The Bharat Breakthrough

Rural and small town India was deprived of the benefits of banking innovations for decades. UPI, with its fast spread and ease of use and adaptability, is breaking the digital divide between India and Bharat.

Illustration by Raj Verma Illustration by Raj Verma

Often my work takes me out of the city or my office, be it business meetings or visiting my bank's branches. During such outdoor trips, for any expenses incurred on, say fuel and food, I have been using my credit card. Swipe, Pin and Go!

However, of late, something has changed the way I have been paying bills. Credit card has been replaced at many places by the UPI (Unified Payments Interface) app. Whether it is for cab service, recharging DTH, paying electricity bill or ordering anything online, I am able to make multiple payments directly from my bank account using the app. All with a smartphone in hand! No paper, no cash exchanged.

This change is taking place among the smartphone using segment, which is predominantly based in urban and semi-urban areas. For a country with 1.3 billion people, this is the tip of the iceberg. We can expect more disruption in the payments space in the days to come.

Game changer

UPI, which revolutionised peer-to-peer, or P2P, payments in the country, has made rapid strides in changing the fund transfer and payments landscape since its launch in 2016. The only payment platform of its kind in the world, it has a high-volume, low-cost and highly scalable architecture built on the same infrastructure as the Immediate Payment Service. It will be the key to India's transformation to a digital payment economy. Numbers don't lie! For the first time, the transaction count crossed 500 million in November 2018, valued at over Rs 82,000 crore, registering over 500 per cent growth since January 2018, when transactions were valued at Rs 15,500 crore.

The growth is driven mainly by P2P payments riding on adoption by ecommerce companies and over 120 banks. Interestingly, what started as a P2P payment platform now makes person-to-merchant, or P2M, payments possible too. The added features in UPI 2.0 allowing utility bill and merchant payments will take adoption levels a notch higher. So, what makes UPI appealing?

  • It eliminates the need to share bank account number, one-time password or phone number
  • Transaction initiated by a virtual payment address (VPA) linked to a bank account; no need to add a beneficiary
  • Facilitates P2P, P2M and utility bill payments, including payment requests
  • Allows pre-authorised transactions for later payment
  • Provides overdraft facility by linking customers' overdraft accounts to UPI
  • Invoice-in-the-box feature allows customers to check the invoice sent by merchants before making a payment
Growth drivers

The digital payment scenario in India has picked up pace largely due to regulatory support. While the space is still evolving, regulatory mechanisms should keep pace with the rapid technology changes. Being a mobile platform, smartphone penetration will be a key driver. India is already the second largest smartphone market in the world with over 300 million users.

According to eMarketer, the US-based market research firm, by 2022, India will have more than 490 million smartphone users. However, smartphones alone are not enough. They need to be enabled with good data connectivity. While India has a long way to go, a Cyber Media Research study indicates India had close to 240 million 4G subscribers as of December 2017. Interestingly, 83 million were from rural India. In short, every third 4G subscriber is from a village! The study suggests the 4G subscriber base is expected to reach 430 million by 2020. A significant number could be from rural India. This underlines where the huge disruption will eventually happen. However, for UPI to grow and cause real disruption, P2M adoption is extremely important.

Bharat: Ground zero for disruption

This belief is based on my travel experiences in the hinterland. Of particular interest is the way people, especially small merchants across urban, semi-urban and rural areas, are adapting to the digital payment ecosystem.

During my recent visits to the rural branches of my bank across UP, Bihar, MP and even West Bengal, I had the opportunity to interact with kirana store owners, local vendors and other small entrepreneurs running MSMEs. The striking thing was that some of them had smartphones and were making payments through UPI. They explained how our local banking points helped some folks with the nuances of installing and using the UPI app. This was a great learning curve for them, one that would transform their lives forever.

When asked about their experience with UPI, the responses were interesting with convenience being the biggest takeaway.

  • Easy to use UPI interface, no need to add beneficiary, VPA is enough
  • Instant transaction and confirmation as this reduces anxiety associated with the transaction
  • Transactions are free and can be done 24x7
  • MSMEs with adhoc payment requirements found UPI very convenient
To improve the ease and convenience of UPI use, they offered some feedback too:
  • Feature to save a transaction or virtual payment address to reuse in future
  • Instant reversal in case of transaction getting stuck
The rural push

UPI has been able to make customers' lives more convenient, easy and engaging by removing a lot of barriers. It is, therefore, in a unique position to grow exponentially in the days to come. The thrust would definitely come from Bharat, with both P2P and P2M contributing significantly.

That is expected to happen sooner or later causing the biggest disruption that UPI can bring about in the country, which has taken up financial inclusion on a war footing. Meanwhile, I look forward to my next rural branch visit and pay for my lunch with UPI.

India's heart beats in its villages, said Mahatma Gandhi. Couldn't agree more!

The writer is MD & CEO, Fino Payments Bank