The United Payments Interface (UPI) has been breaking records every few months since the pandemic -- the latest being transactions worth about $100 billion in October.
The push that digital payments received across use cases amidst the pandemic has sustained and the National Payments Corporation of India (NPCI), which handles UPI, is gearing up for higher volumes.
In October, UPI clocked transactions worth Rs 7.71 lakh crore through 421 crore transactions, both all-time highs.
At this rate, the UPI transaction value is on track to cross $1 trillion, a huge milestone for the home-grown payments system, in FY22.
However, UPI is not just about payments between people to people or to merchants anymore. With UPI being used to subscribe to Initial Public Offerings (IPOs) and UPI AutoPay for recurring transactions, the platform is evolving.
Moneycontrol spoke to Praveena Rai, Chief Operating Officer, NPCI, to understand how the organisation is gearing up to meet the changing regulations and growing volumes.
Rai believes that despite newer ways of payments like replacing card details with a token number will make transactions easier, customers will continue to use UPI as it already serves the same purpose.
NPCI is also working with the ecosystem to handle the growing volumes of UPI, Rai said. Edited excerpts:
UPI has been seeing exponential growth since the beginning of the pandemic. How is NPCI preparing to handle further growth?
So clearly, in India, digital payments are on an upswing and the trends speak for themselves. We saw some good numbers and growth, pre-pandemic, but the last year and a half has removed some of those inhibitions people still had around digital payments. Beyond e-commerce and other purchase payments, we realised that people were using UPI intensely across diagnostic labs, hospitals and pharmaceuticals.
Now that people have started stepping out, you see UPI usage in the hospitality sector. So the behaviour of people has changed, and that is not on a temporary basis. It seems to be changing on a more permanent basis. More users have joined and they are using digital payments for more use cases and are transacting more. We see this trend continuing.
Now, what do we need to do for that? We need to be ready, the ecosystem needs to be ready. As soon as we caught these signals about a year back, we started working on our architecture and technology infrastructure to handle the kind of scale and complexity that is developing.
The good part is we have done our internal review, we've upgraded our infra, and whatever we had to do is largely in place. There's a lot more to do, it is a continuous journey. But we are operating from a high level of confidence in terms of where we are from a readiness to handle the scale
The second part is the readiness of the ecosystem. Of course, this volume and growth surprised everybody. So, the ecosystem has also had to do its bit in ensuring that they are able to handle the scale and we work very closely with a number of partners.
There's a lot of collaborative efforts. Banks and many ecosystem players have done their best to re-architect solutions because it cannot be directly proportional to the current growth. Then, it is going to be inefficient. It has to be non-linear. You need solutions that can handle scale in a very efficient model.
Certainly, the way the Indian digital payments are growing, it will not be that everything is hunky-dory, with a steady standard business as usual growth. The process will be like, the market grows and readiness happens. This to and fro will continue because there are new use cases also coming up, which will keep driving growth, along with users. At the same time, the readiness will also happen in parallel.
NPCI CEO Dilip Asbe had recently said that the UPI transactions may be worth $1 billion per day in three years. So, what are the next milestones that NPCI is preparing for and where will growth come from?
In UPI 2.0, we had a number of interesting functionalities which went beyond the standard person-to-person payment. We introduced person-to-merchant and small merchant payments, too. Then we said we need to look at the other value-added use cases people are looking for. And one of them, for example, was UPI for IPO subscriptions.
Retail subscription to IPOs through UPI has a 45-50 percent share of overall subscriptions. First-time investors also came in through UPI. So, this journey is a continuous one of looking at where UPI can play a role and addressing that problem to create the next tranche of transactions.
So where do you see that next tranche of transactions coming from? Will it be through UPI 3.0?
We are thrilled to be in the midst of UPI AutoPay. The new norms by the Reserve Bank of India (RBI), which came into effect on October 1, has been very carefully crafted. It really looks at the interest of the consumers, and provides flexibility and eliminates friction in the way merchants and consumers interact for recurring payments.
Of course, since there has been a transition, users will need to relearn the process. So, UPI AutoPay has kicked off well. Most of our issuers, i.e., banks, are live and merchants have started onboarding. We are seeing some good numbers on UPI AutoPay. People are looking at emerging applications of UPI AutoPay beyond standard bill payment mandates.
