10531 - How the Indian state is building a new generation of digital public goods - Live Mint

Last Modified: Fri, Oct 14 2016. 02 25 PM IST

How the Indian state is building a new generation of digital public goods

The private sector’s critical role in the digital age has complicated the position of the state

Subscribe to our newsletter.

Livemint

Nandan Nilekani has used a fine analogy to compare the new digital payments network in India with its peers in other parts of the world. He told this newspaper that the Unified Payments Interface (UPI) is like a highway without tolls while countries such as China or the US have walled gardens in which private companies control access to payments networks. Nilekani has touched upon an issue that we had commented on in these columns earlier.

Economists had been undecided during the heated debates on Net neutrality whether the Internet is a private good, a club good or a public good. Some clarity on this technical issue is of prime importance for contemporary public policy. These three categories of goods can be explained using the same motoring analogy that Nilekani used. A car is a private good. A toll road is a club good. An open road is a public good.

These distinctions are drawn based on two concerns—whether anybody can be excluded from using it and whether its use by one person reduces the availability for another person. These are, respectively, the conditions of non-rivalrous and non-excludable use.

A car is a private good because it can be used only by a few people while others cannot use it at the same time. A toll road is a club good because it excludes people who do not pay the mandatory levy while its use by one person does not reduce availability to other people once the toll has been paid. A regular road is a public good because it neither excludes anybody nor is its use rivalrous.

UPI has the features of a public good. It has an open architecture that others in the financial sector can build products on. The rest of the world depends on private networks that are club goods—you can come into the system after paying a toll to the company that has built the network. The toll operator not only allows you to come in after payment but also has the power to choose on your behalf which restaurant or motel to use during your journey.

In the Indian case, the combination of UPI with another open platform—Aadhaar—means that there is explosive potential once network effects come into play. The move to a cashless society in India is not exactly around the corner, since India still has one of the highest rates of cash usage as a proportion of its gross domestic product. However, that does not take away from the transformative potential of the UPI-Aadhaar combination.

That leads to another issue that casts light on the role of the state in the digital economy.

The traditional theory of public finance says that public goods should be owned by the state. It is slightly more complicated in the digital world, where digital platforms are created by private companies that need to collect tolls to make their innovations pay off. The sheer speed of innovation means that the state cannot take over the job of creating digital platforms that are free of tolls. On the other hand, network effects also create monopolies in the digital world, as was repeatedly pointed out in the landmark browser battle between Microsoft and Netscape at the turn of the century.

The Indian government has—either accidentally or otherwise—placed itself at the centre of this public policy issue. There are at least three digital public goods it has created that come to mind—Aadhaar, UPI and the National Agriculture Market. There are no gatekeepers who will collect tolls for either using these platforms or to build products on them. The question is: Should the government try to nurture new age public sector companies such as the National Payments Corporation of India, the creator of UPI, rather than endlessly subsidize the lumbering public sector dinosaurs of the planning era?

There are no easy answers, since there is cracking tension between the need to build digital public goods on the principle of open access while at the same time being sensitive to the fact that the rapid innovations of today are not possible without the private sector. These are issues that the Indian government will have to think about in the coming years: open roads or walled gardens?

Who do you think has the greater role in a digital era—the government or the private sector? Tell us at views@livemint.com

Livemint

10041 - A unified way of doing banking - Governance Now

A unified way of doing banking

With unified payment interface, users can access multiple bank accounts through single platform on a smartphone

Taru Bhatia | May 25, 2016

Courtesy: NPCI

The banking coverage might be poor in rural parts but in cities many people have at least two bank accounts. Keeping a tab on them is a hassle. More so, if you are managing them on a smartphone. You would then have multiple apps on your handset, and for any transaction you select one of them and then enter the details and remember the right password. What if all of them were combined into one?

That is the idea behind the unified payment interface (UPI) system of the National Payment Corporation of India (NPCI), the umbrella organisation for all retail payment system in India, launched by RBI governor Raghuram Rajan in Mumbai in April. The aim is to make online banking less cumbersome – or more user-friendly. Soon to be available for individual users, UPI can make the smart banking smarter.

