Potentials - November/December 2017 - 17

operate on an IMPS technology, which
is a 24/7 payment product of NPCI.

UPI and BHIM
Created by NPCI, the UPI, in its
present state, is an excellent innovation for 24/7 digital payments.
T he UPI plat for m has a lready
enabled all major banks, through
their respective UPI apps, to make
d i g it a l pay ments using mobile
phones. The simplicity in operating
these apps is akin to those of prepaid m-Wallet apps. Unlike m-Wallet
apps that operate through prepaid
mobile wallets, the UPI apps provide
a secure, interoperable, unified fund
transfer facility between two bank
accounts on users' mobile phones.
UPI provides an easy way to complete person-to-person and personto-merchant transactions. In addition to the standard push feature
(payer initiated) used to make payments, UPI has also incorporated
the pull feature (a payee-initiated
payment, like in credit and debit
cards), making it attractive for merchant transactions. It not only has
the potential to replace paper-based
(cash/checks) t ra nsact ions but
also the National Electronic Funds
Transfer (NEFT) and debit cards at
POS/e-commerce. The NEF T is a
near real-time account-to-account
transfer of funds that is operational
during the day.
In the development of the U PI
product, the architecture envisaged
a bank to provide the front-end UPI
app and required all communications to be routed through the
bank whose UPI app has been in-

350

involvement in transactions where
the UPI app provider bank is neither the payer nor payee bank
■■increases efficiency
■■brings flexibility to its features
■■increases the ease to innovate
and improve.
With BHIM transactions surging
[Fig. 7(a)], UPI transactions are also
picking up [Fig. 7(b)]. With appropriate media campaigns, and acceptability for eCom transactions,
UPI and BHIM could be the road
ahead for digital payments and,
over time, may surpass debit-cardbased payments.
A major issue that needs to be resolved is the identification of a balanced fee/revenue model for such a
futuristic digital payment platform.
With an explicit revenue model for
banks (independent of their earlier investments made in various cashless/
paperless payment initiatives), it is
important that whatever is proposed
in this direction has clear considerations of the operational expenses in
using cash as a payment mode-not
only for banks but for the government
and the economy in general. Moreover, if BHIM cannot ensure an inexpensive solution, the product itself
will not attract the common person
in India. While the need and convenience to go digital is now being felt
by most consumers and businesses,
including those in the unorganized
retail markets, it is the opportune
time to think of business strategies
that provide long-term solutions.

(a)

July

June

May

Apr.

Mar.

Feb.

10
0

Jan.

Dec.

July

June

May

Apr.

Mar.

Feb.

Jan.

Dec.

Nov.

Oct.

Sept.

Nov.

100

Oct.

150

50
40

Sept.

Million

200

Aug.

2015-2016
2016-2017

Aug.

250
Million

of the UPI app
■■reduces one to two layers of bank

70
2015-2016
2016-2017

300

■■provides a uniform look and feel

stalled by a customer. The business
model of such a design was similar
to that of ATMs. Whenever a UPI app
of bank X is used by a customer
of bank Y, bank X receives a commission from bank Y for serving its
customer. The UPI structure ne-
cessitated a bank to identify itself
with its UPI app and its app-user
routes transactions through this
bank even if he or she is not banking with it but instead with a different institution.
This increases complexities and
possible frictions in the form of
multiple "hops." With many banks
currently on the UPI platform, we
see various bank-specific UPI apps
with different names (such as Kotak's kaypay, Ca na ra's eMpower,
SBI's SBIpay, HSBC's SimplePay,
BoB's B a r o d a M PA Y, a n d A x i s
B a n k 's AXIS PAY, among others),
front-ends, and features.
A fter being persuaded by the
government and, more importantly,
because of the catalytic effect de--
-
monetization had on digital payments, NPCI promptly brought out
its own UPI app, BHIM, for direct
use by bank customers. BHIM was
dedicated to the nation by the country's prime minister at its launch on
30 December 2016. Through BHIM,
NPCI acts as a switch to communicate messages directly between the
payer and the payee. At the backend,
under the UPI platform, NPCI communicates between the two banks
for the financial leg of transactions.
With centrality of operations at
NPCI, the primar y advantage is
that BHIM

(b)

FIG6 The transaction volume through (a) m-Wallet and (b) IMPS.

IEEE POTENTIALS
November/December 20 1 7

■

Table of Contents for the Digital Edition of Potentials - November/December 2017