7 reasons why UPI will be a game changer for mobile payments.
The National Payments Corporation of India’s (NPCI) recently launched Unified Payments Interface (UPI) platform for domestic mobile payments will be a game changer for mobile payments in the months and years to come.
The UPI platform offers several advantages over current systems especially when it comes to small value (less than USD 100) payments that customers generally need to make as they go about purchasing goods and services in their daily lives.
Key advantages include:
- Low costs per transaction
- Real time payments
- Instantaneous settlement for merchants
- Push and pull based payments initiation
- The use of virtual identifiers
- Support for biometric authentication
- Minimal end point infrastructure requirements
A recent article on CIO.com lists 7 major points that a set of experts and finance-industry watchers call out as reasons that hold mobile payments back from going mainstream i.e. a de-facto method for customers to make payments.
NPCI’s UPI platform addresses several of the key challenges and hurdles that have been called out. Here’s how:
- Challenge: A lack of seamless/frictionless payments process.
The UPI platform enables a simple mobile to mobile payment process and can be push (customer initiated) or pull (merchant initiated). In a pull based scenario, the merchant initiates the payment via UPI and the customer in a few taps authenticates the payment. There are no PoS machines required for UPI, no holding of mobile phones close to terminals, no capturing of QR codes etc. making the process more seamless and frictionless.
2. Challenge: Mobile payments do not offer special incentives
The UPI platform is directly tied to a customer’s bank account. As the loyalty / incentive programs will be aggregated and led by a bank, they become easier, more efficient and cheaper for banks and merchants to roll out to customers. Additionally, not having to manage multiple loyalty programs and apps simplifies things for customers.
3. Challenge: Mobile payments infrastructure is slow to evolve
The UPI platform requires only smartphones and wireless Internet connectivity to work. There are no other end point infrastructure requirements such as physical cards, cards with EMV chips, PoS terminals, NFC enabled terminals etc. Hence UPI removes the infrastructure hurdle at the end points almost altogether.
4. Challenge: Transition to EMV
As mentioned above, payments on the UPI platform are mobile to mobile and do not require PoS terminal infrastructure. UPI leapfrogs painful infrastructure upgrades altogether by making EMV, NFC etc. redundant.
5. Challenge: Modern mobile payment experience is inconsistent
The UPI platform with its simplified yet robust features and structure offers the opportunity of a consistent, frictionless payment experience irrespective of which bank a customer banks with.
6. Challenge: Ingrained behaviour is tough to change
Again, the simplicity and flexibility of mobile payments on the UPI platform should offer up a strong value proposition for customers to move from cash or card to UPI based mobile payments.
7. Challenge: Security concerns
The UPI platform supports the use of virtual identifiers. Customers do not have to share sensitive account information to merchants or third parties. All they need to do is provide a virtual identifier like an email address or a mobile number for the payment process. Additionally, the UPI platform supports biometric authentication leveraging India’s national electronic ID system called Aadhar. This further improves the security of mobile payments on the UPI platform.
In conclusion, the extremely strong value proposition of UPI mobile payments which negates many of the challenges and hurdles faced by existing systems should ensure it becomes a game changer and an inflection point in driving large scale and mainstream adoption of mobile payments in India and a model showcase for the rest of the world.