Success Of Unified Payments Interface (UPI) System
Research Question: How do the infrastructural and technical nuances of UPI in India contribute to their respective operational successes, and how have MSMEs (Micro, Small and Medium Enterprises) integrated UPI into their operations?
Summary
The Unified Payments Interface (UPI) is a real-time payment system formulated in India. It is an instantaneous payment technique developed in 2016, by the National Payments Corporation of India and the Indian Banks’ Association under the provisions of the Payment and Settlement Systems Act, 2007, to facilitate inter-bank peer-to- peer (P2P) and person-to-merchant (P2M) transactions. This service is operated by utilizing the UPI ID based on the registered cell phone devices to instantly transmit monetary funds between two bank accounts.
UPI now with more than 450 banks on a single platform has seamlessly integrated with different digital platforms to develop an ingenious fintech ecosystem and has proven to be a catalyst for digital lending. UPI’s rapid transaction speed, efficiency, round-the-clock accessibility, robust security systems and low transaction fee promote a cashless economy and empower micro small and medium enterprises (MSMEs).
This research paper highlights the evolution of UPI and the services related to it, the unique features which have led to the success of UPI, its market share in India and contribution towards supporting the MSMEs. This white paper also provides a comparative study on M-PESA, a cellular phone-based cash transfer system in Africa enlisting its services, transaction costs and market share. This study concludes with two anonymous surveys conducted by the researcher to collect primary data based on UPI transactions.
Index
- Introduction: Developing A Cashless Economy………………………………………………………………… 1
- Success Of Unified Payments Interface System………………………………………………………………… 1
- Services Related To Unified Payments Interface………………………………………………………………. 5
- Mobile apps…………………………………………………………………………………………………………………. 6
- On-Device wallet………………………………………………………………………………………………………….. 7
- Supported banks………………………………………………………………………………………………………….. 8
- e-RUPI……………………………………………………………………………………………………………………….. 8
- Digital Rupee………………………………………………………………………………………………………………. 9
- Functioning Of Unified Payments Interface…………………………………………………………………….. 9
- Push Requests……………………………………………………………………………………………………………. 10
- Pull Requests……………………………………………………………………………………………………………… 10
- History Of Unified Payments Interface………………………………………………………………………….. 10
- UPI 0………………………………………………………………………………………………………………………. 11
- UPI 123PAY………………………………………………………………………………………………………………… 12
- Globalization Of UPI……………………………………………………………………………………………………. 13
- UPI One World…………………………………………………………………………………………………………… 14
- UPI Wallet…………………………………………………………………………………………………………………. 14
- Remittances……………………………………………………………………………………………………………….. 14
- Market Share……………………………………………………………………………………………………………… 14
- UPI Technology Supporting The Indian Economy Especially The Micro Small And Medium Enterprises………………………………………………………………………………………………………………………………… 15
- Stimulating E-commerce And Marketing Digital Transactions…………………………………………. 17
- Improving Public Programs And Welfare Drives Implementation…………………………………….. 18
- Facilitating A Cashless Economy And Diminishing Black Money……………………………………… 19
- Rapid Momentum, Available 24/7 And Efficient…………………………………………………………….. 19
- Decrease In Marketing Transaction Expenses For Businesses Organizations As Well As Consumers………………………………………………………………………………………………………………………………… 20
- Safety And Fraud Prevention……………………………………………………………………………………….. 20
- Facilitated And Simplified Business Processes……………………………………………………………….. 21
- Comparative Study M-PESA………………………………………………………………………………………… 21
- Conclusion………………………………………………………………………………………………………………… 24
- Appendix Section: Survey Results…………………………………………………………………………………. 27
- Bibliography………………………………………………………………………………………………………………. 38
Introduction: Developing A Cashless Economy
The Unified Payments Interface (UPI) formulated in India, is an instantaneous payment technique developed by the National Payments Corporation of India (NPCI), which is an endeavor set up by the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007. Furthermore, the NPCI is a non-profit organization, fostered by a consortium of public sector, private and foreign banks in India, to facilitate the function of a multi-payment technique operator.