“UPI is a channel that powers multiple bank accounts into a single mobile application (of any bank) of a participating bank, merging several banking features, seamless fund routing and merchant payments into one hood. It also caters to the peer-to-peer collect request which can be scheduled and paid as per requirement and convenience,” according to NPCI.

A unique feature of UPI is that it would allow you to make and collect payment from another user of any bank through a single application. Thus, the user will not have to manage multiple m-banking apps.

Another unique feature is users will not have to punch in debit or credit card details every time to make payment online to any e-merchant, or for any banking transaction. Instead, the user will have to link his bank details with a payment address, using which he can make or receive payment on his m-banking or payment application. The payment address here could be your mobile number, Aadhaar number, RuPay card, or virtual payment address.
At present, banks are offering electronic payment services through National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS) and recently launched Immediate Payment Service (IMPS).

Both NEFT and RTGS functions during bank hours, unlike IMPS that allows account holders to transfer money anytime. NEFT allows transaction of small amount of money, while RTGS allows transfer of money more than two lakhs. Now with UPI coming into existence, m-banking users will able to perform all these banking services along with its UPI’s unique features.

“This unified layer, which offers next generation peer-to-peer immediate payment just by using personal phone, uses existing systems such as IMPS, AEPS, to ensure settlement across accounts. The usages of existing systems ensure reliability of payment transactions across various channels,” says AP Hota, managing director and chief executive officer, NPCI.

How will it work?

You will have to first download the UPI-enabled banking application, or update the current application that will support the UPI interface. Then you will create your profile by entering your details like the name, virtual ID, Aadhaar number and password. Once the profile is created, you will get an option to add or link or manage a bank account. You can then add or manage different bank accounts on this single platform. You are then set to receive or make payment from any of your bank accounts using the respective virtual ID or registered mobile number.

For every bank account added in the UPI enabled banking application, a separate profile has to be created, meaning each bank account will have its own virtual ID.

On validating the user, UPI will send a one-time-password (OTP) to the user’s registered mobile number. The user will also be asked to set an m-pin for each bank account.

As for verification, the NPCI will soon explore the option of biometric verification. However, for the biometrics feature to get successfully implemented, an ecosystem for an advanced smartphones has to be developed that could be afforded by masses. That can take time.

You can also collect cash on the UPI-enabled m-banking app. Suppose you have to collect money from a friend. You will log in to your m-banking app and generate a collect request by providing the friend’s payment address. The request will reach to his UPI-enabled m-banking app, and with his confirmation, the amount will be debited from his account and get credited to your account.

When you need to make payment at an online portal, you only have to provide your payment address, linked to your bank account. Through your payment address, the transaction will reach to your bank account for validation via UPI and a request to debit will pop up on your phone for confirmation. With your confirmation, payment to the online merchant will be processed – and you will not have to enter your bank details.

Implementation

By now, 29 banks have agreed to adapt UPI into their current applications, including State Bank of India, Bank of India, Panjab National Bank, HDFC Bank and Citi Bank. They also have an option to launch a separate application that is UPI compliant. NPCI however envisages connecting m-payment applications (Paytm, Oxigen) and online merchants (Amazon, Flipkart) with UPI to move towards a unified cashless society.

“Banks are in the process of changing their current applications to make them UPI compliant. Merchants and payment apps will also soon integrate UPI into their interface. We are targeting to launch UPI application for public use by June,” says Dilip Asbe, chief operating officer (COO), NPCI.
The backend process for handling requests made by users using the payment address will be handled by NPCI.

Financial inclusion

With UPI, NPCI is also targeting financial inclusion. So if a daily wage labourer has to transfer money from his m-banking app to a family member’s bank account, he can do it by entering that person’s Aadhaar number linked to his or her bank account.

But, even as more and more people are turning to smartphones, there are millions who either can’t afford a smartphone or still depend on SMS- or unstructured supplementary service data (USSD)-based m-banking. UPI, for the time being, will cater only to the smartphone users.

