A real game changer

Unified Payment Interface is a radical step forward

The Unified Payment Interface (UPI), which was launched last week, is a radical step forward that could help take financial inclusion to a new level by making many retail transactions unprecedentedly easy. If it works as envisaged, it will radically simplify micro-payments. In theory, the UPI operates quite simply. The National Payments Corporation of India (NPCI), an umbrella organisation set up by the Reserve Bank of India and commercial banks, has released a simple app. Any entity with a smartphone, an Aadhaar number and a bank account can download the UPI app and create an account with a unique "virtual UPI ID" associated with that bank account. That virtual ID could be used to transfer or receive cash from any other UPI ID. Text messages would be sufficient to enable a transaction where the transfer of any sum up to a limit of Rs 1 lakh could be instantaneously credited. The payment portal would be up 24x7. No other information would need to be exchanged to enable the transaction. All necessary details for reconciliation would be handled by the NPCI, which would ensure that the transfer was debited from the correct bank account and credited to the correct bank account. Since every commercial bank is an NPCI member, this would radically speed up transfers involving accounts in two different banks.

The system is still in the pilot stages with 10 member banks using it so far. Once the UPI gets going across the entire banking system, it would hugely simplify and speed up processes. It would also provide comfort for users since there would be no need to share sensitive details like the Permanent Account Number of the tax department or PAN, bank account numbers, credit card details or any other details to enable a UPI transaction. Thus, awkward cash transactions, such as paying on delivery for e-commerce deals, paying an autorickshaw or a taxi for a ride, a road toll payment, sharing a restaurant bill between several persons, making an emergency payment in hospital and so on could all be managed easily and instantly, without the need to carry large sums of cash and fiddly amounts of change or risk credit-card theft.

Of course, the back-end needs to be extremely secure and the encryption standards must be very robust. Proper authentication is a must and the UPI should confirm every transaction before crediting it. There must be end-to-end encryption to prevent messages being read in transit, even by the data-service providers. In addition, the databases where all these data are stored must be effectively defended against attempts at data theft, or cracking. There must also be efficient processes in place to enable instant "hot-listing" to prevent UPI accounts being looted by cell-phone thieves. All these security procedures will have to be well thought-out and designed to manage potential future threats as well. But assuming that the security and encryption are up to the mark, the wheels of commerce should run much smoother as a result of this initiative. Players in e-commerce will be particularly happy since the UPI will reduce the need to collect cash on delivery. Tax authorities will also be happy since data will accrue from many small transactions. The UPI should also, over time, lead to a reduced need for actual cash in the economy. It could thus, be a game-changer as it catches on.