Over the last year and a half since its launch, UPI has allowed full scale interoperability in transfer of funds. The transaction volumes have grown 123 times from 2 million in December 2016 to 246 million in June 2018, while transaction values grew 58 times from Rs 700 crore to Rs 40,800 crore in the same period. With the launch of the second version on 16th August 2018, efforts have been made to give it a shape of an end-to-end digital transacting platform.
Enhancing trust for both customers and businesses
One of the key asks in achieving massive adoption of digital payments is enhancing trust in digital transactions pan-India, both at payer side as well as small merchants. UPI 2.0 aims at addressing concerns by providing more context to the underlying transactions. Most of UPI transactions have been payer initiated and focused on person-to-person (P2P) transfers. The ability of merchants to send digital invoice along with collect request in UPI 2.0 can help the payer with the purpose of the request and boost the collect request side transactions. Another noteworthy feature is around quick response (QR) code - the payment instrument which promotes digital payments at micro merchants. There have been instances of frauds in Quick response (QR) transactions in a few global markets where QR code is widely adopted. The intent/signed QR feature aimed at better establishing the authenticity of the payee is aimed at addressing a few such concerns and boosting offline merchant payments.
Offering unique credit facilities
There are only 3.93 crore credit cards outstanding in the country till June 2018. In addition, a large number of customers with limited credit history struggle to avail credit facilities. There has always been a room for more innovative products offering credit facilities, to assist users to 'defer payments'. Innovative features of UPI 2.0 such as one-time mandate activation and ability to link overdraft (OD) account are steps in the right direction of offering need-based, short term credit facilities. The facility would allow users to avail credit through OD accounts, and in the process complete withdrawal/payments even if account doesn't have sufficient balance. This is can be a significant contributor in boosting both P2P and P2M transactions.
There is thus a huge scope to position enhanced UPI as small ticket, limited period, scenario based digital lending, without the need for the customer to undergo any traditional credit risk assessment.
With the launch of the second phase, UPI has the potential to digitise the entire ecosystem around the core payment. Financial institutions (FI) can look at utilising the enhanced version of UPI and its features for multiple person-to-merchant (P2M) transactions across innovative use cases. High value products / services will now also become attractive for UPI transactions as the amount is revised and capped to Rs 2,00,000. A few such illustrative use cases could be:
UPI 2.0 can serve as a great tool for financial institutions, especially in collection of small ticket loans. Banks can run a cyclic process to generate collect request. The monthly EMI statement can be auto-generated and sent to the customer, along with such collect requests. The customer can view the details in request and authorise it for instant repayment of EMIs.
Although UPI 2.0 provides many features that will make customer payments convenient and have better security while transacting, there is a scope for introduction of new features for better adoption. A few of potential new features are:
There is a huge potential to use UPI 2.0 as a building block to create next generation digital platforms for lending and payments in the future. For instance, containers can be built over the core mandate feature in UPI for a seamless transaction flow. With digital invoices, UPI provides better context and information, along with transactional data. There is a potential to aggregate and analyse the invoice level data to assess the needs for invoice based financing. Such innovative models have the potential of providing the next level of digital experiences to the end user.
Vivek Belgavi is Partner & Leader of Financial Services Technology, PwC India.
(With contributions from Mohit Bansal, Shekhar Lele, Ashish Punjabi and Pooja Lad)