A decade ago, India’s local market worked with the transaction of freshly minted banknotes. Today, the rapid acceptance of digital finance has made it possible for millions of people to settle accounts, invoices and funds anywhere in the world with just a few taps.
2020 was the breakout year for the world of Indian finance because that is when digitalization took over. Unified Payments Interface (UPI) scaled exponentially and became the most successful fintech story of India. Who would’ve thought that UPI would destroy the foundations of physical transactions and forever change the banking industry!
For those who don’t know, UPI powers multiple bank accounts into a single mobile application making it a seamless customer experience. UPI is an unique identification number for a bank account. A UPI ID and PIN is used to transfer funds. UPI PIN is a 4-digit number that must be used to authorise the money transfer. UPI came into being in August, 2016 under the supervision of National Payments Corporation of India (NPCI) and then RBI Governor Dr Raghuram Rajan. There were only 21 banks that went live on UPI that year and today 346 banks are live on UPI.
NPCI that operates retail payments and settlement systems in India is owned and operated by a consortium of domestic banks. NPCI operates UPI, RuPay, BHIM, IMPS etc for instant payments between bank accounts. Now BHIM is an app that runs on UPI by using just the registered mobile number or a virtual payment address (VPA). RuPay is another initiative of NPCI that is a part of the government’s Jan Dhan Yojana. RuPay is an affordable version of international debit and credit cards. There are over 300 million RuPay cards in circulation and more customers are using it for e-commerce purchases.
From 3 crore transactions worth Rs 90,000 crore in August 2016 to monthly 67 crore transactions worth nearly Rs 11 lakh crore in September 2022, there has been a gigantic leap in numbers in just 6 years. This shows the super stardom of the UPI era, and this is just the beginning.
The exponential growth of UPI happened especially when demonetization of Rs 500 and Rs 1,000 notes took place in 2016. The launch of UPI couldn’t have been done at a better timing because India was moving towards a cashless economy. ‘Digital India’ initiative became instrumental and UPI Payments ruled over the masses. In nearly 6 years, UPI accounts for 16% of all retail payments in India. UPI is taking away market share from other payment forms. For instance, the latest market share of National Electronics Funds Transfer (NEFT) has gone down to 54% from 60% in five years.
UPI has been a remarkable success because it makes the system interoperable. Customers only need to remember their UPI ID and PIN eliminating the need to remember long bank account numbers.
What’s Working for UPI?
There are two primary reasons behind the success of UPI. First, it is a free service, and second, anyone with apps like Paytm and GooglePay can link their UPI with different bank accounts and still transfer the money. It singlehandedly wiped out the entire hassle of going through the process of running to the bank with account details for a transaction. NPCI became globally renowned to have developed the world’s largest real-time based payment service, and countries have already begun to use the platform for easy transaction mode. For instance, Bhutan is the first neighbouring country to use UPI for payments. UPI is available in UAE, Nepal, Malaysia, South Korea, Japan and others.
UPI is easier than using a bank app to transfer the money because you do not need the receiver’s account number, IFSC code or the bank name. All you need is a UPI ID or a phone number or you can simply scan the QR code to pay for any services- food delivery, cab, shopping sites, grocery store etc.
The entire world is watching as India conducts nearly 2.8 billion transactions on UPI monthly real-time payments. This has attracted the attention of developed economies towards India. In the month of August 2022, the UK became the 8th country to accept UPI for QR based transactions. Some say UPI might replace international payment SWIFT (Society for Worldwide Interbank Financial Telecommunication). Now SWIFT holds the highest place of financial messaging of transferring funds from one country to another. Over $5 trillion worth of transactions take place on SWIFT everyday. It will take UPI several years to reach to the position where SWIFT is today, but it’s not impossible. You know as they say, the journey of a thousand miles starts with a single step!
The biggest disadvantage of SWIFT is that the average cost of transferring money is 6.5%. If the Indian government uses technology diplomacy and signs MoU with developed countries, transferring money through UPI will be lesser and the world could accept UPI as the gold standard of sending money anywhere in the world. This would be the biggest financial revolution created by India. Anyhow, UPI is moving steadily towards global domination. The country’s vision of a $5 trillion economy by 2025 seems achievable, credit goes to UPI.
An Ode To JAMstack
The talk about this new concept called JAMstack began doing the rounds in 2016. The real boom started in the year 2017. JAMstack is a modern web development based on client side JavaScript, reusable APIs and prebuilt Markup. It is a platform that was founded to solve the developers problem and app users. JAMstack creates secure, faster and scalable web applications. Just like that, there is India Stack that aims to unlock the economic opportunities of identity, data and payments at a large scale. A combination of technological projects collectively is known as India Stack. The fintech journey began in 2009 with the creation of the Unique ID Authority of India (UIDAI) and NPCI.
With the help of Artificial Intelligence, the Indian government is creating open networks to create a gateway for businesses to flourish. The mission is also to ease the complicated archaic systems of payments and data. In this illustration, there’s a brief explanation of all the initiatives the government came up with in the last decade.
Creation of India Stack has made this country a fintech pioneer in its own way. Even more so because India has millions of people who lack conventional documents or proof of identity. Aadhaar card has helped the government to pass on direct benefits to peoples’ bank accounts with no hassle. Meanwhile NPCI has helped everyone pay road tolls and domestic remittances with so much ease.
Aadhaar card has fastened the process of opening bank accounts or demat accounts. For instance, to buy stocks, nobody needs to waste their time going to the brokerage house. From opening of a demat account to transfer of funds, all is done digitally, in today’s age. That’s how easier UPI has made our lives. Developed countries like Singapore, UK, France, UAE and others have already adopted India’s UPI payment system. Now NPCI is in talks with the US, parts of Europe and West Asia. As UPI expands its boundaries, the world is getting closer for everyone.
UPI is the true real fintech success story of India and now it is going global! Truly, something to be very proud of!
