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India
has long been a cash-intensive economy. RBI and other commercial banks spend
around ?21000 crore every year for currency management operations and the
overall cost forms upto 1.7 percent of GDP. Apart from this, there are myriad
of issues which arise due to cash-rich economy such as flow of unaccounted
money, payment transactions not leaving trails leading to tax evasion and so
on. Government of India is taking efforts to encourage people to make
electronic payments. Apart from debit or credit cards which are in use since
long time, various other modes for digital payments such as Mobile Wallets,
Unified Payment Interfaced (UPI), Unstructured Supplementary Service Data
(USSD), Aadhar Enabled Payment System are available today. Encouraging people
to adapt to digital payment ecosystem was one the motive behind demonetization
and it has proven to be successful.

UPI
was introduced by Reserve Bank of India in association with National Payments
Corporation of India (NPCI) in April 2016. Digital wallets need users to
transfer money from bank account to wallet before being able to send it to
recipients and to transfer money back to the bank account a fee is levied. UPI,
on other hand, enables instant fund transfer directly between two bank accounts
using a ‘unique virtual address’ eliminating need of card details, bank account
details etc. It is based on IMPS structure of payments and has 61 banks live on
it today. Some banks have integrated UPI in their existing app like ICICI’s
iMobile and some have developed new UPI app like Axis Pay, SBI Pay. In terms of
growth , UPI has outpaced other forms of digital
payments since its inception.

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Government
of India launched BHIM providing an integrated UPI platform for all banks in
December 2016. BHIM was further advanced with Bharat QR code and BHIM-Aadhar
platform. As RBI allowed UPI integration in digital wallets, Paytm, Mobikwik,
Freecharge added to overall UPI transactions. Until mid-2017, when there were
limited number of UPI-led apps, BHIM had massive share of UPI transactions. But
with more and more players coming into the space, BHIM’s share in overall UPI
transactions is reducing. BHIM accounted for just 6% of the overall UPI
transactions in December. In a bid to rejuvenate BHIM, the government has now
mandated all UPI-led banking apps to add ‘BHIM’ as a prefix to their
names.

Many companies from other industries
are also entering the digital payment space. Uber integrated UPI into its
cab-hailing app in partnership with Axis Bank and HDFC Bank, facilitating users
to pay via UPI. Flipkart’s PhonePe has integrated UPI in its app and has
created multiple use-cases such as bill payments, phone recharge and merchant
payments. Messaging service Hike
messenger has set foot into the space with its UPI-enabled digital wallet
interface. Facebook owned instant messaging service Whatsapp is also in talks
with NPCI and SBI to launch a UPI-based payment product within its application.
As Whatsapp already has a huge user base of 200 million in India, it will not
need to acquire customers by offering them incentives. Once making payments
become as smooth as sending a text, it will be a major flip for UPI’s growth.

Technology
majors Google, True-caller and Pay-Pal have entered onto the platform as well.
Number of transactions recorded monthly on UPI were mere 4.15 million at start
of the 2017, increased to 12 million in July and raised exponentially to 145.5
million in December. This growth in second half of the year was lead by Google
Tez. Since its launch in September, Tez alone accounted for 140 million
transactions till November which is 70% of the UPI market. Tez offered host of
incentives such as instant cash back for referral bonus and scratch card on
making fund transfer that acts like a lottery ticket. Though design and ease of
use generally doesn’t act as an incentive as compared to cashback and rewards,
it worked well for Tez to acquire more customers.  

NPCI is soon going to launch UPI 2.0
with some cutting edge features. Two most exciting upgrades are going to be;
Aadhar based payment mechanism wherein user will use biometric access to make
payments eliminating the need of passwords and OTP based recurring payment
mechanism wherein amount will be debited from user’s bank account periodically
depending on terms and conditions defined by user. Enhanced UPI version will
definitely help it to lead the digital payment ecosystem growth.

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