What is a UPI? How is it different from mobile wallets? Does it have the potential to eat away the market share of mobile wallets?
UPI (Unified Payments Interface) is an advanced version of IMPS (Immediate Payments System) which do bank to bank money transfer, just by using a Virtual Id/ Virtual Payments Address.
UPI or Unified Payment Interface is a payment architecture with a set of standard app APIs by the Reserve Bank of India in order to facilitate the next generation online immediate payments leveraging trends like increased smartphone adoption, increased app downloads and universal access to data and internet.
Any smartphone user having a savings or current account with a UPI-partnered bank can download the app to make P2P (peer to peer) and P2M (peer-to-merchant) payments with the use of VPA (Virtual Payment Address).
Thus, in this case, the customer doesn’t need to disclose any sensitive information like bank account number or IFSC code for completing a financial transaction. It eliminates the requirement of entering one’s card details like number, CVV code, expiry date or OTP.
Virtual Payment Address is just like an Email ID, something of the form yourname@xyzbank, like sonal@sbi or rashmi@citi. No more hassle of entering the account number, IFSC and other beneficiary/payee details. On entering just this VPA and authenticating the transaction with your MPIN, one will be able to complete the transaction successfully in less than 10 seconds.
UPI’s two-factor authentication makes it safe and only shares the Virtual Payment Address. It doesn’t provide any other sensitive information.
How can we download the UPI app?
Steps to download the UPI App are as follows:
- Download the UPI app from 19 participating banks on the below link
- Let’s say we are using Axis Bank’s UPI app. Here’s the welcome screen. SMS will be sent for authentication
- Add bank account: you’ll just need to select your Bank & your A/c will show up automatically (based on your mobile number linked with your bank a/c)
- Create a Virtual Payment Address (VPA) which can be sonal@pnb or 123@ubi or pkc@icici or any other name. The suffix will be based on the app you are using. You can create different VPA with different banks pointing to the same account i.e sonal@axis, sonal@ubi or sonal@vijaya can point to one bank a/c, say from PNB
- You can even collect money by requesting it from the other person’s VPA
UPI v/s Mobile Wallets
Currently, there are more than 25 mobile wallets available in market today.
- Mobile wallets cannot access the UPI Technology on their own because UPI is a cross banking transfer medium and hence can only be accessed by the banks themselves. For mobile wallets to access UPI Technology, they need to partner with some or the other bank. So, in a way for banks which were suffering from the onslaught of mobile wallets, UPI has come as a boon to them that has turned the tables in favour of the banks.
Now, let’s discuss whether UPI has the potential to make mobile wallets redundant in India. Below are some of the characteristics on which UPI and mobile wallets can be compared.
|Transfer Limit||Rs 1,00,000/Transaction||Rs 10,000 for non-KYC
Note: It can be increased upto Rs 1,00,000 post doing a KYC, which very few customers do
|UPI will be more advantageous in this case|
|Transfer to individual and companies||Definitely yes||In case of wallets, not all wallets can do transfer but yes the major ones like Paytm, Mobikwik, Oxigen etc. allow the transfer to individuals and companies||Majorly, both score well in it|
|Payment at physical stores||Any physical store can make arrangements for accepting UPI Transactions||In case of the wallet industry, they have to do a personal tie-up with those physical stores like Paytm has done tie-ups with Pizza
Hut, KFC and payments via Paytm wallet is accepted at
their outlets. Similarly, Mobikwik has exclusive tie- ups with Big-Bazaar and CCD
|UPI can easily capture this market|
|Online Payments||UPI Can do very well in this||Mobile wallets showed their excellence in online payments||No Clear Winner here|
|Cash Back/ Discounts||UPI cannot provide any cash back or discounts||In case of Mobile wallets, since they have merchant specific tie-ups, they do provide a lot of cash backs and merchant specific discounts||Mobile wallets definitely have a great advantage here|
|Request for payment||In UPI, one can ask for money from any person who is registered on UPI network||In mobile wallets, few companies are asking allowing request for payment or asking for payment but in their own network||UPI has bit of an advantage here|
|Transaction Cost||There is charge of 0.45 paisa on each transaction through UPI||No charge is there on transaction in case of mobile wallets||Mobile Wallets are the clear winners here|
|Outreach||Possible outreach is larger due to GoI’s Digital India support. Awareness programs and implementation, if executed well, will encourage cashless transactions even in rural and remote places depending on the government initiatives||Restricited to marketing and branding strategy of the mobile wallet company and customer segments made aware. However if Mobile wallets work with UPI network they can use it to their advantage. Usually reaching rural places is more difficult for private businesses as it does not make commercial sense||UPI has more advantage here|
There are some Pros and Cons of UPI and Mobile Wallets which have been discussed below:
|Pros||· Easier to set up and lesser time to execute the transaction.
· No waiting for OTP
· Device independent and form independent. One can use any bank’s app to transfer money in any other bank
· Money gets transferred directly from bank account. We do not required to recharge any wallet or card in UPI
· Marketing might of cash rich banks
|· Wallet companies are technology companies
· Wallet companies are experts in user interface
· Strategic tie-ups are increasing day by day and many of them are part of big- ecommerce companies, such as Freecharge is a part of Snapdeal. These help them in extra benefits which they pass on to customers in a way of cash backs, loyalty points etc.
· Other benefits- mobile recharge, Bill Split, micro credit facilities etc which may not be possible for UPI to provide.
|Cons||· Lack of technology prowess
· No Strategic tie-ups
|· Company dependent
· Extra KYC for higher transactions
· Fraud Concerns
· Too much competition
UPI certainly has more advantages over Mobile wallets but as per the current scenario in India, it doesn’t mean that mobile wallets will become redundant.
In India, which is majorly a cash run economy both can co-exist as of for now. Mobile wallets have to do some tweaking in their business model and they are in a process of doing it. Some examples are listed below:
- Paytm will soon get their own Payment Bank license through which they can enter in the main stream of UPI and can launch a UPI based Paytm app
- Free Charge has tied –up with Axis Bank and will provide UPI based transaction on their platform
- Phone Pe, which is owned by Flipkart, has launched a new app in collaboration with Yes Bank where both the UPI transactions and wallet benefits are there
- ICICI pockets, which was a wallet by ICICI Bank but wasn’t doing well, has now been integrated with UPI. So, one can have the benefits of both in their Pockets app
We can have these apps integrated with the benefits of both UPI and Mobile Wallets.
Author : Sonal Gupta
PGDM Class of 2018, Great Lakes