“The UPI architecture supports USSD- and SMS-based transactions that will allow us to reach to the non-smartphone user base. However, we are still in talks with TRAI [Telecom Regulation Authority of India] as more approvals are required. It will take at least another six months to make UPI available for the non-smartphone user base,” says Asbe.

taru@governancenow.com

(This article appears in the May 16-31, 2016 issue of Governance Now)

- See more at: http://www.governancenow.com/news/banking/a-unified-way-doing-banking#sthash.lUvPdy5U.dpuf

- See more at: http://www.governancenow.com/news/banking/a-unified-way-doing-banking#sthash.lUvPdy5U.dpuf

9854 - Beyond Payments: How the Unified Payments Interface Will Evolve - NDTV

Beyond Payments: How the Unified Payments Interface Will Evolve

Gopal Sathe , 18 April 2016

There's been a lot of buzz around the Unified Payments Interface (UPI), which was launched last week. The system has 19 banks on board, including well known names such as Axis, ICICI, and HDFC, and many more are expected to sign on over the course of this year, according to National Payments Corporation of India (NPCI) MD and CEO AP Hota.

As we've explained before, the UPI is a major innovation in banking that helps solve a lot of the same problems that a debit card was fixing earlier. It users your mobile as a way to authenticate your identity, essentially turning the phone into a debit card that you can use anywhere.

In a sentence, UPI allows you to instantly transfer money to someone else using the IMPS payment framework, without having to know their bank account number or IFSC code. All you need is their virtual identity, which could be gopal@icici (just as an example), or 1234567890@axis (just replace 1234567890 with your phone number here).

The system would instantly verify the payment requests on your phone, so it's as secure as existing methods, and this means that you could easily make a payment online without having to jump through the various hoops that net banking, or even card payments, put you through.

But apart from that, it's also important to remember that the UPI is not the final stopping point that the NPCI has been looking at. In a 107 page document detailing the technical specications fo the UPI, the NPCI talks about various features that have barely been discussed in public at this stage.

The Aadhaar has been mentioned as supporting infrastructure for the UPI, and the document outlines two services - AEPS (Aadhaar Enabled Payments System) and APB (Aadhaar Payments Bridge) - that sound interesting.

The AEPS would allow Aadhaar biometric information to be used to authenticate payments from your linked bank account - in other words, you could see companies replacing card reader POS terminals with fingerprint readers, to bill you. Of course, the benefits of this are going to be limited in the retail sector - one of the big problems that retailers cite with card readers is the cost required to install and replace the machines.

On the other hand, biometric authentication could be useful in some scenarios, such as when the POS machine is online, but the person who is making the payment doesn't need to be in order to complete the transaction. For example, a bank could use this as a secure method to complete payments at branches, without requiring you to pull out your phone to authorise payment. There could be other institutional uses where this kind of technology could be put to use.

APB meanwhile allows remittances to be made to an Aadhaar number, without providing any other details. This means that instead of sharing your phone number with someone in order to get a remittance, you can see this done with just your Aadhaar number. Apart from that, there are obvious benefits to having this kind of a system in place for government remittances of subsidies and direct benefits, which would use the Aadhaar to identify the recipients in any case.

Interestingly, the same document also talks about Micro-ATMs, where you don't need a card to withdraw money. Instead, using the technologies described above, the payment could be carried out using your Aadhaar number and biometric information as authentication, with the payments being handled by a Business Correspondent i.e. a representative of the financial institution.

In the sample use cases, the document outlines some scenarios such as using the Aadhaar for e-KYC to set up accounts, and then using the UPI and Aadhaar to carry out a remittance; or splitting a bill with a friend by sending a collect request using the UPI API; or shopping on an e-commerce site. The system can also be used to set up ECS payments quite easily.

Looking at this documentation, it's clear that the UPI is going to be used as more than a replacement for mobile wallets - we rather believe that mobile wallets could find it a useful tool that makes them reach a wider audience than before, and allows them to focus on their differentiating factors; whether that's adding new features and use cases, or gamifying payments.

