IPOs: Welcome to the world of UPI

KS Badri Narayanan Chennai | Updated on July 30, 2018 Published on July 27, 2018

Lead managers should educate investors on the benefits of payment through apps

Market regulator SEBI recently proposed allowing investors to use the Unified Payments Interface (UPI) while bidding for shares in initial public offerings. The aim is to reduce the timeline of public issues to T+3, wherein the equity shares would be listed on the exchanges on the third day from the day the IPO closes for subscription, a discussion paper released by SEBI said.

The market regulator said that while ASBA — Application Supported by Blocked Amount — helped reduce the timeline two years back, UPI could help in further bringing down the overall IPO timeline.

SEBI, however, said since UPI had a cap of ₹2 lakh for money transfer, institutional investors and high net worth individuals would be allowed to bid using the existing ASBA process.

What is UPI?

Unified Payments Interface is a payment system through which investors can link more than one bank account in their smartphone app and make fund transfers instantly without having to provide IFSC code or account number.

An investor will only have to use a virtual address, known as a Virtual Payment Address (VPA), which is like our email ID, to carry out the transaction. VPA is an identifier that is created by the user by linking his bank account to the mobile payment application.

UPI, which was developed by the National Payments Corporation of India (NPCI), is regulated by the RBI.

Some of the UPI apps available are BHIM, PhonePe and Google Tez.

MFs’ experience

Already a whole lot of fund houses, including Aditya Birla Sun Life AMC, Baroda Pioneer AMC, IDFC AMC, LIC MF AMC, Motilal Oswal AMC, Quantum AMC and Reliance Nippon Life AMC, offer UPI as a payment option. Earlier, it used to takes about two-three days to get units in your portfolio or money in your account after the final transaction. Under UPI, the transaction process will get completed almost instantly.

Awareness is key

Despite, ASBA in place, not many investors are availing the benefits. Most of them still prefer cheque payments while applying for IPOs, making the process inefficient.

The main reason for this is lack of awareness.

With the government and SEBI focussing on strengthening digital payments, it is high time merchant bankers and lead managers take a lead role in educating investors of the benefits of the UPI payment models. This will not only serve SEBI’s purpose of shortening the IPO timing, but also boost investor participation.

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Published on July 27, 2018
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