95. Payments Digest — XI (Year End)

2024 is a leap year. So, we worked one extra day without extra salary 🙁

I had a reasonably good year — worked on a white-label solution of India’s biggest private sector bank, operationalised the PA license for the company, and published the revised edition of ‘AUTH N CAPTURE’ book. [And a lot of personal stories, experiences and memories]

For the payments space, it was just another year — few regulations, few bans/embargoes, few new products/features and full of actions.

So let’s wrap the year up with big and little things.

I. PA License

1. After 2 years of waiting, RBI started issuing PA licenses in Dec ’23 and it continued in 2024. And so far 42 entities have received authorisation.
2. PA-Cross Border guidelines were announced in Nov ’23, and so far 4 entities received authorisation. [Reference article on PA-CB: Here]
3. BBPS Master Direction of Feb ’24, allowed a licensed Online PA to operate as BBPO (BOU and/or COU). [Details in this article]
4. In the draft circular, RBI mentioned about regulating Offline PAs (PA-P).

Big picture of PA, PA-CB, BBPOU and PA-P.

In a nutshell, PA-Online is the second most powerful license after banking license.

GST Clarity: PAs are exempted from GST on transaction amount up to Rs.2000 on all types of cards. So finally, it is clear. PAs are treated as acquiring banks in this context and get the above exemption. Hurray!

The exemption is not for PGs (who processes transactions but not involved in fund movement).

More is not merrier: There will be 60–70 PAs — few big, few new and few clueless. Although ‘the digital payments pie is big’, is it big enough for all these players to make a healthy margin especially when UPI is at Zero MDR (technically)?

It will be interesting to see how this will play out in the next couple of years. [Read this article]

Wish: Although there is a hint about bringing back MDR on UPI linked to bank a/c for large merchants. [Note: Already there is MDR on UPI linked to credit card, PPI and Credit line].

PAs have been hoping for this for years and it hasn’t happened yet. So something to look forward to in 2025!

II. NPCI and subsidiaries:

In 2024, NPCI floated a new subsidiary, BHIM Services Pvt. Ltd. (BSPL).

With this development, NPCI group has 3 subsidiaries.

A. NPCI:

The mothership is busy with shaping the payments landscape with many avatars of UPI and other products such as FASTag, IMPS, NACH, CTS, AePS etc.

B. NBBL:

• NBBL is incharge of building an Interoperable Net-banking platform that was announced by RBI in Feb ‘2024. This may take some time and will impact participants in both positive and negative ways (this article). Irrespective, more switching fee for NBBL 🙂
• Bharat BillPay is renamed as Bharat Connect — this platform will go beyond bill payments — B2B payments, rent payments, FX-Retail platform linking and what not.

NBBL had a great year, especially after the RBI mandated that all credit card bill repayment should go via BBPS and not via 3rd Party FinTechs (Read this article)

C. NIPL:

• Busy with expanding UPI and RuPay to other countries
• Forging strategic partnership for global expansion (e.g., with Google Pay)
• After the launch of UPI <> Singapore’s PayNow linking, NIPL is working on linking UPI and RTP (A2A) rails of other countries.

D. BSPL:

The objective of this subsidiary is to make BHIM App great again and reduce the dominance of PhonePe and Google Pay (who have 80–85% market share).

NPCI wanted 30% capping on a single TPAP, and gave multiple deadlines (the recent one ends in Dec 2024).

But NPCI cannot enforce it because it is not practical. So, NPCI tried various ways:

• UPI Plug-in: A light-TPAP kind of set-up (read here). Didn’t work much!
• Made BHIM App source code ‘Open’ for any bank or TPAPs to use
• Approved more TPAPs (~50 TPAPs will be out soon). But the TPAP game is very difficult for late entrants with zero fees on UPI, big CAC and cut throat competition.

Thus, the OG of UPI Apps, BHIM is back.

BHIM will have backing of mothership, NPCI (by extension RBI, and GoI), and BHIM will play the game of cashbacks (Not sure if it is our tax money).

I don’t think BHIM is here just to reduce the dominance of other TPAPs. I am sure BHIM will morph into COU and BOU (to reduce dominance of BillDesk, PhonePe etc. in the BBPS ecosystem), and may get into Payment Aggregation (offline and/or online).

“In for penny, in for pound”

III. RBI — Notifications, Circulars, Master Directions

Another busy year for RBI… Full of regulations, stopping ‘grey area’ business model, penalties, embargoes etc.

Here are few important Master Directions, circulars and notifications (detailed list is here)

IV. Card Networks

Visa and MasterCard are having their own roller coaster ride in India.

Reference articles: BPSP, Push Provisioning & Guest Checkout

UPI is the dominant payment mode liked by merchants and customers, Visa & MasterCard are liked by few entities/actors in the payment ecosystem — customers (EMIs, International payments, reward points), banks (interchange revenue), and PAs (MDR and higher MDR on EMIs & Intl cards).

