UPI 2.0 May Impact The Payments Industry In The Near Term: Mahesh Makhija, Partner Advisory – Financial Services, EY
What’s different about UPI 2.0? Broadly speaking, how is it set to affect the payments industry in the near term?
UPI 2.0 is a good step forward and has some innovative enhancements including the one time mandate feature and the link to OD accounts. However several eagerly anticipated features such as recurring payments missing. The new features will continue to enhance the use of UPI within the bank and fintech community. For instance the One Time Mandate feature will eat into cash on delivery in ecommerce, opening a whole new payment category. Linking to OD accounts will allow for simplification in the pay later product landscape.
With the new “linking of OD accounts” facility, do you see credit card transactions moving to the UPI platform over time? What are the ramifications of this happening? Is this the beginning of the end for “plastic” as we know it?
Generally credit card transactions allow for more robust processes in the areas of returns, chargebacks and fraud mitigation. We believe that, in the medium term, as the UPI ecosystem matures credit card transactions will come under pressure to respond to this alternative and frictionless way to pay.
Do you see the OTM feature of UPI 2.0 having applications within the Mutual Fund distribution space too – say for Systematic Investment Plans? What are your views on the OTM feature overall?
SIPs are recurring in nature will benefit significantly from the introduction of the recurring mandate feature which is yet to be introduced. The OTM feature may be useful in some categories, such as being an alternative to cash on delivery or escrow mechanisms in ecommerce
Has UPI 2.0 improved the security features of the platform in any way? If yes, how?
UPI 2.0 introduced Secure QR / Intents to prevent fraudulent QR codes or malicious apps masquerading genuine requests. This works by cryptographically signing the QR code / intent with the merchants details that can then be verified by a UPI 2.0 enabled app
Lastly – on a slightly unrelated note: what’s your take on the wallets business in India? Do you think business models that have cashback offers as their main USP are sustainable in the long run?
Current RBI data shows that wallets are still going strong, with a good recovery after the decline in volumes in March 2018, due to mandatory KYC. However, in the long run, wallet load friction, increasing regulation and an incentive driven business model will put pressure on the wallet ecosystem. We are already seeing this unfold with some prominent wallets convert/offer UPI payments as a prominent option.