UPI interface enables inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions and is operated by utilizing the UPI ID based on the registered cell phone instruments to immediately transmit monetary transfers between two bank accounts. This application employs an open-source application programming interface (API) on top of the Immediate Payment Service (IMPS), which enables instantaneous payment and interbank electronic money transfer techniques at zero transaction expenditures for consumers. However, initially the NPCI demanded a Merchant Discount Rate (MDR) fee, which was the fee paid by a vendor to a bank for receiving payment from their clients digitally and this rate was expressed in a ratio of the transaction value. In 2019, the merchant discount rate (MDR) from UPI was nullified and this led to the rise in small- scale online commerce.
UPI was the first instantaneous, peer-to-peer, 24/7 payment system that permitted transfers between users, banks and vendors, all on a solitary platform. UPI was established in India in April 2016 and Indian Banks commenced constructing their UPI-enabled app functionality on the Google Play Store in August 2016.
Success Of Unified Payments Interface System
This payment system is evaluated amongst the greatly booming payment procedures globally, in terms of the number of users and the volume of marketing transactions. In November 2022, it was evaluated that this electronic fund transfer platform had more than 300 million monthly engaged users in India. The ratio of UPI transactions in the full magnitude of online transactions rose from about 23% in 2018–19 to 55% in 2020–21 with a mean value of INR 1,849/transaction.1 Refer to
1 Guha, Divya. UPI surges; now 51% of digital transactions in India. Fortune India, 2021.
Figure 1 which depicts the increase in the number of banks connected with the UPI system from 2016 to 2023.
Figure 1: Number of banks live on UPI 2016-23
Furthermore, the stats from NPCI reveal that 10.5 billion transactions were documented on this electronic platform in August 2023 as compared to 9.9 billion in July 2023.2 In the financial 2023, the majority of the transactions were merchant payments. In August 2023, this platform scored a historical high of 10 billion transactions valued at INR14 trillion.3 A tremendous growth, from 21 banks that constituted its initial infrastructure from its establishment in 2016 to 200 live member banks in 2020, UPI has evolved rapidly.4 India has transmitted its UPI technology to numerous other nations like France, Australia, Singapore, UAE, Saudi Arabia, Oman, Nepal, Bhutan, Sri Lanka etc. Figure 2 demonstrates the steady increment in UPI transaction value in US$ in billions from 2016 to 2022. Furthermore, Figure 3 depicts the growth in UPI monthly transaction volumes in 2023.
Figure 2: UPI transaction value in US$ in billions from 2016 to 2022
2 Indian Stock Market August 2023 recaps and updates. Master Sensex Today: Expert Insights, Trend, & Strategies.
3 UPI Hits Record 9 Billion Transactions Worth ₹ 14 Lakh Crore In May. NDTV, 2023.
4 UPI Live Members. NPCI, 2020.
Figure 3: UPI monthly volume of transactions in 2023
The pivotal characteristics of UPI which led to its success are the following:
- The rails strategy assures that third parties act within a monetary regulatory system
- Nil transaction fees for consumers
- Day-to-day limit of INR 1 lakh for every user, a considerably high value
- Vendor payments utilizing QR code scans (Bharat QR) at physical venues
- Can be used on cell phone instruments with or without internet access (with the USSD service)
- Interoperability across banks located in India
- Payments occur in fiat money within the legal monetary scenario
BHIM (Bharat Interface for Money) is a Payments Service Provider (PSP) application developed by the NPCI and founded in 2016. Supporting the UPI rails, this application did not require holding money in a wallet. This application, along with additional private applications, has permitted the nation to leapfrog to a cashless technique, bypassing card-based commerce and mobile wallets. Nonetheless, this application’s existence has not deterred market pre-eminence by international companies. According to KAS Singapore & Digital Asia Hub, in the year 2016 BHIM accounted for 45% of total UPI transactions by magnitude; nevertheless, that quantum had decreased to 5.37% in 2020.
India Stack is a foundational public digital infrastructure, developed to support public and private sector innovators to function within a structured infrastructure irrespective of their size. Furthermore, it supports tech companies and banks to join onto the same platform, assuring financial stability and risks on private management are averted.
