savings accounts and current accounts too. In April 2018, the platform saw 190 million transactions amounting to ~220 billion. “UPI represents a leapfrog in payments and will be the driving force for making India a less-cash economy,” said Nandan Nilekani, former chairman of the Unique Identification Authority of India who advises the NPCI on innovations and public policy. The latest revamp is expected to come with a bunch of additional operational features such as signed QR (quick response) intents. This is a security feature to reduce fraud in transactions. Those generating a payment request with a QR code will be able to sign the payment mandate with their private key. This will also ensure that no fake QR code can be deployed and the possibility of the transaction being intercepted in the middle will be reduced.

Sources say that UPI 2.0 could also come with enhanced limit of ~200,000 per transaction for specific use cases.

That apart, Sebi is looking at the possibility of building another feature into the UPI. Right now online sign-ups for mutual fund folios take place with Aadhaar-based e-KYC and PAN verification through NSDL. However, customers still have to provide a copy of a cancelled cheque to prove that their bank account carries the same name as their folio does.

However, Sebi is likely to introduce a feature in the UPI which will allow people to key in their virtual payment address as an identifier. This will fetch their names as per their bank accounts from the NPCI library, thus removing the need to provide a cancelled cheque.

With the government’s BHIM (Bharat Interface for Mobile) UPI app also undergoing upgrades last month — international remittances are now possible through UPI to the BHIM app — India’s digital payments systems are clearly on the way to becoming more attractive to users.