Spend Smart. The WhatsApp of payment

Payment infrastructure is evolving as the country moves towards a ‘less cash’ society. According to the RBI’s payment statistics, the volume of cheques as a percentage of total payments (excluding ATM transactions) is down to 13 per cent in May 2016, compared with 34 per cent in the financial year 2013-14.

This trend is being facilitated by continuous efforts by the central bank to strengthen the electronic payments infrastructure by rolling out new products and services, such as unified payment interface (UPI), immediate payment services (IMPS), national electronic funds transfer (NEFT), and national automated clearing house (NACH).

Increased adoption of digital payment channels has led to improved efficiencies and a more robust internal control environment for merchants. At the same time, individual customers have also benefitted from the ease and speed of transfer in a cost-effective manner.

While the convenience and cost-effectiveness of new digital payment channels, such as IMPS and mobile wallets, have gone a long way in improved adoption, it is predominantly used for P2P payments. While some of these are used for small-value C2B payments, it does not address all the client’s needs.

Wallets are generally either closed loop or semi-closed loop. While IMPS has enabled real-time, round-the-clock low-value payments at a nominal cost and has seen a rapid adoption by the consumers, it only enables push of funds. The recently launched UPI has leveraged the IMPS capabilities to create the “WhatsApp of payments”.

Unified payment interface (UPI) is a key development that will ease the payment process further, especially for small value P2P and C2B/B2C payments. UPI allows both push of funds as well as pull of funds. You do not need to remember the cumbersome bank account details. UPI is available on an app.

The UPI app can store payment due notification, which you can use to pay at your convenience 24x7.

UPI has the potential to reduce physical cash transactions in the economy. Consider a scenario where one places an order online and chooses UPI as a payment option.

On delivery of goods, the buyer can pay using the UPI app on the smart phone.

The delivery boy will get an instant confirmation of the receipt of funds. In this transaction, even if the buyer is not at home and the packet is received by a family member, the buyer can make this payment seamlessly from her office location using UPI, and the delivery boy will get the instant confirmation. UPI can thus convert a potential cash transaction into a digital one.

While peer-to-peer transfers have so far been the focus of recent UPI roll-outs, it has tremendous potential to transform not only B2C and C2B payments but also B2B transactions. For instance, a small dealer/retailer can pay via UPI to the distributor on receipt of goods. A telecom company can receive UPI payments and sell airtime to its dealers/retailers on 24X7 basis.

Given the potential of UPI to transform business processes and deliver operational and financial benefits, the treasury and finance teams should actively lead conversations in their organisations on leveraging UPI.

For any digital payment mechanism to be mass adopted, it should score high on five key consumer needs — ‘convenience’, ‘secured’, ‘real-time’, ‘cost effective’ and ‘accessible’. I would rate UPI high on all the parameters as explained below:

Convenience and security are critical for a positive consumer experience. This includes the convenience of initiating and receiving payments in a secure manner and, that too, round the clock. UPI payments will be enabled by a mobile app that will provide a seamless user experience and ensure security similar to two-factor authentication.

Real-time nature of the payments is vital as the beneficiary is keen on finality and surety of payments. We will have to distinguish the real time nature which can be limited to real-time information on ‘payment surety’ or also include real time settlement of funds.

For an e-commerce payment using credit card, while the merchant gets real-time information on payment surety, the settlement is delayed by one to two days. However, UPI will provide both real-time information and settlement of funds. Cost-effectiveness of the payment platform will have an impact on its adoption.

Low cost will ensure reach of the platform to the large domestic market of merchants and payers. Merchant charges for UPI will be lower than that for debit/credit cards.

Accessibility of payment channel for the payer is also very important.

Credit cards have a very low base in India as compared to debit cards and bank accounts. This also gives an upper edge to the adoption of UPI channel as UPI connects all bank accounts.

So, UPI has all the ingredients required for successful adoption by merchants, corporates and consumers alike. It will also play a key role in reducing physical cash transactions in India.

It might also trigger a response from credit card and mobile wallet players to review features of their offerings to match up to UPI.

The Indian consumers are thus bound to see a big shift in the domestic payments landscape towards less cash and more efficiency.

Come, let us use the WhatsApp of Payment.

The writer is Regional Head, Transaction Banking, South Asia, Standard Chartered