UPI facilitates multiple payments including monetary services, mobile marketplaces, utility and bill payments, insurance services and wealth management, and payment receptacles namely super-apps and digital literacy drives for the adaptation to public schemes. Nonetheless, online payment technology in India is competitive, comprising telecom firms, e-commerce organizations, banks and internet companies. Figure 4 lists the top 15 UPI remitter & beneficiary banks in India in September 2023.
Figure 4: Top 15 UPI remitter & beneficiary banks in September 2023
Services Related To Unified Payments Interface
For real-time payment transfers from bank accounts, UPI applications can be utilized and numerous bank accounts can be linked to one application. Monetary funds can be transferred or demanded utilizing a user-created Virtual Payment Address (VPA) or UPI ID for every single bank account utilizing the KYC-linked cell phone number. UPI also develops a distinct QR code for every user account for contactless transactions. Figure 5 lists the steps related to setting up the UPI app. and its authentication process.
Figure 5: UPI technology
Mobile apps
Any UPI-associated application can be employed to transfer monetary funds from and to UPI- facilitated bank accounts. Apart from third-party applications namely Google Pay PhonePe, Paytm and Amazon Pay, NPCI manages its app, BHIM. During 2021, NPCI withdrew the limitation placed on WhatsApp for UPI client on boarding which then led to soaring growth for all registered users in the Indian market scenario. Figure 6 depicts some of the third-party applications associated with UPI.
Figure 6: Third-party applications associated with UPI
On-Device wallet
NPCI named this characteristic UPI Lite. It can scan QR codes without an internet connection. The maximum limit of the UPI Lite On-Device wallet is INR 2,000. Also, factor authentication or UPI AutoPay characteristics will be utilized to safely load the required amount. To use UPI to pay electricity bills the in-built wallet enables low-value instantaneous payment by utilizing the infrastructure of the mobile application developer, thus reducing the load on banks. Several banks in India enabled the UPI Lite feature on BHIM and this year specifically Paytm Payments Bank went live with UPI Lite. Figure 7 lists some benefits of UPI Lite.
Figure 7: Benefits of UPI Lite
Supported banks
The NPCI website enumerates the banks that enable UPI facilities called Payment Service Providers (PSP), documented with their UPI applications and handles and issuers. PSP comprises banks which possess their cellular applications to enable monetary dealings and issuers comprise banks which don’t possess their payment interfaces and depend on third-party software for monetary dealings.
e-RUPI
e-RUPI is an e-voucher founded on a QR code or SMS string which can be provided through cellular phones. Formulated in 2021 it assures a safe delivery of welfare services and bypasses middlemen to reduce corruption. e-RUPI functions as a precursor for the future Central bank digital currency, as it will assist in accentuating the shortcomings within the national digital payment infrastructure.
Figure 8: e-RUPI logo
Digital Rupee
As a component of the Central Bank Digital Currency pilot scheme, the Indian Canara Bank has launched the Unified Payments Interface compatible digital rupee mobile app. Not requiring a different on boarding strategy for CBDC for merchandisers, this strategy will facilitate users to scan the existing UPI QR code and make payments employing digital rupee. Consumers in several towns who have been whitelisted can use this service as a part of a pilot scheme.
Functioning Of Unified Payments Interface
UPI payments dealings concern the following forces:
Payments Service Providers (PSPs): These are user-facing entities that facilitate payment service to customers and payment infrastructure assistance to vendors, online and offline. They are UPI applications formulated by banks or third parties namely Google and Facebook.
Issuer Banks: Banks which are incorporated onto the UPI rails.
NPCI and the UPI rails: Delivers the rails and the NFS-UPI switch to facilitate inter-bank communication. This holds the NPCI Central Mapper, storage of consumers’ databases.
Consumers: Users with mobile devices.