Download the Gadgets 360 app for Android and iOS to stay up to date with the latest tech news, product reviews, and exclusive deals on the popular mobiles.

9829 - How UPI works - Live Mint

Last Modified: Wed, Apr 13 2016. 10 54 AM IST

How UPI works

Unified Payment Interface is expected to a play a major role in achieving goals of universal electronic payments, a less-cash society, and financial inclusion

A Staff Writer

Graphic by Subrata Jana/Mint

The Unified Payment Interface (UPI) envisages a payments architecture that is directly linked to achieving the goals of universal electronic payments, a less-cash society, and financial inclusion, using the latest technology trends, laid down in the Reserve Bank of India (RBI) Payment System Vision Document (2012-15).

The RBI document reveals that the number of non-cash transactions per person currently stands at just six per year; only a fraction of the 10 million plus retailers in India accept card payments; banking services were available in less than 100,000 villages as of March 2011; and nearly 145 million households are excluded from banking.

Given this background, the National Payments Corp. of India (NPCI), which was set up in April 2009 with the core objective of consolidating and integrating the multiple systems with varying service levels, into a nation-wide, uniform and standard business process for all retail payment systems, undertook the task of implementing a UPI to simplify and provide a single interface across all systems.

Considering the fact that about 150 million smartphone users exist in India today, and that the number is expected to rise to 500 million over the next five years, the solution leverages the growing presence of mobile phones as acquiring devices and uses virtual addresses instead of physical cards, thus reducing cost of both acquiring and issuing infrastructure.

Value of UPI

UPI is a cheap, secure, reliable, mobile-first, interoperable, open-source, instantaneous settlement and both pull and push platform, according to a note by Bengaluru-based technology product start-ups thinktank iSpirt.

Moreover, while pre-paid wallets can’t do more than Rs.10,000 worth of transactions without KYC (know your customer) norms in a given month, a UPI-enabled platform bank account can transfer up to Rs.1 lakh instantaneously.

Besides, the cost of each transaction is going to be less than Rs.0.45, and one can also factor in all the savings from, and to, bank accounts. (http://bit.ly/1SYOShJ).

Virtual address

Now, one can use virtual/disposable accounts to do transactions generated right from the bank app. Through this, the merchant or the payee will not know your details and even if his system is hacked, you needn’t worry about losing money.

Pull and Push amount can be requested from a certain account or paid into some other account.

Mobile first

It’s one of the few systems in the world designed for the new mobile age, helping with easy integration across various platforms.

Interoperable OTP (one-time password) generated on one bank app can be used across another for transaction authentication. Also, multiple level of identifiers can be used (bank account, Aadhaar number, virtual identifier, mobile number, etc) to send or receive money. Biometric integration gives a second factor authentication, securing your account like none other in market.

Recurring payments

Payment Support Providers (PSPs) can provide an add-on for easy-to-do recurring payments on top of UPI.

Application Programming Interfaces (APIs) are going to be a game changer—they will ensure a level-playing field that will allow even a small start-up to do what big companies can.

What the UPI ecosystem involves

Level 0

People who build the UPI switch. A switch handles authentication and communication between the issuing and acquiring banks. ‘Generation Two’ switches were card machines on the merchants’ premises; authentication was handled by the machine and the bank customers’ private PIN was keyed into the merchant’s machine, and needed an expensive leased line to operate. ‘Generation Three’ switches are UPI ones—they enable customers to key in PIN/OTP (one-time password) on his/her smartphone, while authentication happens centrally. One big worry is how to get banks to agree to connect to the switch.

Level 1

Those who connect to the switch. In UPI’s case, they are called PSPs. (Old players were called Payment Gateways but these are now passe.) There will be many PSP builders—some inside banks, many outside as start-ups and merchants.

Technology worry: How to build a good PSP? What should I be focussing on?

Business worry: How to get a bank to “adopt” my PSP as the primary PSP?

Banks and customers are free to engage with multiple PSPs. The bank may have costs associated each time, while customers will only need to note down different addresses that will be associated with their identities on different PSPs.

