The Indian economy is fast embracing digitization. According to a recent report, in July 2022, India’s instant real-time payment system, the Unified Payments Interface (UPI), registered 6.28 billion transactions and is expected to reach $440.3 billion at a CAGR of 14.80% by 2032.

The modern-age payment system enables users to send and receive payments instantly via smartphones. More and more merchants have started collaborating with payment aggregators to integrate UPI payment gateways.

Now India is gearing up to take UPI global to make it a universally used and accepted mode of payment. In this blog, let’s understand more about UPI and its global expansion.

What is UPI

Unified Payments Interface (UPI) is a single-window mobile payment system developed by the National Payments Corporation of India (NPCI). It enables multiple bank accounts, from participating banks, into a single mobile application. It merges several banking features, merchant payments & seamless fund routing under one umbrella eliminating the need to enter bank details or other sensitive information each time a customer initiates a transaction.

Regulated by the Reserve Bank of India (RBI), the Indian central bank, the Unified Payment Interface is a real-time payment system. It works by transferring money between two bank accounts along with a mobile platform, just in a two-click factor authentication process.

UPI Goes Global

As UPI emerges as the most preferred payment mode with a market share of 64% of merchant payments in the first quarter of 2022, The RBI and NPCI are now working towards expanding the reach of the UPI globally.

While UAE, Japan, the US, Singapore, Bhutan, Nepal, and France already accept UPI-based payment services, India is expanding in the UK market, starting with QR code-based transactions. With this, the UK will be the eighth country where UPI-based services will be made available.

How Does UPI Global Work?

To expand the deployment of UPI and Rupay solutions outside India, the Reserve Bank of India (RBI) and NPCI launched NIPL as the latter’s subsidiary in 2020. The international subsidiary has been forging partnerships with banks and payment providers to expand NPCI’s digital payment products to boost the growth of the Indian digital payments ecosystem in the international market. It would also include payment service providers (PSPs) and global merchant acquirers, among many others.

For tourists or migrants, it is mandatory to have a bank account in India with UPI enabled on it. The users must also have a BHIM application to make any UPI payments. As a result, Indians traveling to distant locations with Indian bank accounts can transact easily in a foreign land without worrying about carrying a Forex card or the local currency and be able to make UPI payments at shops, retail establishments, and other merchants.

The Future of UPI Global

India’s innovative Unified Payments Interface has revolutionized the payments industry in the country. According to NPCI, the value of 6.28 billion transactions was worth Rs 10.63 trillion in July 2022, up by 7.16 percent compared to June 2022. Also, the number of Indian banks live on the UPI network was 338 as of July 2022, as per the report. At such a point, it does not seem surprising that UPI is flourishing as one of the trending payment platforms in the international market.

Now, as businesses also choose to accept UPI payments through payment links, QR codes, or web/app payment gateway integrations, at Mobileware Technologies, we work with some of India’s leading partners, including private banks and small finance banks, to simplify business payments. Through our hosted UPI switch with connectivity to NPCI and personal Virtual Payment Address (VPA), QR Code generation, customer management, PSP application, and a gamut of other services, we are successfully offering interoperable and scalable payment solutions to the ecosystem.

Over the last few years, Buy Now Pay Later (BNPL) is steadily gaining popularity. Indian Buy Now Pay later market grew at a CAGR of ~321 % by Gross merchandise value (total value of the loans disbursed to consumers), during FY’19-FY’21. The popularity of BNPL grew during the pandemic when we saw a significant rise in the eCommerce industry.

In India, BNPL is a payment option wherein you can sign up with a company providing this service to pay on your behalf. Then, within a stipulated time, you have to repay the amount. No interest is levied on the same. There are two options. You can either pay it as a lump sum or with no-cost EMIs.

However, if you fail to make the repayment, the lender will charge you interest on your amount, and your credit score will get impacted.

How does BNPL work?

The operational model is usually the same for different BNPL service providers, barring some terms and conditions.

Here’s the primary mechanism:

1. Make a purchase
2. Opt for the Buy Now, Pay Later option
3. Make a small down payment
4. The remaining amount is deducted through interest-free EMIs.

BNPL is different from purchasing with a credit card. BNPL usually doesn’t charge fees or interest. But they have a fixed repayment schedule. What you need to pay per week or month is decided in advance. Also, not all purchases are eligible for BNPL.

In the BNPL model, once the payment is made, businesses receive 100% payment upfront while the customer repays the same to the provider, one installment at a time.