Figure 9: Functioning of UPI
UPI aims to widen access to the banking systems utilizing the national digital biometric identity for all Indian residents— the ‘Aadhaar’ — to promote the motion towards a cashless economy. To complete a transaction utilizing UPI, a user is required to develop a Virtual Payments Address (VPA) or a UPI ID which is ascertained utilizing their Aadhaar number, cell phone number, a UPI ID which is authenticated using their Aadhaar number, mobile number and bank account on a payments application and this VPA works as the financial address of the user. Furthermore, multiple tiers of identifiers can be utilized to dispatch or obtain money. The VPA and Mobile PIN are the foremost tiers for authentication. Biometric integration facilitates second-factor authentication for each transaction. This platform authorizes two types of transactions namely:
Push Requests
These are requests by users to move finances into the bank accounts of beneficiaries.
Pull Requests
These are collection requests created by beneficiaries who are individual consumers or vendors to a payer using the VPA. The payer obtains a collect request on their UPI app. and authenticates utilizing their four-digit Mobile Banking Personal Identification Number (mPIN).
History Of Unified Payments Interface
In 2009, the National Payment Corporation of India was established to incorporate payment mechanisms in the nation, making all retail payments uniform. However, in 2011 the RBI discovered that in India six non-cash transactions were executed annually by individual citizens while 10 million retailers accepted card-based payments and about 145 million households had no access to formal banking. Hence, there was a difficulty in tackling black money and corruption which took place primarily in the form of cash transactions.5
Therefore, in 2012 the RBI set a target for four years to create a secure, convenient and efficient official online payment and settlement technique in India. Also, as part of the Green Initiative to reduce the use of paper in the domestic payments market, UPI was officially founded in 2016 for public usage. In 2019, post the decision of the Ministry of Finance in India to negate the merchant discount rate (MDR) from UPI, the quantum of small-scale online commerce soared, creating enormous progress on real-time transaction magnitude databases.
According to the Economist Intelligence Unit Report 2021, UPI has made India a leader in the international real-time payment markets succeeded by China and South Korea.6 As per the CEO of Netmagic Solutions, UPI evolved as one of the most thriving deep-tech economic creations that the nation had developed.
5 Datta, Dhriti. The origins of UPI: Road to a cashless society. Digit, 2019.
UPI 2.0
UPI 2.0 was founded in 2018, which facilitated users to link their overdraft accounts to a UPI handle. Also, users were able to pre-authorize marketing transactions by allocating a mandate for a specific vendor. These arrangements also comprised an element to picture and hold bill for every transaction. An AutoPay facility for recurring expenditures was put in. In 2022, RBI permitted linking RuPay credit cards with UPI. Clients can directly make credit card payments utilizing UPI, in the absence of a physical card. NPCI formulated a real-time characteristic that would diminish the one-day duration taken by banks to liberate funds over time-out or transaction decreases to 30 seconds. Furthermore, RBI in 2023 suggested permitting credit on UPI through pre-approved bank lines which would enable clients to lessen their dependence on credit cards. Figure 10 depicts some salient features of UPI 2.0.
Figure 10: Salient features of UPI 2.0
6 Going digital: payments in the post-Covid world. Economist Intelligence Unit, 2021.
UPI 123PAY
In 2021, NPCI with the fintech start-up Naffa Innovations along with their derivatives ToneTag commenced functioning on formulating a voice-based payment service for featured cell phone users in low signal areas over the UPI payment ecosystem as a part of the Interactive Voice Response (IVR) scheme. The technique employed Dual Tone Multi-Frequency signaling technology with a two-factor authentication flow for peer-to-peer marketing dealings.
UPI 123PAY was launched in 2022, to assist nearly 400 million feature cellular phone users in the nation. This system has been used for FASTag refills, insurance payments and EMI payments. Earlier UPI payments existed only via payment applications on smartphones and USSD-based services for featured cell phones. UPI 123PAY keeps four options for payment.
- App-based operations permit a cell phone manufacturer to install a UPI app through programming that can be employed for payments.
- Payment in offline mode via sound-based immediacy data
- A missed calls system is when a client can make a dedicated vendor payment number by giving a missed call. The incoming authentication call will require PIN verification to finalize the transaction.
