THE payments scenario in India, which has evolved rapidly in recent years, is likely to witness a dramatic transformation over the coming days with the launch of what is definitely ‘a killer app,’ the Unified Payments Interface.

The National Payments Corpo­ration of India (NPCI), an umbrella organisation of all retail payments system in the country — set up with the support of the Reserve Bank of India and the Indian Banks’ Association and with 10 banks as promoters — recently unveiled the interface.

From next month, nearly 30 leading banks are expected to rollout the services to consumers, who will be able to make payments and transfer money through their smart phones.

The United Payments Interface (UPI) threatens to make e-wallets — which have gained popularity in recent months — redundant. The NPCI has not included mobile wallets in the UPI platform in the first phase of rollout, though there are hopes that this may happen at a later stage.

UPI is also expected to make redundant the wallet systems of leading lenders such as State Bank of India, ICICI Bank and HDFC Bank. The digital money revolution in India, which was slow to take-off, will gain traction as millions of mobile phone users are likely to join the new system.

The unified payments interface will make the transfer of money as simple as sending text messages. According to A.P. Hota, managing director and CEO, NPCI, its focus in introducing UPI has been in line with the RBI’s vision of migrating towards ‘a less-cash,’ and more digital society.

Unlike most other bank payment systems, which require a one-time password and the Indian Financial System Code (IFSC) of a bank to make payments, UPI is linked to a unique identity generated by the user. This will act as a virtual address for all online transactions.

The unique identity could be the mobile phone number or the 12-digit unique Aadhaar number, a national biometric identification scheme that has seen more than a billion Indians enrolling for it.

Unlike the wallet payment systems or the bank’s wallet systems, a customer can make payments directly to any bank account of the service provider (ranging from a cabbie, to an e-commerce delivery person, or even a hawker, a retail store, or a merchant).

E-wallets and the digital wallets of banks have a great disadvantage in that both the customer and the service provider ought to have their mobile app and accounts. UPI does away with such restrictions, ensuring its success.

“These existing bank-led wallets offer their products to only those who have an account with them,” notes a research report by Centrum Wealth, a financial services firm. “UPI is open to account holders of all banks. This significantly increases the pool of customers UPI can tap into, compared to banks which have a limited universe of customers.”

According to Shikha Sharma, managing director and CEO, Axis Bank, the major challenges for consumers in shifting to digital payments are questions relating to safety, convenience and availability.

“With UPI, you don’t need to move money from one bank account to a wallet and so you can transact directly from where your money is stored and saved, making it easier,” she says. “And from a security perspective, one click is a huge innovation which can end up solving the problem of broken payment chains which we find in e-commerce payments today.”

THE RBI, India’s central bank, has been struggling to reduce the role of cash in the Indian economy, but has not been able to effectively do so. UPI will be a major tool in its battle against cash, especially for smaller transactions.

The central bank estimates that cash accounts for 18pc of India’s GDP, one of the highest in the world.

India was slow to adopt plastic money, though today the country is awash with credit and debit cards. There are more than 650m debit cards and about 25m credit cards. But the increase in these cards has also led to a surge in frauds.

Police across the country report cases where customers have had their cards scanned by unscrupulous restaurant staff, who then quickly misuse the data to make other transactions.

The RBI introduced a two-step authentication system — which includes a one-time password (OTP), sent through SMS over the phone. Despite these precautions, credit card frauds continue to surge.

Digital money — through e-wallets — was seen as an effective tool to combat such frauds. The RBI issued more than 40 licences to digital wallet firms, many of who have emerged as top players.

Paytm, the largest player — which began in 2010 as a pre-paid mobile recharge site — dominates the sector. It has a wallet base of 120m users and reports 90m transactions (worth Rs7.5bn) every month. Chinese e-commerce giant Alibaba is one of the major funders of the company.

Paytm has also been granted a payments bank licence by the RBI. It has also emerged as a significant e-commerce player, selling a range of products — though it is much smaller than Amazon or Flipkart.

Other major e-wallet companies include Mobikwik (with 30m users) and Oxigen (20m). Last week, Mobikwik raised money in a fresh round of funding led by Japan’s payment gateway GMO and Taiwanese semiconductor firm MediaTek.

Mobikwik has tied up with 75,000 merchants including the likes of Uber, Meru Cabs, Big Bazaar, OYO Rooms, Barista, Big Basket, Domino’s, Pizza Hut and even the Indian Railway Catering and Tourism Corporation.

But with the UPI likely to decimate the e-wallet industry, there have been no new applicants for prepaid instrument licences this year. Naveen Surya, chairman, Payments Council of India, and managing director of ItzCash, another mobile wallet, admits that wallet players may have to diversify to other businesses, since UPI will dominate the payments system.

But the NPCI has given indications that wallet players may also be involved in the second-phase rollout of the interface.

Published in Dawn, Business & Finance weekly, May 9th, 2016