UPI users could be using govt’s cashback boost to mint money

Wasim Akram (name changed), an engineering student in Kolkata, has been leaving his phone number on internet forums for the last six days.

Akram saw a video, which purportedly tells people how to make ~750 a month by just doing transactions through the Unified Payments Interface (UPI). Now, he is busy looking for 20 people on the internet who can receive payments from his phone and give it back to him just so that he can earn the cashback. “There are many active WhatsApp groups where people join and leave their virtual payment addresses to increase their monthly transactions and receive cashback. All my friends are doing it but since unique transactions are required, I am looking for my own set of partners,” Akram said over the phone.

Akram is not alone. Lakhs of people have monetarily benefitted from the government’s digital payments push by just transacting on UPI and routing money from one account to another. This is because of the new Bhim-UPI cashback scheme for individuals which was launched this financial year with a budget of around ~5 billion for six months, according to sources. The scheme was reviewed and renewed in March 2018 by the ministry of electronics and information technology which issued a circular amending its earlier gazette notification to expand the scope of the scheme.

“Increase in the number of users downloading, installing and linking Bhim App with their accounts and making first successful financial transactions,” is one of the stated objectives along with “increase in the number of transactions with the Bhim UPI”, which is the second objective.

As part of the scheme, the government is offering a cashback of ~25 per transaction done through Bhim or any of the bank UPI apps. This cashback can be availed by an individual up to 20 times a month, thus resulting in a net earning of ~500 for just routing money from one account to another, Akram said.

Similarly, additional ~250 are given to users for transferring money to any account if the total number of transactions are more than 100. Interestingly, it doesn't have to be a different person for these 100 transactions as in the case of the ~25 per transaction cashback.

While the scheme has been in place since last year to boost digital transactions through UPI, its scope was expanded in the latest iteration launched in April to include individuals transferring money between themselves while earlier only ~25 was available to individuals and only once on signing up. The scheme, operated by the National Payments Corporation of India (NPCIL), which runs the UPI platform, has already resulted in an expenditure of about Rs 65 crore in the months of April and May while data for June is yet to be compiled, said a government official.

The official added that the scheme is helping boost UPI transactions across the board on banking apps and it will be assessed in the next six months and a decision on its extension could be taken.

“The transactions are definitely rising because of cashbacks and that's our stated aim too. There's no problem if people are incentivised to come online and a large number of people are joining UPI,” he said. But an NPCI official said that with the new scheme, banks are benefitting too as the cashback scheme is expanded to include all bank apps apart from the government's Bhim app. This has resulted in wider adoption of payment systems and the government should take steps to bring more people into the fold, he said.

Meanwhile, the availability of cashbacks to only banks has led to some discontent in the industry where third party players such as Mobikwik, WhatsApp and Google Tez also operate UPI in partnership with banks.

Bipin Preet Singh, CEO of Mobikwik, wrote a blog post on Sunday claiming that it's unfair if third party apps do not get to provide their users with the same cashback benefits as other private and public banks do. Speaking to Business Standard, he even claimed that he has heard of the payment bank accounts being opened just to claim these cashback benefits which goes against the spirit of the government's objective.

“If you had to restrict third parties, you should have restricted payment banks too. A private bank won't let you open more than one account easily but on a payment bank, you can open as many accounts with different numbers just to receive cashbacks. Lots of people are using it,” he said. Singh added that all cashbacks are prone to being misutilised by users but said that the scheme could have been designed in a better manner. We see further depreciation pressure, not just for the rupee, but emerging market (EM) currencies that are characterised by twin deficits. There are two dynamics at play — strong dollar, increase in rates by the US Federal Reserve, which in the absence of a monetary policy is very aggressive and matches Fed one for one, would manifest in depreciation pressure for these currencies. Another independent factor is that the renminbi has weakened recently on trade war pressures.

We began 2018 expecting EM FX to come under pressure. We saw oil firming to some extent, we saw Fed rate hike and we saw the dollar was going to strengthen. Those reasons led us to believe that the rupee would be in the 68-69 region in the year. Our view now is slightly more bearish because of the trade war related issues.

In this context, do you think a rate hike is a good counter to fight pressure on currencies?

In the present context, there isn’t a whole lot that a rate hike can accomplish other than being a signalling device. If the rest of the EMs are also facing exchange rate pressure and to counter capital flows if you see many other EMs central banks are raising rates, then the RBI cannot be seen as doing nothing. It may not forestall the depreciation of the exchange rate, but it may stop India from being an outlier.

How much of a protection is India’s $400-billion forex reserves?

India’s external funding cover ratios are a little better than what they were in 2013. But investors are not looking at India in isolation. India is in a continent where there are a lot of countries with very comfortable reserve cover — from China, Korea, Taiwan to Singapore, etc. As a result even though

within the last five years India’s shock absorptive capabilities have improved, on a cross-country basis, it still looks rather weak. That’s where the role of policy comes in. What will the RBI or the Centre do to differentiate themselves so that India manages to differentiate itself from outflow pressure?

What is your assessment of the banking system? Is the NPA situation very worrisome and can it disrupt the banking system?

The public sector banks are protected by sovereign guarantee and the private sector balance sheet is better than the public sector. The big revelation of India is the rise of the non-banking sector over the last decade or so. In 2017, majority of the credit generated in India came from the bond market and NBFC. Therefore, it tells me, that between the private banks, the bond market, and the NBFCs, there is avenue for companies to raise funds if they have genuine projects. There is no credit crunch in India.

Do you think banks should have been given more time for recovery?

For the central bank and the government, it’s a very fine balancing act. You have a lot of bad loans, they have to be recognised, but if you have to force recognition in the same span of time, it will create a huge amount of distress in the corporate sector and pull down the collateral value further. If you look at the asset recovery done in the aftermath of the banking crisis in Japan, or after the Asia crisis, many countries had many different models. Under the present circumstances, I think the policy prescription is in the right direction.

I don’t think that the recognition of haircut and going after defaulters the way it’s been done is somehow poor example, it’s a very good example.