Level 2

They connect to the UPI PSP, Visa/Master Card networks, RuPay or International payment gateways. They have to manage the user experience from the card to transaction completion.

Technology worry: How to reduce failure in the underlying system? How to handle refunds? How to handle COD (cash on delivery)?

Level 3

They are called on-boarders. They have to sign up new UPI, or new wallet, customers. On-boarding has high failure rates and lots of clever hacks go into making that less painful.

Technology worry: How to outwit others?

Business worry: How to find touchpoints before the consumer gets to the cart to make on-boarding happen?

Level 4

They are the application guys. They bring new cash-out (e.g. recharge players like PayTM), cash-in (e.g. Eko) and social payments (e.g. MyPoolin). In the future, this is where the action will be. They have to be a destination site or integrate into existing payment experiences.

Technology worry: How to integrate with others?

Business worry: Are they “allowed” (as they are initially in the grey area from RBI perspective)?

Enablers Innovative authentication collectors, E-sign, and digital consent are third-party systems that are needed by Level 1-4 people.

Source: iSpirt

Glossary

AEPS

An NPCI product, the Aadhaar Enabled Payment System (AEPS) offers instant, 24X7, interbank electronic fund transfer service through mobile phone. It allows Aadhaar biometric authentication-based transactions from a bank account that is linked with the Aadhaar number.

APBS

The Aadhaar Payments Bridge System (APBS) is a system allowing remittances to be made to an Aadhaar number without providing any other bank or account details. It uses the NPCI central mapper as a part of National Automated Clearing House (NACH) to enable government user departments to electronically transfer subsidies and direct benefit transfers to individuals on the basis of their Aadhaar number. Currently, the NPCI central mapper has about 160 million Aadhaar to bank mappings in its database. As part of large scale adoption of Direct Benefits Transfer (DBT) across all subsidy systems, it is expected that mapping database will have about 200-250 million Aadhaar mappings within next 12-18 months.

PSPs

Payment Support Providers (PSPs), as defined by RBI, collectively cover all RBI-regulated entities under the Payments and Settlement Act of 2007. These include banks, payments banks, PPIs, and other regulated entities. In addition to the Aadhaar and the mobile number as global identifiers (mapped by NPCI), PSPs can offer any number of virtual addresses to customers so that they can use the virtual address for making and receiving payments.

IMPS

Immediate Payment Service (IMPS), launched on 22 November 2010, is now available to the Indian public from over 65 banks.

USSD

Unstructured Supplementary Services Data

NPCI

National Payment Corporation of India

UIDAI

The Unique Identification Authority of India (UIDAI) which issues digital identity (called Aadhaar number) to residents of India and offers online authentication service.

A Staff Writer

9827 - All you need to know about UPI, the Unified Payment Interface - Business Standard

All you need to know about UPI, the Unified Payment Interface

The UPI technology promises to change the way Indians carry out transactions, and aims to move to a largely cashless economy at the retail level

Shishir Asthana  |  Mumbai 

April 12, 2016 Last Updated at 16:22 IST

The way we undertake money transactions in India is expected to change dramatically with the introduction of the Unified Payment Interface (UPI), which aims to move the country towards a more cashless model. Developed by The National Payment Corporation of India (NPCI), the payment interface is expected to be a game changer in mobile banking.

Shikha Sharma, managing director and CEO of Axis Bank, considers UPI the ‘WhatsApp moment’ for payments in India.

The Reserve Bank of India (RBI) in its Payment System Vision Document (2012-2015) had mentioned the use of UPI for achieving its goal of a lower cash-intensive society and financial inclusion using the latest technology.

Here’s a closer look at what the RBI is trying to achieve through UPI and how it will make our lives easier. But before that, let’s look at the current status of non-cash transactions in the country.

According to an NPCI document, the number of non-cash transactions per person stands at just 6 per year. Only a fraction of the 10 million-plus retailers in India have card payment acceptance infrastructure – presently this number stands at 0.6 million, or 6%. What these numbers reflect is the potential that exists as penetration of smart phones is projected to increase from the current level of 150 million to 500 million over the next few years.

