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Indiahas long been a cash-intensive economy. RBI and other commercial banks spendaround ?21000 crore every year for currency management operations and theoverall cost forms upto 1.7 percent of GDP. Apart from this, there are myriadof issues which arise due to cash-rich economy such as flow of unaccountedmoney, payment transactions not leaving trails leading to tax evasion and soon. Government of India is taking efforts to encourage people to makeelectronic payments. Apart from debit or credit cards which are in use sincelong time, various other modes for digital payments such as Mobile Wallets,Unified Payment Interfaced (UPI), Unstructured Supplementary Service Data(USSD), Aadhar Enabled Payment System are available today. Encouraging peopleto adapt to digital payment ecosystem was one the motive behind demonetizationand it has proven to be successful.UPIwas introduced by Reserve Bank of India in association with National PaymentsCorporation of India (NPCI) in April 2016.

Digital wallets need users totransfer money from bank account to wallet before being able to send it torecipients and to transfer money back to the bank account a fee is levied. UPI,on other hand, enables instant fund transfer directly between two bank accountsusing a ‘unique virtual address’ eliminating need of card details, bank accountdetails etc. It is based on IMPS structure of payments and has 61 banks live onit today. Some banks have integrated UPI in their existing app like ICICI’siMobile and some have developed new UPI app like Axis Pay, SBI Pay.

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In terms ofgrowth , UPI has outpaced other forms of digitalpayments since its inception. Governmentof India launched BHIM providing an integrated UPI platform for all banks inDecember 2016. BHIM was further advanced with Bharat QR code and BHIM-Aadharplatform. As RBI allowed UPI integration in digital wallets, Paytm, Mobikwik,Freecharge added to overall UPI transactions. Until mid-2017, when there werelimited number of UPI-led apps, BHIM had massive share of UPI transactions. Butwith more and more players coming into the space, BHIM’s share in overall UPItransactions is reducing. BHIM accounted for just 6% of the overall UPItransactions in December.

In a bid to rejuvenate BHIM, the government has nowmandated all UPI-led banking apps to add ‘BHIM’ as a prefix to theirnames. Many companies from other industriesare also entering the digital payment space. Uber integrated UPI into itscab-hailing app in partnership with Axis Bank and HDFC Bank, facilitating usersto pay via UPI. Flipkart’s PhonePe has integrated UPI in its app and hascreated multiple use-cases such as bill payments, phone recharge and merchantpayments. Messaging service Hikemessenger has set foot into the space with its UPI-enabled digital walletinterface. Facebook owned instant messaging service Whatsapp is also in talkswith NPCI and SBI to launch a UPI-based payment product within its application.As Whatsapp already has a huge user base of 200 million in India, it will notneed to acquire customers by offering them incentives. Once making paymentsbecome as smooth as sending a text, it will be a major flip for UPI’s growth.

Technologymajors Google, True-caller and Pay-Pal have entered onto the platform as well.Number of transactions recorded monthly on UPI were mere 4.15 million at startof the 2017, increased to 12 million in July and raised exponentially to 145.5million in December. This growth in second half of the year was lead by GoogleTez. Since its launch in September, Tez alone accounted for 140 milliontransactions till November which is 70% of the UPI market. Tez offered host ofincentives such as instant cash back for referral bonus and scratch card onmaking fund transfer that acts like a lottery ticket.

Though design and ease ofuse generally doesn’t act as an incentive as compared to cashback and rewards,it worked well for Tez to acquire more customers.  NPCI is soon going to launch UPI 2.0with some cutting edge features.

Two most exciting upgrades are going to be;Aadhar based payment mechanism wherein user will use biometric access to makepayments eliminating the need of passwords and OTP based recurring paymentmechanism wherein amount will be debited from user’s bank account periodicallydepending on terms and conditions defined by user. Enhanced UPI version willdefinitely help it to lead the digital payment ecosystem growth.

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