UPI or unified payment interface was introduced in April 2016 to transfer money between bank accounts by National Payments Corporation of India. The transfer mechanism used a QR code. The NPCI head Dilip Asbe predicted a target of processing 1 billion transactions within a period of five years. Asbe had engineering background and had worked with Bombay Stock Exchange and Western Union.
To begin with, NPCI handled 25 million transactions a day. Of late it has registered 393 million transactions each day. Small merchants accepted trivial payments through a QR code. The mechanism was also used to pay utility bills and stock investment. In next two years, it may achieve the target of 1 billion transactions a day. It is expanding its footprint beyond India, say Singapore, France, UAE, Nepal etc. Till now, it did only the debit transactions. It has allowed now Rupay credit card for credit transactions. It also expects the banks to let the customer enjoy overdraft credit. In short, it will pose stiff competition to MasterCard and Visa payment networks which indulge in both credit and debit transactions. Visa, San Fracisco-based network swipes 212 billion transactions. Mastercard 170 billion transactions and NPCI registers 150 billion transactions. However, it may soon surpass the other two.
NPCI could also emerge as Big Tech company. Currently, it is studying blockchain technology, open-source and AI so as to excel in these domains.
NPCI follows design thinking where a problem is identified first. There is engagement with the eco-system. It collects diverse ideas and filters them. There is a feasibility check.
N R Narayan Murthy, the first chairman of 15-year-old NPCI had formulated some of these principles. Initially, NPCI was a buyer of technology, and depended on outside vendors. NPCI was backed by banks and the RBI. Asbe was the pioneer. Hota became MD and CEO, and operated from small rooms attached to IBA.
It handled National Financial Switch (NFS) which operates the ATM network. It developed truncated cheque system (CTS) to settle the payments electronically. FastTag using RFID technology has been used to make the passage of vehicles smoother at toll plazas.
In 2013, Murthy exited as he had to shift to Infosys. However, Nandan Nilkeni stepped in while he was heading UIDAI. Nandan taught NPCI to think big. He motivated it to create UPI. He advocated open-source networks so that external developers can contribute to software. Murthy has fostered a culture of profitability and self-sufficiency.
NPCI’s annual revenues are Rs.2225 crore, and has a surplus of Rs. 809 crore. Its asset-base is of Rs.5571 crore.
If UPI expands relentlessly, will it affect point-of-sale (PoS) swipe machines? PoS machines can co-exist with the UPI system. They are Android-powered and are getting smaller. The cost per unit is also coming down (from Rs.15000 to Rs 1500 per unit).
UPI can be used to provide micro-credit to customers. Such micro-credit can have an interest-free period.
By 2025, Asbe expects 100 billion transactions per month. UPI could also be used for investments in IPOs.
How to tackle MDR or merchant discount rate is still an issue. They are deliberating on it. In P2P or person-to-person transactions, there is zero MDR. Such transactions are 60 per cent.
In foreign transactions, the cross-border charges are 5-6 per cent. This is what the UPI expects to disrupt.
NPCI is a story of creditable achievements.