- Interactive Voice Response (IVR) system is where the payment transaction will be finalized utilizing predefined cell phone numbers.
Figure 11: Process flow of UPI 123PAY
Globalization Of UPI
To create ease of payment globally, NPCI International Payments Limited (NIPL) signed a memorandum of understanding with UK-based PPRO Financial in 2021 to develop the approval of UPI in international markets, particularly in China and the USA which accounts for the majority of all global marketing transaction arising from India. In 2022, UK-based fintech start-up Transact365 facilitated UPI for multinational merchants with real-time currency conversion facilitation assisting in conducting business in India autonomous of local presence. However, many nations including Canada are hesitant to acknowledge UPI due to push back from American firms.
Refer to Figure 12 which depicts the details of initialization of UPI’s globalization trends in multiple nations. Furthermore, in 2023, PhonePe announced expanding aid of UPI for global payments in UAE, Singapore, Mauritius, Nepal, and Bhutan. Users will be able to pay in multinational currency instantly from Indian bank accounts. Furthermore, in 2023, the Universal Postal Union Director-General met with the Indian Union Minister from the Ministry of Communications to consider the integration of UPI for global money transfers through postal routes.
Figure 12: Globalization of UPI
UPI One World
Later over the years, the Reserve Bank of India declared expanding UPI payment facility for inbound travelers from G20 Nations. Transcorp International will facilitate UPI One World for residents from the G20 Nations.
UPI Wallet
For tourists visiting India UPI Wallet facility (apps for UPI wallet namely Cheq UPI) is being established, where users can put in money utilizing their selected debit or credit cards and can scan to spend at greater than 20 million shops in India with nil commission expense. Hence, this UPI Wallet will facilitate travelers to transact from any region in India, providing them with sufficient flexibility.
Remittances
Due to the expanding remittances to India, NIPL along with the Western Union plans to merge with UPI to assist the Indian diaspora in accepting and transferring monetary funds abroad with ease. IndusInd Bank intends to work together with several international entities to boost the acceptability of UPI globally. This facility will be functional through non-resident external (NRE) and non-resident ordinary (NRO) accounts.
Market Share
UPI’s association with banks, transaction volumes and transaction values have been rising significantly since it was established in 2016. In July 2021, UPI registered 432.5 million transactions that were valued at INR 567,345 million with the greatest mean day-to-day transaction of around 100 million which was twice the value as compared to July 2020.7 Also, in August 2021, UPI accounted for about 10% of entire retail payments in the nation.8 Furthermore, PhonePe and Google Pay both documented 1 billion transactions in August 2021 with a market percentage of 45.94% and 34.45% respectively in the UPI payment ecosystem while Paytm grabbed 11.94% percentage worth INR 387.85 million marketing transactions.9 Refer to figure 13 which provides detailed stats for UPI.
7 Surabhi. UPI sets new record in July. The Hindu Business Line, 2021.
8 UPI Now Forms 10% Off Retail Payments, Says Macquarie Report. BloombergQuint, 2021.
9 Upadhyay, Harsh. PhonePe clocks close to 1.5 Bn UPI transactions in July; G-Pay crosses 1 Bn mark for first time. Entrackr, 2021.
Figure 13: Detailed evaluation of UPI
UPI Technology Supporting The Indian Economy Especially The Micro Small And Medium Enterprises
The Unified Payment Interface has progressed with online marketing transactions being executed within the nation, revolutionizing an economic modification that carries forward a deep effect on the Indian economy. As discussed in the previous section, UPI marketing transactions have experienced a 91% rise in 2022, with the aggregate worth of transaction values being greater than US$1 trillion. This instantaneous adoption of the UPI system has not only steered monetary inclusions and the adoption of digital technology but has also stimulated e-commerce trade expansion, decreased dependency on cash transactions and empowered Micro, Small, and Medium Enterprises (MSMEs).
MSMEs are the propelling thrust behind the financial expansion in numerous developing nations, as they add immensely to GDP, nurture innovation and create job possibilities. MSMEs in India have played a crucial function in attaining proportional provincial growth and diminishing income discrepancies. Refer to Figures 14 and 15 which depict the growth in MSMEs in India and how the government supports this sector. Furthermore, Figure 16 depicts the actual and anticipated rise in GDP between 2015 and 2028.
