In­creas­ing adop­tion of UPI through bank wal­lets and third- party play­ers such as Flip­kart’s Phone Pe, Ama­zon Pay and Google Tez is chang­ing the pay­ments sec­tor.

Business Today - - SECTOR REPORT FINTECH - By Anand Adhikari

THE RE­LIANCE JIO MONEY app will soon throw its hat in the Uni­fied Pay­ment In­ter­face (UPI)-based in­stant dig­i­tal pay­ments ring. Face­bookowned What­sApp is also get­ting its act to­gether to make a splash soon. The en­try of global gi­ants such as What­sApp or Re­liance Jio, whose par­ent RIL also owns a pay­ments bank, is ex­pected to give fur­ther boost to an al­ready rock­ing UPI, a pay­ments sys­tem de­signed by NPCI that can be thought of like an email ID that your bank uses to trans­fer money through the Im­me­di­ate Pay­ments Ser­vice, or IMPS, which is faster than NEFT and works 24×7. And con­sid­er­ing the kind of in­ter­est UPI is get­ting from global as well as In­dian gi­ants, it is well set to dwarf all other pay­ment sys­tems, say ex­perts. “The beauty of UPI is that your bank ac­count be­comes portable. A third-party app al­lows seam­less fund trans­fer us­ing your bank ac

count,” says Mandar Agashe, Founder & Vice Chair­man at Sar­va­tra Tech­nolo­gies, a tech­nol­ogy provider for UPI trans­ac­tions in In­dia.

More than the tra­di­tional banks such as SBI, ICICI and HDFC Bank, it is the new play­ers such as Re­liance Jio or What­sApp that are stir­ring up a storm around UPI. “Imag­ine peo­ple send­ing or re­ceiv­ing money just the way they send pic­tures and videos via What­sApp,” says a Fintech player, while adding, “play­ers with deep pock­ets like Re­liance Jio can storm the mar­ket with dis­counts and cash backs to wean away cus­tomers.”

Clearly, all this is go­ing to elec­trify the en­tire pay­ments space as hun­dreds of banks, pay­ments banks, small fi­nance banks, fintech play­ers, global so­cial me­dia gi­ants, ecom­merce play­ers and non-bank en­ti­ties join the party. “The more the mer­rier,” says a player. “The en­try of big play­ers will in­ten­sify ef­forts to­wards a less cash econ­omy. It will open up the mar­ket even­tu­ally,” says He­mant Gala, Head of Pay­ments at PhonePe, owned by e- com­merce player Flip­kart. PhonePe was the first non-bank­ing en­tity to re­alise the po­ten­tial of UPI. Now, there are also Google Tez and Ama­zon Pay, the two big gi­ants with very dif­fer­ent set of cus­tomers.


The early story of re­tail pay­ments in

In­dia was led by PayTM, which was a non-bank en­tity then, though it now runs a pay­ments bank. PayTM claims it is the big­gest con­trib­u­tor to UPI pay­ments with close to 180 mil­lion trans­ac­tions in Oc­to­ber this year. In the last six months, it has seen 600 per cent growth in UPI trans­ac­tions. PhonePe is also rid­ing on big vol­umes. In the first 26 months of its launch, it has crossed one bil­lion pay­ment trans­ac­tions on its mo­bile app. These in­clude debit/credit card, UPI and other dig­i­tal pay­ments. PhonePe claims to have over 100 mil­lion cus­tomers.

The UPI jour­ney is only two years old but it is grow­ing ex­po­nen­tially. The pay­ments rose from ` 6,900 crore in 2016/17 to ` 1,09,800 crore in 2017/18, a rise of 1,481 per cent in a year. The way it is grow­ing, it will soon over­take IMPS, which clocked ` 8,92,500 crore worth of trans­ac­tions in 2017/18. Ex­perts pre­dict that UPI-based pay­ments will grad­u­ally eat into IMPS and NEFT pay­ments, which to­gether ac­count for ` 181 lakh crore in trans­ac­tions value in a year. NEFT is the most widely used elec­tronic in­stru­ment un­der the re­tail elec­tron­ics cat­e­gory.

Card pay­ments, in­clud­ing pre­paid pay­ment in­stru­ments, will also soon see UPI mov­ing past them. In 2017/18, to­tal card pay­ments were at ` 10,60,700 crore. This is, in fact, one busi­ness which faces an im­me­di­ate threat from UPI.

There are sev­eral rea­sons for this trend. UPI’s big­gest strength is its de­sign. It is a 24x7 sys­tem for money trans­fer from one bank to an­other. Any­one with a bank ac­count can link the ac­count with UPI through his mo­bile phone by cre­at­ing a vir­tual pay­ment ad­dress with a PIN. He or she doesn’t need to dis­close any bank ac­count num­ber or IFS code. This makes it a much faster pay­ment tool than a card where one has to log in card de­tails, CVC num­ber, ex­piry date, etc. UPI is not only aid­ing in peer to peer trans­ac­tions but also help­ing in peer to mer­chant trans­ac­tions.

