UPI: Changing Financial Inclusion in India

UPI will allow easy mobile transactions.

Most people in India own a cellphone. UPI will allow easy mobile transactions.

Recently, India has seen two ground breaking developments, which will hopefully disrupt the financial inclusion landscape in India.

The most recent one is the launch of Reliance Jio telecom services, which offers voice and data at ten times cheaper than the market price with better 4G connectivity and great customer experience, through a variety of discounts and convenient services. Reliance Jio comes with a three-month free trial. Jio’s 4G network offers great speed and diverse online content, in the form of entertainment, finance, and cloud service apps, which can encourage greater mobile internet use across India. In turn, the demand for smart phones will increase, especially in the rural sector. Both, the three-month free trial period and superb customer experience can change the rules of the game in the market.

It is worth noting that several major telecom companies, including Reliance Jio, have been licensed as payments banks by the Reserve Bank of India. This will allow their users to transfer, receive, and save money on payments bank platforms, which are simplified banks designed to reach customers via mobile phones.

The other big development in the Indian telecom market has been the launch of National Payment Corporation of India (NPCI)’s Unified Payment Interface (UPI) system. UPI will enable users to transfer money from one to another through the use of a virtual ID. This is revolutionary.

UPI is designed to enable users (across both banks and phone networks) to pay, send and receive money from their smartphones with a single ID, which can be an Aadhaar number, a mobile number, or an email address – without entering any bank account information. The UPI app has a two-step authentication process to ensure data protection and customer privacy.

The UPI system also allows for sending collection requests with a “pay by” date; which could replace electronic check service or direct deposit. This may allow UPI to lead the digital payments industry with its use of both “push” and “pull” functionality, while providing more security and flexibility to the user.

UPI is easy to use. First, the customer needs to download the UPI app and authenticate their account with their bank. Next, customers can choose any form of user ID such as an email address or mobile phone number. The user can choose to have multiple addresses for different bank accounts as well. In order to ensure privacy, there is no account number mapping anywhere other than the customer’s own bank. This allows the customer to freely share their user ID with others. While executing a transaction, a customer will use a secret MPIN or mobile PIN.

The UPI system provides a foundation for future fintech innovation, rich customer experiences, and greater access to tools and services for financially underserved customer segments at affordable prices. Interestingly, India’s rural and urban low-income segment has already been offered around 152 million of PMJDY (India’s National Mission for Financial Inclusion) accounts, which can be put to use through UPI’s technology.

Currently, 21 banks in India have joined the program and will start offering UPI as payment service providers in the near future. This will allow banks and payment players to engage with customers at a different level and provide a seamless experience for transactions without collecting unnecessary data. India currently has more than 400 million smart phones which can be used to make P2P, P2B, and B2B payments, including bill payments and government benefits.

UPI complements Jio’s free data services nationwide, allowing fintech companies to provide new user experiences. With 400 million mobile users, free data services, and insignificant transaction costs through the UPI system, we might be witnessing the next revolution in financial inclusion.

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2 Responses to “UPI: Changing Financial Inclusion in India

  • Abhishek
    6 months ago

    Thank you very much Mr. Chandrashekar, could not have agreed more or your analogy of magic wand. We will need to see the adaptation of the technology by various APP developers and how this can be made simplified for rural & mass banking.

    You have touched on a great point, Training & Demonstration, is key for the success of any technology intervention. FIs & Banks will need to ensure to make upfront investment and set aside budget to ensure the customer training and education.

  • Chandrashekar Rao Kuthyar
    6 months ago

    UPI is a good service, but certainly not the magic wand for addressing Financial Inclusion. We need simple services based on Missed Call, SMS Banking and USSD Banking. The *99# service launched by NPCI may be the starting point for many a customer to enter Digital Banking for the very first time. Need more emphasis on training and demonstration to customers by the local bank staff.

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