Mobile wallets beware, UPI is here

The demise of mobile wallets in India would be quite a shocker. What will happen to all the seamless payments to your taxi vendors and favourite sumptuous food deliveries?

The National Payment Corporation of India (NPCI), a primary body governing all retail payment systems in the country, may have some good news for you. Through launching their Unified Payments Interface (UPI), a customer is no longer required to give their personal credentials like account details, security pins.

Demystifying the UPI

UPI with its mobile first payments design moves towards interoperable and instant payments. The interface allows customers to make payments through a single identifier like Aadhaar number or virtual address.

The core features will help understand the payment cycle.

1) It enables you to make payments using your mobile phone as the primary device for payments including person-to-person, person-to-businesses, and businesses-to-person with the ability to pay someone as well as ‘collect’ cash from someone.

2) The platform also allows you to use Aadhaar number, mobile number, and account number in a unified way, while not giving it away during the payment process. You could just create a ‘virtual payment addresses’ that are aliases to your bank accounts.

The virtual payment addresses doesn’t allow your security to be compromised when a certain merchant’s account is hacked, because their database will have only a list of virtual addresses. The payment addresses are denoted by ‘account@provider’ or userid@mypsp (i.e. tarush@icici).

Moreover, the platform also allows you to transfer funds using only Aadhaar number as your identifier, which really equips the rural demographic. Today, according to Nandan Nilekani, former Chairman UIDAI, there are 250 million Aadhaar payment bank accounts, making 1.2 billion transactions a year with around 77,000 micro ATMs in the country.

3) Another exciting feature is the ‘pay by’ date, which is made while making a collect request to others (person-to-person or entity-to-person), which allows payment requests to be ‘snoozed’ and paid later before expiry date without having to block the services.

4) It also allows multiple recurring payments similar to electronic cash payments (utilities, school fees, subscriptions, etc.) with a one-time secure authentication and rule based access. This could be useful for organisations while paying salaries.

5) UPI also equips Payment System Players (PSP), the banks in this case, through their mobile applications to allow paying from any account using any number of virtual addresses using credentials such as passwords, PINs, or biometrics (on mobile phone).

This means that one can create separate virtual addresses for separate tasks like bill payments, charity donations and be used as wallets with certain rules. For example, if a user donates to Akshay Patra every month, one can create a virtual address just with that.

6) UPI also makes the system fully interoperable across all payment system players without having silos and closed systems, making you transact from any bank.

Thus, with payment banks, newer PPIs, the platform has standardised the m-pin system for all banks, while combing the phone with it. However, all these entities need to be UPI compliant. Thus, you can now make payments if you’ve access to (single-identifiers) either – mobile numbers, Aadhaar authentication, and m-pin.

7) Lastly, the ability to make payments using 1-click 2-factor authentication all using just a personal phone without having any acquiring (swiping) devices or having any physical tokens.

Thus, if UPI is implemented it will work better on frictionless payments, without people having to transfer funds to wallets and being bound by rules. With better interoperability, UPI gives users the freedom to use their money, they want to without worrying them of security. Moreover, the ‘common library’ or landing page for payments as refered to NPCI is all in-app. However, the features are also available on a website where a person can make a collection request.

Therefore, we foresee the extinction of an Indian mobile wallet.

Moreover,Nandan Nilekani, Chairman, Unique Identification Authority of India (UIDAI) and an Advisor to NPCI, believes that in order to create a massification system, one needs to reduce the on-boarding cost. Thus, in this case, UPI is a winner as only your mobile number needs to be registered with your UPI compliant bank. Further, he hopes that if RBI allows eKYC then users can open bank accounts too on the fly. 

YourStory take – Permutations and Combinations

It helps e-commerce players to seamlessly collect funds on Cash on Delivery, without risking customer’s account information. It also helps merchants tap customers without any cards. However, for customers it offers multiple utilities on cash on delivery, bill splitting, merchant payments, and remittances.

Moreover, UPI through offering a ‘collect’ feature, improves the entry barrier for startups and businesses, allowing even an individual to function as a businesses (by themselves) solving their problems of collecting money for services and products.

However, it could turn a little sour for wallet startups like Freecharge, Paytm, PayU, and Oxigen Wallet. This is because the regulations don’t allow wallet-to-wallet interoperability. For example, one cannot make transactions from a Mobikwik to a Paytm. This is applicable for semi-closed wallets like Vodafone’s m-pesa and Airtel Money. In order to operate on the platform, these startups might have to partner with the 15 odd banks that are partners with the platform. It doesn’t make things any easier for companies with payment bank licenses like Paytm since they don’t have their wallet registered under their payment bank.

While for Snapdeal it makes operations easier for e-commerce, for Freecharge (Snapdeal’s acquisition) it can make them vulnerable for an attack by new entrants working on the UPI platform. Freecharge Go did try to break the loop of interoperability by allowing customers to pay to all online merchants through a virtual prepaid card, however, the limitations of e-wallets exist.

Sharad Sharma, Co-founder, iSpirt, said during the launch “We need startups to realise that the existing infrastructure has not been given away. They can come onto the UPI platform through partnering with PSP banks. For wallets, this could be a beginning to build on a better platform dealing with the problem of cashless payments better.”

However, Karthik Vaidyanathan, Co-founder, Momoe, a mobile payments company, refutes saying that now for payment startups it becomes a sales process, where they have to pitch to partner banks. Moreover, with rights of APIs, even banks will take some time to figure out how they can leverage this technology.

But these partner banks to the UPI platform have their own wallets like SBI’s State Bank Buddy which now have suddenly got a boost of technology, giving them level field to compete with the private wallets.

Moreover, A. P. Hota gives hope that it is only a matter of months that wallets will also be included in the gamut of things by RBI. But we would say that why need a wallet in the first place.

Everything said, now with NPCI opening the API to developers for their hackathon it will be interesting to see how startups leverage the power of the platform.