Figure 14: MSMEs as a share of GDP across India from the financial year 2012 to 2021
Figure 15: Indian government support towards MSMEs
Figure 16: Growth of GDP in India between 2000 and 2028 (anticipated)
UPI can be stated as a catalyst for digital innovations and fintech progress for the Indian economy and specifically for MSMEs as it facilitated this progress for millions of previously unbanked or under banked individuals residing in the interiors of the nation to acquire access to proper financial services. Employing a simple smartphone and internet connection businesses and individuals in remote regions can now partake in the digital economy, thus augmenting financial inclusions and has carried forward greater people into the formal banking scenario, directing to a wider consumer base and possible investors, therefore sparking economic evolution. Listed in this section are a few ways in which UPI has assisted the Indian economic growth and the expansion of MSMEs.
Stimulating E-commerce And Marketing Digital Transactions
The advancement of UPI payments has had a profound effect on e-commerce and digital marketing transactions, as with the comfort and convenience of UPI, customers have adopted online shopping strategies making digital payments, overseeing the advancement of e-commerce transactions and developing a thriving online ecosystem. UPI payments have empowered MSMEs by facilitating cost-effectiveness and efficiently obtaining payments from customers, modernizing monetary services.
With the UPI facility MSMEs can not only readily obtain online payments, eradicating the impediments posed by conventional cash-based marketing transactions, but it also improves the MSMEs’ capability to scale their processes, obtain credit and invest in expansion opportunities. UPI facilitates instantaneous loan disbursal, repayment flexibility, real-time tracking, and decreased functional expenses for borrowers. Figure 17 depicts the top 5 UPI apps. in February 2021.
Figure 17: Top 5 UPI apps. in February 2021
Improving Public Programs And Welfare Drives Implementation
The Indian government has harnessed the potential of UPI to expend welfare services, allowances and subsidies straight to beneficiaries’ bank accounts. This direct benefit transfer system assures that public reserves reach directly to the premeditated recipients without any middlemen, diminishing leakages and assuring effective delivery of community welfare agendas, thus upgrading the standard of living for the helpless divisions of society and positively contouring India’s economic landscape.
Overall, payments UPI have emerged as a transformative force in India, leaving an indelible mark on the nation’s economy. Its role in promoting financial inclusion, driving digital adoption, spurring e-commerce growth and fostering MSME development has been instrumental in shaping
India’s economic landscape. As UPI continues to evolve and expand its reach, it bolsters its potential to steer additional economic expansion.
Facilitating A Cashless Economy And Diminishing Black Money
UPI has been a primary factor in promoting a cashless economy in India. The comfort and accessibility of UPI payment strategies have encouraged people to execute marketing transactions digitally, decreasing their dependency on physical cash and establishing a precedent for real-time payment techniques globally. UPI’s easy registration technique and interoperability permit individuals, comprising the unbanked and under banked society, to participate in the formal financial system. UPI payments enhance monetary inclusion by facilitating a user-friendly and convenient platform to enable online marketing transactions.
Decreasing cash marketing transactions not only boosts transparency in the economic system but also enables to fight black money and tax evasion. By leaving an online trail of marketing transactions, UPI payments lead to more accountability and enhanced tax compliance, favorably influencing public earnings and fiscal administration.
Rapid Momentum, Available 24/7 And Efficient
UPI payments are speedy and efficient, enabling real-time, rapid transactions between banks, permitting people and companies to transmit and acquire monetary funds within moments, facilitating a seamless payment experience. The system seamlessly facilitates user-friendly loan allotments and repayments with features like ‘Scan & Pay’ and ‘One-click Two-factor Authentication.’ UPI functions round-the-clock, permitting users to execute marketing transactions at any given time, including weekends and holidays. These 24/7 monetary transfers are not restricted by bank timings or settlement cycles, facilitating unprecedented comfort and flexibility for users.
