The Unified Payments Interface (UPI) system has accomplished another feat by recording the most transactions in a single month in May 2022. According to a survey by the National Payments Corporation of India (NPCI), those over the age of 60 favored cards, while younger and middle-aged people were big fans of UPI and mobile wallets.
Global counterparts lag far behind in terms of digital payments, thus India’s UPI is being evaluated as a test case for real-time payments. According to Ankur Saxena, country leader for India and South Asia at ACI Worldwide Payments, “India’s real-time payments success stems from a coordinated approach to mass adoption throughout the country and not being tied to, or heavily invested in, traditional, expensive, and relatively inflexible electronic payment infrastructure like its US and European counterparts.”
Where UPI Scores
Because UPI is centralized, it doesn’t depend on certain banks. “The majority of real-time payment systems operate using similar underlying technologies, but there are significant differences in the alignment, coordination, and deployment of these technologies. With support from the government and agreement from financial institutions, the Indian model has standardized and centralised every part of the system.
Another aspect that has contributed to its widespread adoption and popularity is its simplicity. According to Venkatesh P, director of Maveric Systems, a provider of banking technology services, “the approach was such that a secure, instant payment app could be created which could help the masses adopt digital payments at less cost and with minimal difficulty.”
The Immediate Payment Service (IMPS), which forms the foundation of the system, is crucial. “India’s UPI payment system is built on top of IMPS; in the backend, all transactions are processed using the IMPS system only,” claims Dewang Neralla, CEO of NTT DATA Payment Services India. However, a UPI user only needs the UPI ID as opposed to an IMPS user who needs information like the receiver’s bank account and IFSC code.
According to Atanuu Agarrwal, co-founder of Upside AI, an ML-backed PMS, “I have spent a significant amount of time living and working in the US. What I know from personal experience is that India’s payment system is much superior and more democratic compared to even the centre of the financial world.”
Far Ahead Of Global Peers
According to a recent assessment by ACI Worldwide Payments, India’s UPI system is significantly more advanced than those of many other developed countries.
Globally, there were 118.3 billion real-time payment transactions, of which 48.6 billion, or 40%, were made utilising UPI, according to the aforementioned data.
In 2021, India completed 18 billion instant payments, which was 2.7 times higher than China, and 6.5 times more than the combined 7.5 billion payments processed by the US, Canada, the UK, France, and Germany.
Despite the US having numerous privately owned real-time payment wallets, such as PayPal, there is currently no centralised system in place because of their federal character. Only in 2022 is it anticipated that the FedNow quick payment system will begin its pilot testing phase.
The US has nearly 4,000 banks, and in addition to US Fed rules, the majority of states have their own banking payments laws. The Reserve Bank of India (RBI) is in charge of all banking laws in India, where the number of banks is far lower, according to Neralla.
Europe, meanwhile, predominantly maintains a cash economy. A report by the European Central Bank titled “Study on the Payment Attitudes of Consumers in the Euro area” states that 73% of all transactions in the EU are still made in cash.
“China is the only other country that might be compared to India. Although China continues to have the second-highest volume of real-time payments, WePay and AliPay’s dominance has stifled the country’s real-time development, according to Saxena.
How UPI Can Contribute To India’s Growth
Instant payments saved an additional $12.6 billion in payment costs in India in 2021. According to a Cebr economic research report, this cost savings helped free up $16.4 billion, or 0.56 percent of India’s GDP, in economic activity.
According to the study, India’s fast payment solutions might produce an additional $45.6 billion in economic activity by 2026, which is roughly 1.12% of India’s GDP.
“Our study clearly demonstrates a link between real-time payments and economic expansion. Real-time payments essentially increase market efficiencies in the economy by enabling the movement of money between parties within seconds as opposed to days. This lessens problems with cash flow for firms and people and frees up more money for investments or purchases, according to Saxena.
