What’s UPI with Digital Payments?

The story of UPI payments and social inclusivity

Back in 2013, if I had a dollar for every time I reached my destination only to find out I didn’t have enough money to pay my Uber driver – I would have had enough money to pay that Uber driver. However, while I was struggling with minor liquidity crises – there were far bigger events in play. A startup by the name of Paytm had just begun to gain traction, becoming the largest digital commerce company in India. They would soon launch the Paytm wallet, a first of its kind mobile wallet that would revolutionize the way Indians make payments for years to come. Paytm became the go-to choice for those seeking digital payments. Didn’t bring cash for your Uber ride? Paytm karo. Couldn’t haggle with your vegetable vendor enough and are falling short of cash? Paytm karo. Need to bribe someone? Paytm mat karo! Because crime is never the answer. (Also, you’d probably want to use bitcoin for that one). The nation was soon to see major changes to come.

In 2016, two major events transpired that had seismic effects on the way Indians make their payments. The first was the introduction of the Unified Payments Interface (UPI) in April by then RBI governor Raghuram Rajan, a revolutionary payment system that changed the way we view banking. This format of payment united the nation through a unified system of online payments which was groundbreaking. The second was demonetization. Yes, good old demonetization. This announcement by the government probably did not unite the nation as much as the former one. (Except probably in ridiculously long ATM queues). However, what cannot be denied is the strong correlation between demonetization and the increase in online transactions. So how has this new system of banking benefited our country? This article explores the effect mobile banking and online payments have had on social inclusion in the country – especially that for small businesses all over India.

Social Exclusion in India.

Social exclusion is a concept that has prevailed in India since the dawn of civilization. Since the Shudras of Vedic times, India has been plagued with social prejudices and division. However, a major form of exclusion that exists in society today is caused by financial exclusion. In a country that has 140 billionaires and 364 million people below the poverty line (according to a 2019 UN estimate), social exclusion is inevitable. Poverty, inequality and marginalization run rampant in Indian society.

India began its journey of financial inclusion in 1956 with the nationalization of life insurance companies, followed by the same for banks in 1969 and 1980. However, despite decades of progress and development India still has a lot to be sought. According to the World Bank Findex report, in 2017, India had an unbanked population of 190 million, the second largest in the world. Furthermore, over 48% of bank accounts in India are not active. This is a major issue that haunts our nation and hinders the development of all the citizens it shelters. This challenge is one our government has faced for years and desperately searched for some kind of solution to. Out of the approximately 600,000 villages in our country, only 40,000 had access to bank accounts even in 2013. One solution is the rapid expansion of private and public sector banks of remote villages, which is helpful but also very costly. The most promising solution seems to be mobile banking and UPI payments. Mobile banking avoids the need for physical branches in every small village, also acting as a more cost-effective alternative to traditional banking. For those with their sleep schedules thrown into disarray due to lockdown, mobile banking does not restrain you to the traditional 10:00 a.m. to 2:30 p.m. RBI bank timings but allows for 24/7 access to its facilities.

UPI – A small step for payments, a giant leap for the economy.

According to a 2020 report by the Credit Suisse Group, approximately 72% of India’s transactions take place in cash. However, just as most countries around the world – India aims to achieve a cashless state of society where all payments take place through credit and mobile banking. Fintech has become the topic du jour for anyone interested in finance, and that too for a good reason. A lot of this boost in online payment systems can be credited to UPI, which is a payment system developed by the National Payments Corporation of India (NCPI), a body regulated by the RBI. NCPI is the same organization that controls RuPay infrastructure – India’s answer to MasterCard or Visa.

UPI has greatly simplified the online payment system in India. Instead of having to remember the receiver’s account number, bank name, IFSC and various other details – all you need is a single UPI ID or simply a phone number, and voila! Your payment has been made. UPI is a revolutionary concept, the likes of which have not been seen in many major first world countries, and is also a giant leap in our push towards a digital economy. Stealth ordering pizza at 3 a.m. in the morning has never been easier!

Big winners in UPI – Small Business

While UPI has greatly benefited the consumer in their day-to-day transactions, it has greatly promoted social inclusion in small businesses. It is worth noting the massive disruption in our telecom sector by the launch of Reliance Jio that led to this revolution in mobile banking.

This is because as the cost of data spiraled downward, more Indians began gaining access to 3G and 4G technology. As a result, a greater number of them could participate in mobile banking which led to a greater level of social inclusivity in small businesses. Suddenly e-payments weren’t limited to the Amazons, Ubers and other e-commerce giants of the country. Even your local paanwala could provide you with a UPI pin for Google Pay, allowing you to make an easy transaction from your bank account to theirs. The paanwala could now effectively act as both Google Maps and Venmo. Take that, Silicon Valley. According to the Reserve Bank of India in their annual report of May 2021 – substantial progress had been made in increasing the number of basic savings and bank deposit accounts around the country. It’s very clear that India is headed in the right direction with the promotion of such payment methods. Small businesses, local kirana stores and any form of retail have had a lot to gain by the introduction of UPI.

Mobile Banking and UPI – the magic wand that brings social inclusivity for all?

With its very own credit payment infrastructure (RuPay) and payment infrastructure that is one of the most advanced around the world – India is slowly coming to realize Prime Minister Modi’s dream for an Atmanirbhar Bharat. However, an atmanirbhar Bharat must reflect the Gandhian principle of “Sarvodaya through Antyodaya”, i.e. ensuring welfare of all by uplifting the lowest. This can only be achieved through constant and continuous work by the government to increase financial inclusion all across the country.

So, is UPI the magic wand that solves all our difficulties? Maybe not exactly, but it does seem to be the solution to many of the challenges we face today. India has undertaken a long, tiresome journey on the path to financial inclusion, one filled with hurdles and pitstops, however this seems to be the next big leap in ensuring every Indian has access to financial services. So, do you want to promote Indian development through technological change and greater equality and access? Paytm Karo.