Priyanka Tiwari
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India is redoubling efforts to add another 200 to 300 million users to the Unified Payments Interface (UPI). This includes providing access through custodial accounts for children and domestic workers—two demographics who are oft relegated to the periphery of traditional banking. This effort is part of a larger goal for India to embrace digitization of the economy, making it more accessible to the wider population.
Rapid Growth in Domestic Adoption of UPI
Over 450 million Indians now use smartphones to make payments, whether it’s routine shopping or big ticket purchases.
Users can pay merchants directly through mobile apps or by scanning QR codes, and there are no transaction fees.
India has seen a digital payments boom, increasing 90 fold over the past 12 years, and now, contributing to almost half of the global count of digital transactions.
Strategic Financial Inclusion Targets
The move to custodial accounts is aimed at providing bespoke solutions for and servicing demographics who do not have standard banking accounts.
NPCI is also adding conversational payment functions and other multi regional features to aid in the mobility of users all across India.
Pilot projects are underway with new technologies such as automated license plate recognition for parking payment acceptance to broaden user bases.
Extending UPI’s International Reach
India is actively promoting the use of UPI in countries that have a large population of Indian expatriates to facilitate remittances instantaneously and affordably.
The collaboration between governments and central banks will allow UPI to facilitate cross border payments like fee payments for education or remittances.
Initiatives have been signed with some countries in Asia and the Middle East, with intentions of penetrating Western markets eventually.
Constructing Credit Services under UPI
UPI is limited to offering Small Value Loans currently, but there are plans to progress further into other credit services in the future.
Utilization of UPI's repayment history will allow lenders to make credit decisions and expedite collection activities.
Adoptions of this credit-as-a-service model are forecasted to increase drastically in five years.
Debate About Transaction Fees and Effect
The discussions about charging users a Merchant Discount Rate (MDR) fee have sparked interest, yet they have never been charged for UPI transactions before.
The government used to remove MDR to hasten the adoption and gave merchant incentives which they have now reduced greatly.
Users in large numbers have stated they would withdraw using UPI if they are charged any fees.
NPCI is planning to introduce some charges for large merchants and keep it free for small scale users to make the platform sustainabl.
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