The Unified Payments Interface (UPI) reached a significant milestone by 10 billion transactions. A Reserve Bank of India (RBI) report released on September 18, 2023, showed that this accounted for 81% of all digital transactions in India. In August, there was substantial growth in both the volume and value of transactions, with UPI transactions making up nearly half of the world's real-time transactions in terms of volume. UPI transactions contributed to nearly 50% of the world’s real-time transactions by volume.
This comes in the backdrop of the RBI innovation hub working on new technologies to expand the range of banking activities that can be conducted through UPI. This includes ATM transactions using UPI and offline UPI transactions. The RBI has also launched the Public Tech Platform for Frictionless Credit, to facilitate easy access to credit.
Speaking to The Core, Hemant Gala, head of banking and finance, PhonePe, a digital wallet and payment app, said, “RBI primarily wants to cater to the customers from tier 2 and 3 segments and wants to solve for the MSMEs. They are trying to create enablers, they are trying to build a central enabling ecosystem like that of a digilocker.”
However, the rising number of digital payments in the country also brings with it challenges of security and privacy. Speaking of how PhonePe is tackling this, Gala said, “When a customer on-boards the device binding is happening on the PhonePe account and that device binding is also happening on the UPI for the purposes of the transaction. So the PhonePe account needs to tie up with the device and the UPI account is tied up with the device and the combination is done to maintain the best possible security.”
Gala spoke about the infrastructure the UPI platforms are aiming to build in the near future and how UPI aims to go beyond borders.
Here are edited excerpts from the interview :
In recent years, there has been a growing disparity between the use of cards and UPI usage. In fact, the usage of UPI touched an all-time high in August. Why do you think there is such a disparity despite the fact that UPI transaction limits are very small?
It is because of the way UPI has been involved, that UPI primarily focuses on a mobile-first approach. UPI has a very native approach and is thus more interoperable. Thus, UPI was made easy and at the same time more secure which led to a surge in UPI usage.
During the evolution of UPI, every participant of the system, banks, UPI platforms, and more made a massive investment to make it to 480 million customers and 3.6 crore merchants. The learning curve is very easy for UPI, people knew how to use an ATM, so they were comfortable with UPI. Teaching net banking transactions or card transactions to someone was more difficult than UPI.
What kind of changes do you think the existing UPI system needs to undergo to make transactions in e-rupi?
RBI, banks, and NPCI have been very forward-looking, so we think we will be given adequate guidelines to implement the same. We are waiting to see how it unfolds and we are doing a limited pilot now. As per our understanding, we think we need to start with the acceptance of the QR network and go deeper as they scale up. But we are waiting to get an understanding of how every player will participate.
Now we have a pinless transaction limit increased to 500 and several other features have been added. How do you ensure better privacy and maintain the security infrastructure?
When a customer on-boards the device binding is happening on the PhonePe account and that device binding is also happening on the UPI for the purposes of the transaction. So the PhonePe account needs to tie up with the device and the UPI account is tied up with the device and the combination is done to maintain the best possible security.
Typically, there is always a two-factor authentication process on such platforms. Low-value transactions can be resolved at the KYC level in terms of any security issues. As the mobile number on UPI is also linked to the bank account, it takes a load of low-value transactions from the bank. So, in case of any fraud, it can be resolved at a device level. RBI and NPCI are keeping checks and they scrutinise the measures we implement.
RBI has also launched a pilot project of digital lending. How will platforms like PhonePe pe, Mobikwik contribute to that?
We have been working with the innovation hub of RBI for the same and shared our inputs. RBI primarily wants to cater to the customers from tier 2 and 3 segments and wants to solve for the MSMEs. They are trying to create enablers, they are trying to build a central enabling ecosystem like that of a digilocker. Like Digi locker is an enabler that makes your documentation easy as they are secured and verified.
RBI is trying to create an enabling environment in terms of lending too by incorporating a lot of services. Anything that could be solved at scale digitally for a country like India, will help to run the ecosystem faster. There are learnings that keep coming up and we also keep securing the system accordingly.
What do you think could be the further changes that could be made in the existing ecosystem of UPI?
UPI will eventually go beyond boundaries and will be made functional in many other geographies. For India, the aim is to take UPI beyond transactions and now a lot of innovations have been planned and a large section of banking will be under UPI.
Ranging from UPI lite to UPI on ATM and UPI credit, many such innovations will come. India has made a leap in terms of payments and created a digital infrastructure. Now we are waiting for the global spread where we can participate too.
The power of UPI is very democratic and taking its structure across the globe becomes very easy and accessible to everyone. There is a lot of trust that gets created as it is interoperable and it will work in our favour.