If ever you feel that things are not going well and everything is stacking up against you, then just look at these two card networks… they will surely inspire you. :)

V. Other Updates:

A. CBDC:

eRupee is trying to get its foothold in the retail side [articles: CBDC, eRupee]

After trying its own QR (which didn’t fly), CBDC is now accepted by UPI QR.

Now, CBDC wants to replicate the success of UPI, by allowing third party Apps to participate. Soon, CRED, PhonePe etc. will support CBDC payments.

Retail eRupee is a bit confusing (too many money types). But wholesale eRupee has few good use cases (e.g. settlement between issuing banks and acquiring banks, and settlement to merchants CBDC wallet). Quite possible.

B. UPI:

UPI has become bigger than it was last year, last month and even yesterday.

• UPI Circle (Delegate payments): A UPI user can add secondary user and give full or partial access to secondary user to make payments (use case: Mother adding son)
• EMI on Credit Card linked to UPI
• Limits got updated: (1) Hospital, Education, Investment and Tax payment to Rs.5,00,000 (2) UPI 123 Pay (Offline payment) transaction limit increased from Rs.5K to Rs.10K (3) UPI Lite limit increase (Rs.500 to Rs.1K per transaction, and daily limit from Rs.2K to Rs.5K)
• UPI based cash deposit is ATM without debit card
• RBI allowed Small Finance Banks (SFBs) to be part of UPI linked to the Credit Line.

NPCI warned FinTechs not to use the ‘Verify UPI ID’ API to check user’s name. FinTechs were selling these solutions to merchants as part of the validation/verification suite. Verifying UPI ID is part of UPI payments (collect flow) and should not be used independently.

Using the verify UPI Id API is a clever hack. That reminds me of Reynold’s pen… The cap has another utility (i.e. cleaning the ear), but that is not the purpose of it. (I am sure 80s-90s kids can related to it) 🙂

C. IMPS:

One can transfer funds via IMPS by entering mobile number + bank name. (you can read and forget about it as you will never be using it :))

As of today, IMPS supports account number+IFSC and mobile number+MMID combination, very soon, one can transfer money to mobile number + Bank name combination.

This is to simplify IMPS fund transfer… But why? Don’t we have UPI for that?

Talking of fund transfer rails, RTGS and NEFT will have beneficiary name verification, just like UPI and IMPS.

VI. Security:

There was a cyber attack on NPCI that impacted rural banks.

This is serious!

Digital payments have become core to our lives.

And can be potential targets for ‘bad actors’. (It happened in Israel — Read this article]

That is why the Ministry of Electronics and IT (MeitY) has declared many financial institutes such as RBI, NPCI, LIC and major banks as Critical Information Infrastructure (CII). NCIIPC is nodal agency responsible for taking measures to protect the nation’s CIIs

VII. Frauds:

You may be wondering what the right side number is? Will come to that in a bit.

In 2024, we witnessed elaborate frauds and scams which made the Nigerian Prince scam look like a kindergarten project.

Fake courts, fake police stations, digital arrests, scraping fingerprints, and even a fake SBI branch… fraudsters are all over the place.

I am sure you are also receiving calls about SIM blocking, FedEx courier, dark web activity, get rich schemes etc.

RBI to banks to payment companies are trying to tackle this menace. We did talk about the various policies, products, processes etc. that are in place to tackle this in the article, ‘Dark side of Digital payments’.

But it looks like someone is not doing the ‘right thing’… otherwise, how else fraudsters are getting access to bank accounts, UPI rails etc.

Irrespective, people will continue to fall into this trap because of Greed, Ignorance or Fear.

Now, the right side number… Any guesses?

It is the total amount of cash and goods seized during the General Election of 2024. (Report)

We can guess that this amount is a small fraction of the amount that is actually distributed.

Think about it, the people who are ruling us and who want to rule us are doing it. Bravo!

Then there is the third number…. which is the total amount of corruption that happens in Government offices. I bet those will be staggering!

If bribe money can go through UPI, then definitely UPI will hit 2–3 billion transactions per day easily. Vision Achieved!

On a serious note, UPI is not suitable for bribe collection… It has a limit of Rs. 1 Lakh :)

On a more serious note, remember a payment at a tea shop goes through more checks than in cases done by the ruling class.

Ironic isn’t it?

VIII. Awareness

Let’s talk about normal fraudsters… Banks, NPCI and RBI have increased their effort in creating awareness.

Every entity is running various kinds of awareness campaigns: Amitabh Bachchan, RK Laxman’s Common Man, HDFC’s Vigil Aunty (so on)

In the recent ad series, Kaleen Bhaiyya (Pankaj Tripathi) is teaching you to say “I am not a fool” in various Indian languages when fraudsters call you about your mobile SIM being blocked, lottery winnings, or your parcel being seized by the customs.

Source: Internet — NPCI

I like this ad because the message is universal — not just towards fraudsters but can be applicable to almost every aspect of life — professional (appraisals, office politics), bureaucracy, politics, biased news etc. etc.

‘I am not a fool’ — make it as your ‘Resolution’ for 2025 🙂

Wish you all a wonderful year ahead :)