The government of India-backed payments platform, Unified Payments Interface (UPI), has suddenly turned into a huge draw for the country’s e-commerce players.
On Feb. 21, online supermarket Grofers introduced the UPI payment option for its Android app users. ”We believe UPI would take over from net banking as a preferred payment channel,” Albinder Dhindsa, co-founder and CEO of Grofers, said in a press release.
Earlier this month, Seattle-based e-commerce giant Amazon launched its UPI-based payment option for Indian customers. Its homegrown rival Flipkart, too, has opted for the platform for its PhonePe app. Google Tez uses it, as do other e-wallets like Mobikwik and FreeCharge. Ride-hailing app Ola, too, has hopped on.
The Narendra Modi government introduced the UPI platform to reduce the reliance on cash and fulfil its financial inclusion agenda. To flaunt its functionality, the National Payments Corporation of India (NPCI) created the BHIM app in January 2017. In its first year, UPI’s usage grew a hundred-fold. As of January 2018, there were over 70 banks live on the platform and over 151 million people transacting nearly Rs15,600 crore, as per NPCI data.
Quartz spoke to financial technology experts to understand what’s drawing e-tailers towards UPI. Below are the edited excerpts of their replies:
Is UPI better than net banking?
Yashraj Erande, partner and director at Boston Consulting Group:
UPI makes transacting easier compared to conventional net banking that needs larger devices like laptops, personal computers, or tablets. You don’t need to log in to a net-banking account to make a UPI payment.
Is using UPI better than using a credit or debit card?
Vijay Mani, the digital payments expert at Deloitte:
With a credit or debit card, you need to store the number, the expiry date, and then get the card verification value (CVV) and one-time-password (OTP) every time. UPI provides a better customer experience and it’s more secure since you don’t have to provide a bank account number. And typically, UPI fees are less than debit cards or credit cards.
What are the advantages of UPI over digital wallets?
Vivek Belgavi, partner at consulting firm PricewaterhouseCoopers (PwC)
There is a monthly limit of Rs10,000-Rs20,000 for wallets that are not KYC-compliant. So if the expense (incurred by) a person is higher, then using a wallet isn’t an option. For UPI-based transactions, the limit is around Rs1 lakh. So it makes sense to move to UPI if you’re making high-value purchases.
Mani of Deloitte:
If you load money onto some wallets, you can’t offload it into a bank account anymore. It restricts the availability and flexibility of funds.
Erande of BCG:
What e-commerce vendors pay wallet players is completely a function of per transaction cost. Larger players would have been able to negotiate these rates down with network providers like Visa, MasterCard, or Paytm. For very small platforms, though, other payment options are much more costly. The UPI being a public utility makes it much more affordable.
Can UPI have a wider reach than other modes of payment?
Erande of BCG:
While penetration of Paytm wallet and some other wallets is there, the number of bank accounts in India is much larger than the number of wallet users. By allowing for UPI, the expectation is that those who do not have wallets but have a bank account and want to start doing e-commerce transactions can get into the mainstream. And even if you created a wallet account, how many people would just keep Rs5,000 or Rs10,000 in them? For those kind of customers, UPI creates an avenue to participate on the platform. UPI genuinely starts democratising digital payments in India. It is present from the day you have bank account.
What are the drawbacks of using UPI payments?
Erande of BCG:
If you look at wallets, credit cards, or debit cards, they offer a lot of rewards programmes, loyalty points, and cash-back offers. You end up using these instruments because you’ll get 10% discount on an Axis bank card or get cash-backs on movie ticket using Paytm or FreeCharge. That works as an economic disincentive for using UPI.