Benefits of BNPL

The BNPL scheme benefits both the businessman as well the customer. Let’s go over some advantages of using this payment method for both vendors and customers-

1. Instant payment received:For vendors, BNPL is a boon. They get paid instantly whether or not the customer pays their installments. This also means that the BNPL providers take all the risks and protect business owners and vendors from fraud and financial loss.
2. Reach more customers:BNPL options are more popular with the younger generation. According to reports, more than 26% of millennials and almost 11% of Gen-Z shoppers used BNPL services for their recent purchases. By providing different payment options, reaching out to a larger audience becomes easy.
3. Increase in conversions: By allowing customers to make payments over time, they get the joy of buying the product instantly, without going through the sticker shock that comes with the price tag. Generally, audiences are more likely to purchase if they can pay for it in installments.
4. Better customer experience:Most BNPL providers don’t have a hard check for financing. Customers get an efficient and more convenient way of registering with them. There is no application, no additional fees, and no extra processing time. Customers can check out in a few steps with ease.

Bottom line

The idea behind BNPL is to let customers immediately get what they want, with a little extra time to pay for them.

Note: In June 2022, RBI issued guidelines that would impact the BNPL model. It stated that nonbanks can no longer load prepaid instruments — digital wallets, or stored-value cards — using credit lines. The RBI said that the only valid options for a buyer are to prefill their wallet with cash or to debit their bank or credit card accounts. RBI also clarified that the BNPL model needs to be examined and guidelines need to be framed for the new scheme in the lending domain.

While this might slow down the growth of BNPL, the story is far from over. We are excited to witness BNPL’s immense potential!

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The fast-emerging digital economy has become a supporting pillar of India’s growth in recent times. At 87%, India hits the highest FinTech adoption rate in the world against the global average of 64%. Realizing that India is a prime destination for digital payments and activities, the Government of India launched Open Network for Digital Commerce (ONDC) to democratize the country’s fast-growing digital e-commerce space.

In this blog, let us explore ONDC with in-depth details and understand how it will help transform the Indian e-Commerce space.

What is Open Network for Digital Commerce (ONDC)

Open Network for Digital Commerce (ONDC) is an open protocol network enabling local commerce segments, such as mobility, grocery, food order and delivery, hotel booking and travel, among others, to display their products and services from all participating e-commerce platforms in search results across all apps on the network.

Globally, ONDC is a first-of-its-kind initiative aiming to create new opportunities and curb digital monopolies by supporting micro, small and medium enterprises and small traders to get on online platforms while providing equal opportunities for consumers. It moves from a platform-centric model (where the buyer and seller use the same platform or application to be digitally visible and do a business transaction) to an open network.

Significance of ONDC

ONDC helps standardize operations like cataloguing, inventory management, order management and order fulfilment, making it simpler and faster for small businesses to be discoverable over the network and conduct business. With this protocol, buyers would have access to more sellers and quick deliveries due to access to hyper-local retailers. Below are some potential benefits of ONDC:

1. Boost E-Commerce transactions:This will enhance the volume and the value of e-commerce transactions. The Government estimates that the Indian e-commerce market will grow to US$ 350 billion by the end of 2030, which seems much more achievable with ONDC.
2. Promotes Competition:According to the Government, existing platforms are tightly controlled, keeping out many small players. However, ONDC will boost competition and foster innovation by start-ups through product and service displays from all participating e-commerce platforms. Furthermore, it will also help to end predatory pricing, especially in high-margin, high-value products.
3. Freedom of Choice:ONDC can make e-commerce more inclusive and accessible for consumers. The platform can potentially discover any seller, product or service by using any compatible application or platform.
4. Cost Reduction for Sellers: ONDC will enable small businesses to use any compatible applications instead of specific platform-centric policies. It will provide multiple options to small businesses to acquire what’s needed to be discoverable over the network without paying deep cuts to aggregator platforms.
5. Attracts Investment: Businesses will benefit from transparent rules, lightweight investment, and lower cost of business acquisition. Their time-to-market and time-to-scale shall also substantially reduce attracting greater investment in the e-commerce space.

How is ONDC different?

ONDC is trying to replicate the success of the Unified Payment Interface (UPI) in the field of Digital Payment. Under ONDC, it’s predicted that a buyer registered on a participating e-commerce site might purchase goods from a seller on another participating e-commerce site. With this open network, the concept extends beyond the retail sector to any digital commerce domains, including wholesales, mobility, food delivery, logistics, travel, urban service, etc.

What lies ahead?

ONDC was rolled in 5 cities, including Delhi NCR, Bengaluru, Bhopal, Shillong, and Coimbatore. According to the reports, based on the pilot exercise and after the network stabilizes, ONDC will be expanded to 100 cities to accommodate 30 million sellers and 10 million merchants online. With this, top banks and other financial institutions will commit to a combined initial investment of 2.55 billion rupees ($32.8 million) in the ONDC project.

ONDC can fulfil India’s aspiration to become a middle-income economy that is digitally unified. It also offers a vital global template for harnessing the technology for and as a public good at a population scale inclusively and equitably.

