Quick. Name a major Digital/Skill India/Make in India
success story of the public sector, other than IRCTC. Hint, this is related to
banking. Given up guessing? Its NPCI.
Last
week, Google made the news again in India when it introduced a payment system.
However, unlike other players, it chose a different route. Tez is neither a mobile
wallet nor a modified version of Android Pay. It is built on UPI. Ever
since demonetization(aka withdrawal of specified bank notes), the acronyms UPI,
BHIM, Rupay, Aadhar Pay have all entered the general lexicon. What is common
between these? All these are brands/products
of the National Payments Corporation of India (NPCI), an umbrella organisation
for operating retail payments and settlement systems in India. It is the
payments utility of the Indian financial system, which aims to innovate retail
payments for achieving greater efficiency in operations and widening the reach
of payment systems. L ike India leapfrogged the landline to mobiles, and cards to
wallets, payments systems are similarly seeing digital first viz online players
becoming mainstream and digital natives. For instance, across smartphones,
fully secure, encrypted, virtual payment addresses, etc.
It is a Section 25 company (Like GSTN) which
has broad-based shareholding across all sectors. The payments system globally
has been an oligopoly between Visa, Mastercard and Amex. The developing world
however has resisted this, with China locking out these majors and leapfrogging
to Alipay, while India has not explicitly resisted them, but imposed
limits/caps on their fees. So for these global players, India remains the last
virgin frontier.
However, this was not reflected in
the pricing which was high, viz anything between `5 to `8 per transaction as
switching fee, which allowed NPCI to disrupt the market by charging around 5%
of the other, and still earning a profit.
NPCI was created along with UIDAI,
and has leveraged the identity/digital revolution to establish itself across debit,
credit, contactless and prepaid, with flagship products of National Financial
Switch, Cheque Truncation Systemand Aadhaar Enabled Payment System. While these
target the bigger value transactions, smaller value transactions are enabled
via Bharat Bill Pay, National Common Mobility Card and National Electronic Toll
Collection. And of course, the USSD enabled BHIM.
Lets understand these acronyms a
bit better
-UPI: 24*7 instant
money transfer, with value added facilities of customer ID like email address, Scan
and Pay/Collect and Receive/QR Code/free of charge notifications and multi
lingual, the last part being vital for financial inclusion. The ‘instant’
credit allows it to substitute ATM, however customer security(via 2FA and PIN)/dispute
handling/fraud treatment will be critical to its replacing credit cards
BHIM-
Launched
in December 2016, the BHIM app is essentially a rebranded version of UPI and
Unstructured Supplementary Service Data (USSD). Available on the Android app
store, the app allows users to send money, receive from friends, family and
customers through a mobile number or payment address. For that, one has to
register his bank account with BHIM, and set a UPI PIN for the bank account.
-One may wonder why UPI when IMPS already offers instant
credit. However, the features of single APP(across all banks) and P2P give it
an edge.
-NPCI being a bank
owned utility reflects in their ability to retrieve account details in a masked
manner, which is passed to BHIM via encryption to the extent required. However,
it is not neutral in the sense that wallets are not linked to UPI so far-it is
unlikely they would want it, as it’s a competing tool anyways.
-Rupay-This is India’s answer to
VISA/MasterCard/Amex. It has 380+ MnRupay cards issued by 800+
participating banks, driven by Kisan Cards and PSU banks mainly. However,
private sector is also issuing these cards(eg PAYTM virtual Rupay card), due to
the advantages of no need for hedging Forex risks, low fees(switching fees
nearly 1/3 of global peers) etc. Also,
for the less tech savvy banking segment such as RRB/Cooperatives, Rupay has allowed them to enable their customers
with good technology. Interestingly, the global tie ups for cards are not with
the biggies, it is with Discover Financial Services and Japan
Credit Bureau.
For more
information, the below links are useful:
Of
course, such initiatives are not without their detractors. The government
announced an outlay of nearly 495crores to encourage BHIM transactions. The
private wallet players felt this was not neutral. Ironically, it’s the private
sectors who have lagged behind neutrality, for instance, the ability to read
all 5 payment constitutes(Mastercard, Visa, American Express, RuPay ,UPI) in
one QR code was only within BHIM. Other UPI apps had not followed suit. So now
the government mandated it.