Figure 18: Advantages of UPI
Decrease In Marketing Transaction Expenses For Businesses Organizations As Well As Consumers
Conventional payment techniques like credit cards and bank transfers usually implicate increased expenses and processing costs. Conventional lending procedures for MSMEs are complicated, involving numerous meetings and expansive documentation. However, UPI marketing transactions incur fewer expenses, constructing an economical and viable alternative for both customers and firms. The lesser expense related to UPI can lead to considerable expense savings for companies, particularly for those dealing with an enormous volume of marketing transactions, which motivates companies to adopt real-time payments, as it makes financial viability while satisfying clients with lower or totally wiped-out transaction costs.
Safety And Fraud Prevention
UPI integrates strong protection and security standards, containing two-factor authentication and biometric verification, to assure the safeness of marketing transactions. This protection framework
enables safeguarding users against defrauding and unauthorized access to bank accounts. Also, as real-time payments gain traction, executing a safe and reliable platform like UPI can assure users’ belief in the security of their marketing transactions, hence decreasing anxieties about likely safety infringements.
Digital lending proposes a streamlined strategy to consider creditworthiness via an extensive digital database. However, a centralized database comes with impediments such as data protection and possible prejudices in automated decisions.
Facilitated And Simplified Business Processes
For business organizations, real-time payments via UPI can streamline cash flow administration and accounts receivable and payable processes. With quicker settlements, business firms can maximize their working capital, decreasing the requirement for complicated credit management and improving widespread economic efficiency. Also, UPI’s open API architecture permits enterprises to merge payment systems with their existing applications and infrastructure, creating payment processing smoothly.
Comparative Study M-PESA
M-PESA – ‘M’ stands for mobile and ‘Pesa’ means money in the Swahili language. This cellular phone-based cash transfer service, allows deposits, withdrawals and monetary transfers to make payments for goods and services, along with micro-financing services which facilitate access to credit and to put together savings.
This service was founded in Kenya, Africa in 2007 by Vodafone and Safaricom, the biggest cellular network operator in the country. Over the years from Kenya, this service has spread to other African nations such as Tanzania, Mozambique, Ghana, Egypt, South Africa and Ethiopia and to parts of Asia like India and Afghanistan. Figure 19 depicts the growth of the M-PESA customers in Africa between 2017 and 2023.
Figure 19: Number of M-PESA customers in Africa from 2017 to 2023
Figure 20: Safaricom’s M-PESA service screen on a Nokia feature phone
M-PESA is managed by Safaricom of Kenya and Vodacom of Tanzania mobile network operators using interface technology. Although the underlying platform is the identical for both the operators, Safaricom employs SIM toolkit to deliver handset menu options for using the service, while Vodacom depends on Unstructured Supplementary Service Data to deliver users with menus options, but even supports STK.
The facility permits users to deposit funds into an account held on their mobile devices, to transfer funds employing PIN-secured SMS text messages to different users. Users are required to make a payment for transmitting and withdrawing funds utilizing the facility. This is a branchless banking service where clients can put in and take out funds from a network of dealers that comprise prepaid money airtime resellers and retail platforms that function as banking agencies.
This service spread rapidly and by 2010 had evolved as one of the greatly flourishing mobile- phone-based monetary services among third world nations. M-PESA has been praised for providing millions of individuals with access to the formal financial system, hence decreasing crime rates in primarily cash-based economies. Nonetheless, the near-monopolistic providers of this service are occasionally condemned for the elevated fee that this service charges on its usually economically challenged clients. Transaction expenses rely on the quantum of finances being transmitted and whether the payee is a registered user of M-PESA. Refer to Figure 21 for further details.
Figure 21: M-PESA tariff structure in July 2023
The initial idea of this service was to develop a facility which would permit microfinance debtors to have easy access to obtain and pay back loans and advances utilizing the network of Safaricom airtime resellers, hence enabling microfinance organizations to propose better competitive loan charges to their clients, as expenses generally are lesser when trading in cash. The clients of the service would benefit as they would be able to track their finances more efficiently. However, initially, the clients utilized this benefit for other usages and difficulties arose with Faulu Microfinance Bank in Kenya with which M-PESA partnered with. Later M-PESA was re-focused and embarked on another value proposal of transmitting remittances home across the nation and facilitating payments for its clients.