Time and again, the Indian government comes out with platforms and schemes to help the Indian customer with online payments. DigiSaathi is such an initiative that was introduced on March 8, 2022.

The Reserve Bank of India (RBI) alongwith the National Payment Corporation of India (NPCI) launched DigiSaathi – which will help customers with digital payments including cards. The RBI also launched the UPI123 pay service for offline UPI payments.

According to Shri T. Rabi Sankar, the deputy RBI Governor,

“This initiative will help address customers’ queries in the digital payments umbrella including cards. Right now it is available in two languages – English and Hindi; we are working towards including all vernacular languages. Going forward, human intervention could also be included.”

The customer can submit queries and the most relevant information will be delivered as soon as possible. The questions asked will be examined regularly and the FAQs will be kept up to date.

What is DigiSaathi and how will it help customers?

DigiSaathi is a 24-hour information hotline for digital payments made against goods and services. It is set up and controlled by the NPCI to help the Indian payments industry. Different industry participants have joined to create the website, chatbot, and mobile/web application to help end customers with products and services. This is RBI’s digital vision.

AI bots maintain the backend and they will be taught over time to improve the accuracy of their answers and replies.

The platform is a one-stop destination to obtain help on the entire spectrum of digital payments. It will assist users through the chatbot facility or toll-free calls where users can dial and call out options and products for which they need information.

When a user types in the query, related questions are auto-suggested and you can choose your question from the list. Once you click on the question, relevant information will be displayed.

The working committee for DigiSaathi includes NPCI, State Bank of India, Bank of Baroda, Axis Bank, GPay, Indian Banks Association (IBA) and Amazon Pay, among others.

You can also register complaints and report fraudulent transactions. There are details and email addresses of banks and financial institutions as well.

Visit the DigiSaathi website in case of any queries! The helpline service is also available at 14431 and 1800 891 3333 for support in both English and Hindi.

The service will be made available on more social media channels to fulfil customer requirements.

Neo-banks are online-only fintech companies without physical branches. They are digital banks.

How are they different from traditional banks?

Neo-banks are revolutionizing the traditional banking system by leveraging artificial intelligence (AI) and technology. They offer personalized services to customers. Traditional banks have a physical and maybe a digital presence while neo-banks, led by a design thinking approach, tailor-make their products and services to make banking convenient for the end customer digitally.

Neo-banks are driven by innovation and technology and can develop partnerships and launch features quickly. They cater to small and medium businesses and retail customers.

History of neo-banking

The term neo-bank started gaining popularity in the year 2017 with the rise in the usage of smartphones and the internet across the globe. They are also known as ‘challenger banks’.

As per a report by KBV research, the market size of neo-banking globally is expected to reach $333.4 billion by the year 2026. The CAGR is a whopping 47.1%.

Despite the potential market size, the concept of neo-banks is relatively new in India. Some neo-banking firms have recently raised funding from global investors given the huge underbanked market potential that India has.

India’s top neo-banks include RazorpayX and Jupiter.

How do neo-banks work?

Neo-banks have a different business model than traditional banks. Since they are completely online, customer fees are slashed significantly. Being customer-centric platforms, they can devise personalized services through innovation and technology.

The decisions taken by neo-banks are data-driven. They use technology-led solutions to collect and analyze data and understand customer behaviours. This enables them to offer a wide window of advantages and opportunities to their consumers

What are the challenges faced by neo-banks?

The first issue they face is fostering trust. Customers might not be able to depend on them in case of issues/challenges, as there is no physical presence. Hence, they offer freemium subscriptions and memberships to allow users to experience the service before paying for it.

Due to the absence of regulations, neo-banks cannot offer lending products or accept deposits. Hence, some fintech firms have an NBFC as their parent company to engage in lending activities. They can also rely on bank partners to offer services.

Although India’s smartphone penetration rate is set to increase by 96% by the year 2040, financial inclusion levels are yet to improve.

Advantages of neo-banks

1. Since the regulations are few, neo-banks can keep their costs low. Their products are inexpensive and have no monthly maintenance fees.
2. They offer majority banking services through an app.
3. It allows customers to set up accounts quickly and process requests. Processes that usually are time-consuming, can be done faster with the innovative strategies of neo-banks.
4. Neo-banking apps provide you with smart reporting via an overview of your expenses along with a savings goal best suited for your needs. This enables better management of finances.

Disadvantages of neo-banks

1. Since the RBI does not recognise neo-banks, customers may not have a defined process in case of an issue.
2. Customers don’t have in-person assistance.
3. Neo-banks have expertise in specific products.

Takeaway

The financial landscape is shifting towards customer satisfaction and experience. Neo-banks are attempting to fill that gap. They have the potential to be much more than just a buzzword in the fintech community and hopefully, in the years to come, they will change the face of banking forever!