India introduces Unified Payments Interface to promote mobile money services

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Developing countries are home to more than 2 billion unbanked people who have to rely on cash or informal financial services to conduct transactions, as formal banking systems find it difficult to serve low-income customers, especially those living in rural areas. However, with more than 1 billion of this population having access to mobile phones, businesses and governments alike are trying to extend the reach of financial services such as bill payments, P2P transfers, and microlending, through mobile money services.

The National Payment Corporation of India (NPCI) recently launched unified payments interface (UPI), with the objective of extending mobile money services in India. UPI will allow users to receive and transfer money through their mobile phones from their existing bank accounts, utilizing unique identification details such as their Aadhaar number, mobile number, or a virtual payments address, without being required to enter their presonal credentials such as bank account details or security pins.
Users can make or receive payments through their mobile phones, which includes P2P (person-to-person), person-to-businesses, and businesses-to-person transfers. This includes transfer of funds from one bank to another, from bank to mobile wallet and vice versa, and mobile wallet to mobile wallet. UPI is interoperable across all payment systems, allowing customers to transact from any bank.

Utilization of virtual payment address safeguards customer information in the event a data breach, making transaction through UPI much more secure. This is expected to help drive growth in ecommerce in India. Non-availability of financial cards such as credit cards and debit cards and concern over data theft is one of the major impediments to growth of ecommerce in the country. UPI will be especially beneficial for the rural customers as they will be able to make cashless transactions and transfer funds using only their mobile phone and Aadhaar number for validation.

UPI could potentially challenge the business model of mobile wallet providers as its successful implementation could reduce the need for wallets that function only to solve the problem of second factor authentication (2FA).

PayNXT360 believes successful implementation of UPI will increase demand for mobile money services in India. We expect both banks and non-bank players such as mobile wallet providers to enter the mobile money market in order to leverage on the cross-selling opportunities as well as expand their customer base, resulting in better cost management and higher ROI. UPI can be beneficial for small vendors and shopkeepers who would be able to receive cashless payments from customers. The system can potentially allow small merchants to receive bank loans through UPI, enabling greater financial inclusion and driving India’s retail growth.