Daybreak - After UPI, NPCI feels the pressure to build its next hero product

Episode Date: May 30, 2024

At the time of demonetisation, the country was desperately seeking an alternative to cash. And a payments regulator called NPCI or the National Payments Corporation of India, was our unexpected knight in shining armour. The NPCI managed to launch UPI at just the right time. This was a revolutionary, once in a generation product that really put the NPCI on the map. Over the years, UPI also became a huge political asset for the Central Government. That’s evident from the fact that political leaders, including the PM, have made it a point to repeatedly endorse UPI. But nearly two general elections later, the pressure is on for the NPCI to come up with a new product, the next UPI. And the NPCI is really feeling the pressure. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. It has been a little over seven years since the Prime Minister made what was arguably one of his most important public addresses yet. At around 8 p.m. on November 8th, 2016, he said that all the 500,000-thousand-thousin-your-wallet would very soon just be worthless pieces of paper.

The Prime Minister said the centre's main goal was to flush out the hundreds of crores worth of black money or, in his words, break the grip of corruption on the country. Now, whether they managed to pull that off is debatable. But what demonetisation did manage to do was completely change the way we use money. And for that, we mainly have UPI, or the Unified Payments Interface to thank. At the time of demonetization, the country was desperately seeking an alternative to cash. And a payments regulator called NPCI or the National Payments Corporation of India was our unexpected night in shining armor.

NPCI is the government body that powers India's digital economy. It's also responsible for groundbreaking digital products like fast-tag, immediate payment service or IMPS and the net banking service. So the NPCI managed to launch UPI at just the right time. This was a revolutionary once-in-a-generation product that really put the NPCI on the map. And over the years, UPI has also become a huge political asset for the central government. I mean, that's evident from the fact that political leaders, including the prime minister, have made it a point to repeatedly endorse UPI.

But nearly two general elections later, the pressure is on for the NPCI to come up with a new product, its next UPI. The government needs another win, another hero product in the digital payment space, to add to its political arsenal. And the ball is now in the NPCI's court to make that happen. But it's hard to strike gold twice.

And naturally, NPCI's engineering and product teams are really feeling the pressure. You see, the NPCI was once known for taking its time with research and development, or R&D. It used to put all its products to test and perfect them before they would launch. And that's what made UPI such a huge hit. It was also known for great work-life balance. Now, its employees are working at least 13 to 14-hour shifts with far less time for R&D. And the result? Well, to quote a former NPCI executive, half-baked ideas and loopholes in execution. And it isn't just the government body feeling the heat.

Even its business partners, phone pay, Google Pay, SBI, they're all under tremendous pressure. They're all feeling rushed to launch new products incessantly. So today, we take a closer look at what's going on inside NPCI. Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahel Filippos and I'll be joining Snigda Sharma every day of the week to bring you one business story that is worth understanding and worth your time. Today is Thursday, the 30th of me. In many ways, what the government is trying to do with the NPCI is all a marketing game.

You see, this is an organisation that has been around since 2008. But according to two senior finance ministry officials, the government has actively been trying to market the NPCI as an organisation that only found its groove under the current regime. And when you think about it, it ties into the government's development agenda completely. Basically, the government wants the NPCI, a public sector body, to be seen as a full-blown tech company. It wants the NPCI to be synonymous with cutting-edge technology and innovation.