For example, software as a service (SaaS). It is being used to pay for blog spaces, podcasts etc. So, small services have emerged in the last few years, which are all on subscription.
But there is a Rs 5,000 limit on UPI AutoPay transactions...
That's right. For many use cases, unless they are for commercial purposes, Rs 5,000 is a reasonable limit. So, this is the next thing we think will drive the numbers.
If you look at the debits from a bank account, that is what UPI does. You can take a recurring payment mandate on a card or tokenise a card. But UPI is already representing bank accounts without divulging account details. So, it is a token. To that extent, it is really a very friction-free solution.
Right, but once the new guidelines for Payment Aggregators (PA) and Payment Gateways (PG) come into force from January 1, 2022, merchants will not be allowed to store card data on their platforms and tokenisation will have to be widely adopted. Once users have the option of making payments using just a token number, do you think they will move away from UPI payments as card payments will be easier?
No, we think it will be the other way round. People will realise that UPI is basically the token of their bank accounts and the need to tokenise their debit cards does not exist. Ultimately, debit cards were primarily meant to be used to debit your bank account.
It will still be needed for physical transactions, but in the online world, the job gets done with UPI, since it's also a debit to the bank account. The consumer does understand that.
We will see the benefit of tokenisation for credit cards. But when it comes to debit from a bank account, UPI provides a very simple interface.
How is RuPay’s preparedness for tokenisation as we near the December 31 deadline for PA and PG norms?
See, tokenisation has been around for some time now. Having said that, it has not taken everybody's fancy in a big way. Because tokenising for physical transactions is not as friction-free and intuitive. In the e-commerce world, tokenisation protects the user and their information. The regulation comes from a very solid framework of what we should deliver and I think the whole ecosystem has taken to it very intensely.
It is certainly the biggest project on everybody's mind right now. We are working with all the banks, aggregators, and service providers who need to enable this. So, fingers crossed, we are really hoping that, by December 31, we should have a situation where users are not impacted.
How has the adoption of e-RUPI been after the initial use case for vaccination? Has private players started using it yet for employee benefits?
e-RUPI is a phenomenal product because you are looking at a beneficiary who may or may not necessarily be part of a proper bank system and was getting excluded. So, post launch, it has seen more interest from government programmes.
It can be used for many applications. Corporates, for example, can use it to give vouchers to employees or for employee welfare services etc. But the early applications are going to be probably from the government side.
There are a number of things that are in play. As those happen, we'll start seeing the actual applications. Right now, groundwork is underway.
What are the discussions with UPI players on adhering to the 30 percent market share cap, as per NPCI guidelines? How is NPCI planning to ensure that players are able to meet the cap? Currently, UPI has two big players – PhonePe and Google Pay (also known as TPAPs) -- with a share of 47 percent and 34 percent, respectively, in monthly UPI volumes.
This is really a market dynamic situation. There is a potential risk that has to be addressed. And then there is the market dynamics of players coming in, growing, doing their bit to grow the market, grow their own business and prove their own share.
We are looking at working with all the players in the market, be it banks, or Third-Party Application Providers (TPAPs). So I think there is no simple answer to that, but this is something that we are tracking very closely and we are also reviewing continuously with the ecosystem to see how this needs to go forward.
So, are you saying that it will be more of an outcome of how the market dynamics turn out rather than asking TPAPs to cut your user base or any such approach?
The guideline is quite clear. We'll have to balance these elements to address this. So yes, there is no simple answer to that. Ultimately, what is important is that UPI does not get impacted. And the confidence and trust on UPI that users have, when they want to use it, it is available, that should stay. We believe we will get there, we'll find the answers.
What are the further plans for NPCI International, in terms of taking UPI to other countries? Are there countries with which talks are on?
A: There are three big agendas that NPCI International is working on. One is to look at all cross-border transactions, i.e., transactions into India and from India to overseas and to see how UPI can be used for this purpose. The second objective is to look at acceptance so that Indian travellers overseas can have the same experience as using UPI in India.
The way to do that may not be to replicate everything that has been done in India, but we need to find smart solutions. The third one is in terms of actually looking at countries that want to use UPI or a UPI-like solution. So, the team is working on all three.