Unified Payment Interface – Will banks in India win this round?

The recent move by the National Payments Corporation of India (NPCI) to initiate a ‘Unified Payment Interface (UPI)’ which aims to simplify and provide a single interface across all banking payment systems is a welcome decision. It is understood that 30 banks have evinced interest to commence UPI-based services in the new financial year (April 2016-March 2017) in India.

One of the key features of UPI based services will be that end consumers, holding banking accounts, will be able to send and receive money with a single unique identifier through their smartphone. This identifier could possibly be the Aadhar number (unique identifier), mobile number or a virtual payments address. The customer will not be required to enter banking account details. Interestingly, the UPI features are architected on existing systems like IMPS, and AEPS for settling accounts. This should speed up adoption by banks and their technology providers.

This is a long awaited move, in a country where digital banking is said to be lagging behind m-commerce adoption by over two years. Hopefully it will result in greater off-take of digital banking services in the country. The feature also works on a number of other counts for the country:

1. Simplicity and ease of access: UPI will hopefully get more people to access the digital banking ecosystem. This is expected to create a greater impact in the hinterlands struggling with access to conventional brick and mortar banking system and with significant digital literacy challenges.
2. Viability of government schemes: This move is expected to energize the millions of opened but seldom used ‘Jan Dhan Accounts’. UPI will enable an increasing number of individuals to transact via these accounts through their mobile devices without having to go to a bank. Once interfacing with the system becomes easier, it will have significant positive spin-offs on how government schemes around subsidies, financing and insurance are accessed by the common Indian.
3. Revenue stream for banking majors: With ease of payments through bank accounts, it is expected that banks will regain ground ceded to payment wallets, credit cards and other fintech providers in the country. With the introduction of the UPI, banks will be able to provide a larger bouquet of services around billing, ecommerce, loans etc to clients. At the very least, this feature will create customer stickiness and possibly translate to increased revenues.

Now, it is for the banks to build on this opportunity. Fintech companies are already planning their move to increase market hold by integrating UPI based services with their systems. Hopefully, Indian banks will rise to the opportunity that has presented itself.