UPI Lite: Offline UPI Transactions

What is UPI Lite

As per the definition by BHIM UPI “UPI LITE means the service provided to you by your Issuing Bank whereby low value transactions can be carried out using an ‘on-device’ wallet; and is a Feature enabled on the BHIM App”

UPI Lite will be a new payment method in the umbrella of UPI (Unified payments interface) which will offer offline transactions without the need to entering UPI PIN upto an amount of INR 200 per transaction. UPI Lite will have its own wallet/balance which cannot exceed INR 2000 at any time. It must be noted that while payment can be made offline, adding amount to UPI Lite will need internet connectivity (at least in phase 1 of implementation).

UPI Lite Value Proposition

Introduction of UPI Lit is a very welcome move considering the fact that major UPI payments consists of small amounts. In 2020, more than 50% of transactions were below INR 200. When many transactions fail due to overload on the system, taking payments offline will be the reduced traffic on the UPI system. There are also many other benefits for the customers, some of them are listed below:

• UPI Lite eliminates the need of entering and verifying using the UPI PIN. The removal of secondary PIN requirement will result in faster payments for the customers.
• UPI Lite payments can be made offline which will open new avenues for the customers including digital payments in areas with low connectivity and even without an internet connection at hand.
• UPI Lite transaction will not be recorded in the bank statement on per transaction basis (as in case of general UPI payments). This will help in decluttering the passbooks/statements and the records of small UPI Lite payments can be accessed separately from the respective application.

These factors make UPI Lite a high value proposition for the Indian market where internet connectivity is still a large challenge.

Challenges

UPI Lite bring new challenges as it is an offline version of UPI without any secondary UPI PIN confirmation. This also goes against the original UPI mandate that every transaction must be verified by a UPI PIN irrespective of the amount. With the removal of UPI PIN, the risk of any fraud increases significantly. It is currently limited to INR 200 per transaction limit, but the value may be different based on specific circumstances. This is also removing the feature of “direct bank to bank transaction” where UPI really shined against other digital wallets. But in UPI Lite, customer will need to add money to the wallet and maintain sufficient balance which creates more additional hassle for the customer.

In phase 1 of implementation, only payment function is available offline while adding money to UPPI Lite balance will still need internet connectivity. This may not be suitable for someone who is not able to get enough internet to even add money to the UPI Lite balance.

The limit of INR 200 also brings in new questions. What is someone wants to make a transaction of say INR 300? Will they prefer to use some other wallet or general UPI? Or will the prefer to make 2 transactions from UPI Lite to reach INR 300 cumulatively? In this case will anything stop customer from making 10 continuous transactions to pay upto INR 2000? These questions cannot be answered by one person. These will be decided by the using habits of the wide customer base and the relevant NPCI policies.

Conclusion

UPI Lite as a payments solution resembles more with the digital payments’ wallets instead of general UPI payments. Apart from the limit of INR 200 per transaction and strong ties to UPI, the major difference is the facilitation of offline payments (digital payments without internet connectivity). But when innumerous digital wallet applications are available, why would users move to UPI Lite? UPI Lite can be an interesting proposition for customers who face internet connectivity issues during payments and in specific areas. But it may not add much value to the users who have abundance internet connectivity and don’t face any challenge with normal digital payment wallets or UPI.

The success and extent of usage will largely depend on the suitability to specific pockets of customers as well as the ease and speed of usage. The increased risk of frauds and failures will remain a large challenge. How the NPCI drives this solution will be an interesting case study for future studies. But once thing this definitely shows is the maturity levels and innovation mindset of the Indian payments industry.