And the body's current CEO, Dilip Azbe, is placed. a central role in executing the government's plans. You see, Asbe is sort of like the government's blue-eyed boy. He's been associated with the NPCI since 2010, first as chief technology officer, then chief operating officer, and now CEO. Since late September, when his tenure was extended, he's been attending a series of closed-door meetings with the centre. And every single time, he's faced the same line of questioning.

what's next after UPI? And now, Aspe is really feeling the heat. Not only does he have to identify another hero product, he also has to ensure UPI continues to grow. Senior government officials told the Ken reporter Rana Kumar Gunjan that the centre has set a pretty ambitious target for the UPI. It wants it to grow 10 times in scale. And that's exactly what the NPCI under Aspe has been trying to do.

do. It's been actively working on improving the UPI technology. Like in September last year, when it launched a credit line on UPI that allowed free sanction credit lines from banks via UPI. Then it pushed UPI Light X, which allowed offline payments. Then there was also UPI tap and pay, hello UPI and a whole bunch of other products. Another senior payments executive told Ronaq that all of this was possible because the NPCI has been in a project mode for nearly two years now. But like I mentioned a little earlier, NPCI teams have been spending way too much time in the office, but they've not been spending enough time on R&D so that they can fast track new innovations. And as a result, the NPCI's business partners, UPI networks and banks, are getting

the short end of the stick. How? Well, more on that in the next segment. So as I said earlier, the NPCI has been launching a whole range of new features in the last year and a half. And on paper, that sounds like a great thing. But unfortunately, many of UPI's partner apps just aren't too happy about it. They say that a lot of these features are not well thought out in the long run. And to understand what they mean, we have to first get a sense of how these features are launched. There are basically two phases. The first is the design phase, where the features first are.

functionality, end-to-end architecture, and other details are determined. This is mainly handled by the NPCI. And the next phase is where it collaborates with the payment service provider and the UPI apps to implement the feature and launch it. Now, this is where things can get messy. One executive told Ronek that there have been instances where UPI partners have found loopholes in NPCI's original blueprint during the second phase. What happens then is that the entire process stalls

and people need to go back to the drawing board. Basically, NPCI launches the feature but the onus of detecting issues with it ends up lying with the apps and the banks. Their engineering teams then don't just have to implement these features, they also have to proofread them. A frequently cited example among executives is the G20 Summit when the NPCI launched UPI services for foreigners

without an Indian bank account. Since 2003, it's been expanding the payment system outside the country. But a payment app executive told Ronaq that the company launched the feature in a hurry. So there was a mad scramble to meet hard deadlines, but in the end, there were just no takers for it. These executives believe that everything that the NPCI is doing now is just following the government's directives to innovate and launch, but with blinders on. But two finance ministry officials have countered this claim. They said that the body was just doing what it was created to do, bringing innovation in the retail payment system.

Technically, it can't be accused of exercising pressure because it's trying to do what it was meant to do anyway. But former NPCI executives say the level of expectation is quite unrealistic. So where does that leave things for people who work for NPCI? In many ways, the NPCI peaked when it launched UPI. I mean, it truly is a once-in-a-generation product. After all, what other innovation would be able to garner 300 million-plus monthly active users? And it also contributes nearly 60% of the NPCI's overall revenues.

So it's but natural that the NPCI would devote most of its attention to building UPI. According to NPCI insiders, its best employees are part of the UPI team. But an unfortunate outcome of that is that the other teams have started feeling like side characters in the UPI story. The NPCI has been slowly making improvements in its other products. For instance, it has made improvements in the way IMPS and Adhar-enabled payment system exchanged messages between banks and NPCI. But obviously, its other projects just don't get as much attention as UPI.

And despite its best efforts, it just isn't enough. Because the government isn't just expecting improved features for UPI, it wants a whole new product in the digital payment space. That's hard to pull off for a variety of reasons, many of which we've already discussed in this episode. Like I said a little while earlier, the government wants the NPCI to be marketed as a full-blown tech company. But at the end of the day, it's not.

For starters, it can't match employee salaries when compared to other fintechs. But the government body is borrowing a hack or two from real tech companies. Think office gyms, sports arenas with games like box cricket, a really expansive lunch buffet. But it's going to take a lot more than that to come up with another UPI. Because at the end of the day, innovation and creativity is something that can be fostered but not forced. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted by Rahil Filippo's produced by me, Snigda Sharma, and edited by Rajiv Sien.