And NPCI is leav­ing no stones un­turned to make it the pre­ferred method for pro­vid­ing pay­ment ser­vices. In May this year, it signed up with Payso Fintech to cre­ate aware­ness about the sys­tem in Mum­bai, Pune, Bhopal and In­dore. The aim was to train 600 grad­u­ates and post grad­u­ates who will help mer­chants un­der­stand the mer­its of cash­less pay­ments. In the past, elec­tron­ics pay­ment tech­nolo­gies have taken decades to catch on. Even to­day, there are peo­ple who pre­fer go­ing to a branch to with­draw money in­stead of an ATM. The pay­ments space it­self has taken decades to evolve from be­ing pa­per-based to a fully dig­i­tal sys­tem. The 80s saw the path-break­ing shift from man­ual clear­ing of cheques to au­to­mated clear­ing through use of mag­netic ink char­ac­ter recog­ni­tion (MICR). In the 90s, elec­tronic fund trans­fers made life eas­ier for things such as pay­ment of a home loan EMI or re­ceiv­ing div­i­dend/in­ter­est

from com­pa­nies. In the 2000s, there was a much faster roll­out of dig­i­tal tech­nolo­gies with the in­tro­duc­tion of na­tional switch­ing sys­tems for ATMs, launch of RTGS, NEFT (re­tail pay­ments), IMPS and cheque trun­ca­tion sys­tem. But it is UPI that is be­ing called the ‘ brah­mas­tra’ of the pay­ments space. And for good rea­son too.


Ex­perts say the big­gest dif­fer­ence be­tween UPI and ear­lier tech­nolo­gies is that UPI al­lows even non-bank play­ers to on­board bank cus­tomers and of­fer pay­ment ser­vices. “UPI may cre­ate a plat­form for non-bank play­ers to dom­i­nate the pay­ments space,” says a mar­ket player. Many pre­dict that banks will be rel­e­gated to the back- end and non-bank big­gies will in­no­vate and de­light cus­tomers at the front- end. “Our com­pe­ti­tion re­ally is cash,” says Gala of PhonePe.

The new play­ers are con­vert­ing cash into dig­i­tal in sev­eral new ar­eas such as small pay­ments, though some ar­gue that the growth of third-party apps is tak­ing place only be­cause of dis­counts and cash backs. They all are bleed­ing in terms of bal­ance sheet strength. “The model is not sus­tain­able,” says a banker. But non­bank play­ers say dis­counts and cash­backs are nec­es­sary to at­tract cus­tomers to dig­i­tal plat­forms. In fact, NPCI, which is more of a reg­u­la­tor for re­tail pay­ments, is also us­ing the dis­count route to bring peo­ple on the UPI plat­form. This Di­wali, it of­fered users value-added ser­vices on brands such as Ola, Spicejet, Food­panda, In­dian Rail­ways, etc.

Gala of PhonePe says play­ers that have the widest range of prod­ucts, best distri­bu­tion model and solve cus­tomer is­sues will get a larger mind­share of cus­tomers. “We are try­ing to solve is­sues around send­ing money, spend­ing money, manag­ing money and grow­ing money,” says Gala. Agashe of Sa­va­tra Tech­nolo­gies says banks and non-banks are two dis­tinct play­ers. He is re­fer­ring



Head of Pay­ments, PhonePe

to ded­i­cated cus­tomer au­di­ence for a player like Google or Face­book or Ama­zon. They all of­fer a par­tic­u­lar user ex­pe­ri­ence. “It’s all about bet­ter user ex­pe­ri­ence. The cus­tomers will tend to move to a place which of­fers bet­ter over­all ex­pe­ri­ence,” says Agashe.

THE MER­CHANT BUSI­NESS Af­ter some trac­tion in peer to peer trans­ac­tions, the play­ers are look­ing at the huge mer­chant trans­ac­tions busi­ness be­cause of the low cost model of UPI that does not re­quire ex­pen­sive POS ma­chines. The mer­chant ac­quir­ing busi­ness for card play­ers could not grow in the hin­ter­land be­cause of the high cost. The bankers, too, were not in­ter­ested, with the ex­cep­tion of a few large play­ers such as HDFC Bank, Citibank, Axis Bank and SBI. “It was a loss-mak­ing busi­ness for many banks but what en­cour­aged them to sign up with mer­chants was their ac­count with the bank and the float of money it pro­vided them,” says a for­mer banker.

Ex­perts say though UPI is cost ef­fec­tive and a good tool, it in­volves more steps than us­ing a card at a POS. “Any be­havioural change takes time and in­vest­ments,” says Ra­jeev Agrawal, Founder & CEO at In­noviti, a pay­ment so­lu­tion provider for mer­chants. In­noviti’s QE code-based so­lu­tion uses the mer­chant’s ex­ist­ing POS ma­chine to en­able UPI-based cash­less pay­ments.

The new breed of pay­ments play­ers is al­ready tar­get­ing the small mer­chant busi­ness through a part­ner­ship model. For ex­am­ple, PhonePe has a QR for mer­chants which is in­ter­op­er­a­ble with other bank­ing apps. “We are com­mit­ted to cre­at­ing an open ecosys­tem where all other play­ers can also ben­e­fit,” says Gala. Prob­a­bly all the play­ers have to think about build­ing an ecosys­tem which is more open than cre­at­ing mul­ti­ple so­lu­tions for mer­chants.


PORTABLE. A THIRDPARTY APP AL­LOWS SEAM­LESS FUND TRANS­FER US­ING BANK AC­COUNT” Mandar Agashe Founder & Vice Chair­man, Sar­va­tra Tech­nolo­gies

Il­lus­tra­tion by Amit Sharma

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