Unified Payment Interface – Is It A Real Threat To Digital Wallets?

--Manoj Apte, Principal consultant, Payments Practice, VirtusaPolaris 

With the introduction of Unified Payment Interface (UPI) this year, National Payment Corporation of India (NPCI) struck a right cord in fulfilling dream of digital India. As UPI is making its way to market, many analysts have started comparing it with digital wallets. The growingconsensus depicts end of an era for mobile/digital wallet companies with the introduction of UPI. It is too early to come to a final conclusion. The key advantages of digital walletsarethe 3C’s to consumers such as Convenience, Cashback and Channel-agnostic offering. On the other hand, wallets face challenges in terms of interoperability, insufficient infrastructure, high transactional cost etc. Where-as UPI value proposition includes but is not limited to simplified 2 factor authentication, use of virtual address instead of bank account number, real time push and pull payments and is regulated by central bank.

First of all UPI and wallets operate in different quadrant of payment ecosystem. UPI is not an out of the box product but a platform that can be connected to APIs which Payment Service Providers (PSP) can leverage to facilitate online payments.Mobile wallets in contrast are technology companies that offer state of the art solutions to end users in form of digital/mobile wallets for online money transfer.

Let’s see why wallets still has strong case in overall payment landscape.

1.       Currently wallet companies directly compete with mobile apps offered by public and private banks. User base of wallet companies is much higher than that of apps supported by banks. Wallet companies have invested in technology and building merchant networks. Wallets are also known for seamless user experience during payment process and failure rate is much lower. Future of UPI will be in hands of payment services providers. The user interface and innovation will be a key to make UPI winner

2.       As wallet companies have tied up with merchants, it offers attractive cashback offers to their consumers. Wallets also has access to data such as market trends, consumer behavior that gives them an edge. UPI as such is an open source platform and it entirely depends on PSPs how such features  can be made available to end users

3.        Wallet companies are diversifying and tying up with payment banks. It will eventually help them to upgrade their product folio by taking advantage of UPI offering. With UPI, loading of cash into wallet will be faster and secure. UPI will bring the convenience offered by wallet companies to those who only possess bank accounts and don’t have access to other payment instruments like credit/debit cards.

4.       Currently 29 banks have agreed to partner with NPCI to offer UPI services. It will take considerable time to on-board remaining banks. Wallet companies can work on enhancing user experience which is their USP from the beginning. It has been observed that consumers prefer wallet as a payment instrument even if there is no cashback for making a transaction. This clearly attributes to user experience that wallet offers.

5.       UPI implementation will lead to training merchants, retailers, and bank staff. It will also call for improving POS terminals, technology upgrade and hence substantial investment for market players. Being established player, wallets will be better-off.

6.       Wallet companies has capability to support cross border payments e.g. PayPal.me. It is unclear at this stage how UPI infrastructure will help in transactions that involve FX.