M-PESA facilitates its clients the following services:
- Deposits and withdraws of local currency, also save currency in a virtual account
- Transfer funds to other users as well as pay expenses and bills, purchase airtime
- Transfer money between the services and in Kenya into a bank account
- Facility to borrow funds to finish a transaction when there is a shortage of
- Coalitions with Kenyan banks propose extended banking services such as interest-bearing accounts, loans and advances and insurance services.
Conclusion
Virtual lending, payments and funds transfer with UPI facilitates simplified round-the-clock access to funds in a cost-effective manner, improved database availability, expanded online marketing magnitude and effective digital on boarding. It also catered to the underserved segment facilitating a cashless economy and empowering MSMEs. Refer to figure 22 to study the UPI merchant category classification in October 2023.
Figure 22: UPI merchant category classification in October 2023
The future of UPI is expected to create new innovations with integration with AI and machine learning and alliances with fintechs, to have continued expansion in UPI marketing transactions with custom-made lending solutions and financial inclusions along with improved security protection standards, hence leading to international proliferation. In fact, UPI and online lending platforms will further modify how Indian MSMEs manage finances, as they bridge the gaps between conventional banking systems and contemporary needs, enhancing efficiency, diminishing expenses and assuring safe transactions to facilitate financial growth and economic development.
Appendix Section: Survey Results
In order to gather primary data on UPI, I conducted two different anonymous surveys whose results are listed in this section. The first survey covered responses from 375 individuals while the second survey covered responses from 20 individuals. An analysis of each survey question response is provided here.
Results of Survey 1
Results of Survey 2
Bibliography
Datta, Dhriti. “The Origins of UPI: Road to a Cashless Society.” Digit, 1 June 2020, www.digit.in/features/general/the-origins-of-upi-road-to-a-cashless-society-50210.html.
Fundfina. “Transforming the MSME Sector in India: UPI and Digital Lending.” LinkedIn, 10 Oct. 2023, www.linkedin.com/pulse/transforming-msme-sector-india-upi-digital-lending-fundfina.
“How UPI Is Simplifying Business Spending for Smes.” India’s 1st Spend Management Software with UPI, www.omnicard.in/blogs/how-upi-is-simplifying-business-spending-for-smes.
Prasad, Harish. “The UPI Effect: How UPI Is Reshaping India’s Payment Industry.” Inc42 Media, 9 July 2023, www.inc42.com/resources/the-upi-effect-how-upi-is-reshaping-indias-payment- industry/.
Srivastava, Samar, and Salil Panchal. “How India Is Taking UPI Global.” Forbes India, ForbesIndia, 11 Aug. 2023,
www.forbesindia.com/article/take-one-big-story-of-the-day/how-india-is-taking-upi- global/87477/1.
Thathoo, Chetan. “Phonepe Continues Its Reign as the Biggest Digital Payments Player in India.” Inc42 Media, 18 Feb. 2023, www.inc42.com/buzz/upi-payments-phonepe-top-spot-january- 2023-processes-over-47-transactions/.
“Unified Payments Interface (UPI) Ecosystem Statistics: NPCI.” National Payments Corporation of India (NPCI), www.npci.org.in/what-we-do/upi/upi-ecosystem-statistics.
“UPI Payments Success in India May Provide a Template for Real-Time Payments in the US.” Host Merchant Services, 21 Aug. 2023, www.hostmerchantservices.com/2023/08/upi-payments- success-in-india/.
Vashist, Titiksha, and Krishnakumar Shyam. KAS Singapore & Digital Asia Hub. “Building Public Digital Infrastructure for the next Century: The Case of India’s Unified Payments Interface.” Medium, Digital Asia, 20 Aug. 2021, www.medium.com/digital-asia-ii/building-public-digital- infrastructure-for-the-next-century-the-case-of-indias-unified-payments-8acc84be6008.
( Pranav Suri is a student of The Doon School, Dehradun )