What are the key drivers of UPI?

The NPCI document points out that the key goal of implementing UPI was to simplify and provide a single interface across all segments. The key drivers for this are:

Simplicity: The thinking behind the UPI was to make the application as simple as possible. Paying and receiving payments should be as easy as swiping a phonebook entry and making a call on mobile phone, says the document. An account holder should be able to send and receive money from their mobile phone with just an identifier without having any other bank/account details. All they need to do is to "pay to" or "collect from" a “payment address” (such as Aadhaar number, Mobile number, RuPay Card, virtual payment address, etc.) with a single click.

Innovation:  The idea here was to come up with a solution so that innovations on both payee and payer side can evolve without having to change the whole interface. It should allow application providers to take advantage of enhancements in mobile devices, provide integrated payments on new consumer devices provide innovative user interface features, take advantage of newer authentication services, etc.

Adoption:  Given the size of the potential user base, the key was to have a solution which should not crash and be scalable to a billion users and enable large scale adoption. It should allow gradual adoption across smartphone and feature phone users and provide full interoperability across all payment players, phones, and use cases. People using smartphone should be able to send money to others who are not yet using any mobile application and vice versa. Similarly, it should allow full interoperability between multiple identifiers such as Aadhaar number, mobile number, and new virtual payment addresses.

Security: One of the key areas of concern among users is security. The solution had to provide end-to-end strong security and data protection. The trick here was not to reveal too much data like banking or other personal details which could be misused. For convenience, the solution also had to offer 1-click 2-factor authentication, protection from phishing, risk scoring, etc.

Cost:  India is a cost-conscious country and any product with a high cost is likely to have a short life. Since mobile phone number is used as an authentication (credential capture) device, use of virtual payment addresses, and use of third party portable authentication schemes such as Aadhaar should allow both acquiring side and issuing side cost to be driven down.

What are the objectives of UPI?

The key objective of a unified system is to offer an architecture to facilitate next generation online immediate payments leveraging trends such as increasing smartphone adoption, Indian language interfaces, and universal access to Internet and data.

UPI is expected to further propel easy instant payments via mobile, web, and other applications. The payments can be both sender (payer) and receiver (payee) initiated and will be carried out in a secure, convenient, and integrated fashion. Virtual payment addresses, 1-click 2-factor authentication, Aadhaar integration, use of payer’s smartphone for secure credential capture, etc. are some of the core features. It supports the growth of e-commerce, while simultaneously meeting the target of financial inclusion.

Who can use UPI?

Anyone with a mobile phone and a bank account will be able to take benefit of UPI for either receiving or transferring money.

How is it different from the existing system?

In the present system, in order to make any transaction the account holder’s bank IFSC code is needed, which reveals bank account details. But using UPI, all one needs is a virtual address which is unique to you and it camouflages the bank and personal detail of the user or the receiver behind it.

What is the level of security in UPI?

UPI has a single click-two factor authentication system which means that with one click the transaction is authenticated at two levels. The user will need a mobile phone with a mobile pin called MPIN and a virtual ID offered by the provider. With a click the transaction is checked if the mobile pin matches with the virtual address only then does the transaction goes through.

Here is an example to explain the process.

Suppose you have bought some goods at a mall and need to make a payment for it. You have to inform your virtual address to the person at the counter who enters the address in his or her system. The mall’s system then sends an authentication message to the virtual address which is mapped to your mobile. Only after receiving the message and acknowledging it by entering your password is the transaction complete and the amount debited from your bank account or wallet.

Is virtual address unique to the user?

Virtual addresses offered by the provider need not be permanent. For example, a provider may offer “one time use” addresses or “amount/time limited” addresses to customers. In addition, innovative usage of virtual addresses such as "limit to specific payees" (e.g., a virtual address that is whitelisted only for transactions from IRCTC) can help increase security without sacrificing convenience. PSPs can allow their customers to create any number of virtual payment addresses and allow attaching various authorisation rules to them.

