A cashless world

The Unified Payment Interface that went live last week is likely to be a runaway success, thanks both to its pathbreaking and innovative technology, as well as the rapid increase in the adoption of smartphones by the country’s mobile phone users. In the era of cashless payments, UPI — enabling as it does seamless and instantaneous transfer of funds with only a tap on the smartphone — is a vast improvement over existing digital payment technologies. Money transfer in the physical world through negotiable instruments such as cheques has already largely been replaced by electronic fund transfer through the Real Time Gross Settlement (RTGS) or the National Electronic Funds Transfer (NEFT) systems, though both still have limitations in terms of transaction value and processing time. Filling these gaps, the UPI is also a step ahead of the Immediate Payment Service (IMPS) that enables instant transfer of money through mobile phones. Doing away with the need to disclose sensitive information such as bank account numbers and mobile numbers, the beauty of the UPI interface, built on the IMPS platform, is that it dishes out all the information at the back-end, and only requires a virtual address, one that can be linked to multiple bank accounts.

For online purchases too, UPI has all the makings of a revolutionary platform. Its simplicity and security are likely to lure even jittery buyers, who up until now have preferred the ‘cash on delivery’ route, rather than paying with plastic. Digital wallets, enabling purchases on the go, without using bank accounts or cards directly, while addressing some of these security concerns, lacked interoperability. UPI not only ensures this — any bank’s UPI app can be used to access the accounts of other banks — but also offers consumers a wider basket for their online purchases. Customers can access merchants tied up with any of the 21 banks under the UPI interface.

While there can be little debate on the merits of the UPI interface in the digital payments arena, India’s hope of chipping away at the physical cash transactions that still dominate its economy, does not hinge on technology advancement alone. At best, UPI offers already tech-savvy and digitally inclined users a better platform for executing transactions. What will truly be revolutionary is moving people from cash to digital. While India has around 250-300 million users of smartphones today, only a tenth of those transact online. Aside from offering convenience, the core of any digital initiative lies in offering services to customers in a cost-effective manner. Adoption of the platform by various banks and ensuring glitch-free operations will be critical in bringing down transaction costs under UPI. Moreover, given the rising instances of online fraud, the new interface will also have to up the ante, ensuring a secure environment for users. Educating consumers on the use of the interface and the legal recourse available to them in the event of a fraud will be critical, more so for the new genre of users, for whom banking has just arrived.

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