Game Changer

In 2014, when the Reserve Bank of India revolutionised the digital payments space with payments banks, the likes of Paytm were already disrupting small-value transactions with digital wallets providing a faster, convenient and safe experience. Some banks joined the bandwagon to stay relevant, while others suffered silently. Now, the digital payments space in India is set to witness yet another transformational change. This time, digital wallets may take a hit, or be forced to reinvent themselves to stay in the race.

The Unified Payment Interface, or UPI, takes the payments experience a notch higher. Unlike digital wallets, where money was first loaded to make payments, UPI will allow direct transfers from your savings bank account without disclosing the account details. It will also offer interoperability across all banks. However, it works only on smartphones.

This time, too, it was the RBI that took the initiative to provide the Indian banking system with a unique payments platform. Supported by the Indian Banks' Association, the central bank helped set up the National Payments Corporation of India (NPCI) to find a faster, better and convenient payment infrastructure for all players. "UPI is very unique to India. It is the first country, globally, to take such an initiative," says Raj Jain, Chairman and Managing Director, R.S. Software, the company that built the UPI platform for NPCI.

In fact, if UPI is successfully adopted country-wide, a global rollout may be on the cards, especially in countries where the digital payments space is still at a nascent stage.

The credit for what the market is witnessing today must, however, go to the non-banking entities that innovated digital wallets. "Wallet companies were successful because they enabled certain facilities, including faster mobile recharges, and added a certain degree of convenience. They were focused on creating partners (such as tie-ups with taxi providers or movie exhibitors) and creating an ecosystem," says Vivek Belgavi, Leader (Fintech) at PwC, adding that wallet companies will co-exist and can leverage on UPI by partnering with banks. However, Jain does not agree: "We believe that for a while UPI and wallets will coexist, but overtime as UPI adoption increases, the share of wallets will start taking an impact."

With UPI, the convenience is far greater because the customer keeps earning interest, unlike in wallets where the money lies idle. The transaction limit, too, is far greater at Rs 1 lakh for UPI, compared to Rs 10,000 for wallets. However, cashback or loyalty bonuses will still work in favour of wallets. "Wallets funded in cash will have no real conflict with UPI. There are customers in the lower income group who earn and pay in cash. It will still help them do multiple transactions from a single wallet," says Pramod Saxena, founder and Chairman, Oxigen Services.