UPI – ushering in the economy of the future?

Reported by: |Updated: February 28, 2017

Vidit Madan

The demonetization of certain denominations of Indian currency has caused a major revolution in the economy, bringing in a kind of disruption that the Indian payments industry has never seen before! For a country that lived on and hoarded cash, cashless transactions and ecosystems have become the order of the day, signifying a gradual but eventual move away from the era of physical in-cash payments. In this disrupted ecosystem, traditional banking no longer occupies the position it once did by giving way to online banking as the preferred option. In this environment, a new, more secure form of payment technology has come to the fore: Unified Payment Interface (UPI).

UPI is primarily designed and geared towards the mobile platform and allows individuals to transfer money between accounts without the need for physical input of data. India’s existing ecosystem depends heavily on three major forms of payment – credit cards, (payment) gateways and (digital) wallets. However, each of these utilities contain certain flaws that UPI can help transcend.

  • Credit cards represent a physical (PoS) form of payments. Furthermore, losing this piece of plastic can have devastating consequences. UPI solves this problem by utilizing an M-PIN system as well as 2-factor authentication that do away with the need for a physical card altogether.
  • Payment gateways complicate the payment process as a website that uses them must seamlessly navigate in and out of them to complete a transaction. This issue compounds its consequences with dwindling internet speeds and unreliable telecom operators. However, by integrating a simple pull-and-pull transaction support module using a virtual payment address, UPI does away with the need to select a bank or even enter account details.
  • Finally, mobile wallets require money to be first transferred from the bank account to the wallet for payment to proceed. UPI allows companies to bypass this step and directly transfer funds to the recipient.

The RBI estimates that 18% of the country’s GDP comes from floating cash in the economy, making India one of the most currency-printed and currency-dependent countries of the world. In keeping with the economics, the eTransfer of funds has the potential to deliver savings of almost Rs 70,000 crore ($0.4 billion) in the next 5 years, if implemented correctly. According to a 2016 Moody’s Analytics study commissioned by Visa, as much as $6 billion has been added to India’s GDP since 2011 solely due to digital payments, a statistic that portends great success for the UPI ecosystem.

In the Indian market, UPI has already generated major debates with industry leaders weighing in on the issue. They place the responsibility of enacting UPI protocols and educating the public about these protocols on banks, also stating that there cannot be an overnight shift to the system. Critics take this debate one step further by questioning UPI’s performance in the real world and believe that there are still challenges to be solved such as the App and Bank Interface integration.

These challenges, however, have not stopped mobile wallet companies in particular, from planning to integrate UPI services into their existing networks. As the industry begins the journey to adopt UPI as the preferred mode of financial transactions, the focus lies on providing scalable, sustainable and enriched experiences with core utility and value-add in all services. The information obtained from user analysis helps customize the experience of customers to drive ease of use and adoption. Companies must hence work towards building an all-encompassing cashless ecosystem that serves and enables even the last-mile of India in order to be prepared for the economy of the future.


Vidit Madan is a Business Consultant at ‎Altimetrik