UPI is important for implementation of the JAM (Jhan Dhan Yojana, Aadhar and Mobile) trinity which Finance Minister Arun Jaitley spoke of during his Union Budget presentation. Raj Jain, chairman and managing director of RS Software, the company that helped NPCI launch UPI, said: “The launch of UPI will go down in history as amongst the most important initiatives to transform India.”

9649 - Unified Payments Interface will be as transformational as Aadhaar - Blog Economic Times

Unified Payments Interface will be as transformational as Aadhaar

March 23, 2016, 3:57 AM IST Economic Times in ET Commentary | Economy, India | ET

Unified Payments Interface (UPI), a new process in electronic funds transfer, will be inaugurated by Reserve Bank of India Governor Raghuram Rajan on April 11. Conceived and being implemented by National Payments Corporation of India (NPCI) under the guidance of former chairman of Unique Identification Authority of India (UIDAI) Nandan Nilekani, this mode of payment is likely to be as transformational as Aadhaar when it gets adopted by most banks.

Initially, 29 banks are likely to adopt it, and certification is already in progress for 12 banks. Other banks will join soon. The process will ride on the existing infrastructure of Immediate Payments Service (IMPS), which facilitates money transfer from any bank/wallet account to any other bank/wallet account as permitted by RBI “instantly” 24×7. UPI enhances the user experience of IMPS with some additional processes.

Firstly, UPI enables ‘instant collect’, which was not possible under IMPS. It addresses the current problem of about 30% decline in e-commerce payment transactions due to a complicated transaction flow. With UPI, the friction gets minimised and e-commerce market players can pull money from shoppers easily. Cash on delivery (COD) transactions can also be completed by the delivery staff by collecting money electronically while delivering the goods.

A biller can collect bills from consumers by automating the collection process on the due date, supplementing thereby the already existing ECS (debit)/NACH (debit) process. Clubs/schools can collect periodic fees. A daughter can now make a UPI request to her father’s account and the father, recognising that the request has come from a valid source, can authorise the transaction or even reject it.

The father can also “hold” the transaction for verifying the transaction before authorising it with a one-time password (OTP) or static PIN. The landlord can pull the money from the tenant. There can be multiple usage of such nature for online/face-to-face payments. Secondly, UPI has a facility to identify a bank customer with an email-like virtual address.

A customer can create a unique financial address in his/her bank linked with the bank account number at the backend. The customer will use only the virtual address while dealing with others without sharing the account details. For instance, a customer at State Bank of India (SBI) can create an address like shortname@ sbiormobilenumber@sbi.

Looking at the domain name sbi, NPCI will route the transaction to SBI and SBI will apply the credit/debit by resolving the virtual address to the account number. A customer can have multiple virtual addresses for multiple accounts in multiple banks. There is no account number mapper anywhere other than the customer’s own bank to ensure privacy of customer data.

The advantage of such an approach is the customer can freely share the financial address to others. Thirdly, UPI will operate primarily on smartphones, leveraging their ever-increasing utilities. Though the current base of smartphones in India is about 300 million (December 2015), the number is likely to touch 400 million in two years. This will help customers to do a whole range of banking operations and shopping from the mobile itself.

Smartphones will also enable banks and their certified merchants to integrate the library being supplied by NPCI so that the process of capturing the authentication information is secure and uniform across banks similar to customers providing authentication information on ATMs irrespective of bank ownership. As mobile phones get Aadhaar-ready, biometric authentication would also be possible through them.

Fourthly, UPI will enable single-click two-factor authentication with mobile itself as the first-factor using the unique hardware identification of the smartphone, and OTP/static mobile PIN as the second. Banks will compete with each other to provide simple and user-friendly solutions without compromising on the regulatory guidelines on two-factor authentication. A few banks are enhancing the security without compromising simplicity.

For instance, the application can have a facility for the user to maintain a list of virtual addresses from which pull request would be permitted or to pre-register the beneficiaries. Banks can have applications with utilities to remind when bill payments are due. Customers can also generate various reports on transactions made.

In summary, UPI promises to be truly transformational. Let us watch how it shapes the future of payment systems in the country.

DISCLAIMER : Views expressed above are the author's own