Daybreak - Here's what you should know about UPI's latest payments feature

Episode Date: August 22, 2024

What really makes UPI successful? The number of transactions. In FY2024, for example, more than 130 billion transactions were carried out through UPI. But it's not enough. UPI needs more and more to the point where now it has become a transaction-hungry monster. And NPCI National Payments Corporation of India (NPCI), government body that runs UPI has to constantly come up with ways to feed this ever-hungry monster.Its latest offering is delegated payments. Earlier this month, Reserve Bank of India Governor, Shaktikanta Das, announced that non-UPI users, like elderly people or teenagers or anyone who does not have a way to transact via UPI, can use another UPI user’s account and spend through it.While many payments platforms are excited about this new feature, there are some serious issues that may become roadblocks later.Tune in to find out.

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We've heard it a hundred times. UPI or the unified payments interface revolutionized the way we used money. It is a hero that has seen success like no other. Et cetera, et cetera, et cetera. But what really makes UPI successful? The number of transactions. In FY 2024, for example, more than 130 billion transactions were carried out through UPI.

But that's still not enough. It wants more and more and more to the point where now, as my colleague Arundati, the Ken's deputy editor rightly said in her newsletter, it has become a transaction-hungry monster. Okay, so as of now, who is allowed to be a U-Pi? user. Anybody with a bank account, right? But NPCI was like, hey, what if we do away with that basic condition? How about we allow non-UPI users to make transactions as well? So earlier this month, the Reserve Bank of India governor, Shakti Kandah Das, announced that non-UPI users think elderly people or teenagers or anybody who does not have a way to transact via UPI can use another

UPI users account and spend out of their bank. So here is what Mr. Shakti Kandadas, the RBI governor announced, and I'm quoting, it is proposed to introduce a facility of delegated payments in UPI. This would enable an individual or primary user to allow another individual, the secondary user, to make UPI transactions up to a limit from the primary user's bank account without the need for the secondary user to have a separate bank account linked to UPI. There were of course a lot of positive responses to the announcement. Like PhonePay co-founder Samir Nagam said that such payments will significantly accelerate

UPI adoption by the next 300 to 400 million Indians. But not everything may go as smoothly as we are thinking. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Dhaar Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rahal Philipose and I will come to you with one business story that is worth understanding and worth your time. Today is Thursday, the 22nd of August. Rundhati spoke to a payments executive who explained how this new delegated payments feature on UPI is expected to work. So far, you could not participate in the UPI network if you did not have a UPI.

UPI ID linked to your bank account. And usually having a bank account is the first step in creating a UPI ID. But now, users can set up UPI IDs without having a bank account at all. They can simply link their profiles to a primary bank account either by scanning a QR code or by adding the UPI ID or mobile number of the primary bank account holder. It is up to the primary user to accept this. request to link. Now, once the link is done, the bank account holder will have the option to set it up either as a recurring use case or as a one-off use case. This is quite similar to how recurring

payments would work. Now, if it is a one-time thing, the primary account holder will have to put in an OTP to authorize this transaction. But for a recurring payment use case, it won't even need an OTP sign-off. All the primary account holder will need to do is to set up a spending limit. NPCI is all set to launch this feature officially at its flagship global fintech festival that is supposed to be held later this month. So, how are companies looking at this new announcement? The executive who spoke to Arundati said that companies are seeing this as a way to target three sets of people, senior citizens, 18 to 22 year olds and unemployed spouses. For example, Sandeep Srinivasa, a fintech founder, posted on Twitter that this unlocks the potential to build

companies that can better serve senior citizens. But where there are senior citizens and the vulnerable, there are also scammers. And we all know how the online payment space in India is teeming with them. The executive told us that all fraudsters will now need to do is convince you to link their secondary UPI accounts to your primary UPI account and consent to a recurring delegate payment. The ray of hope here is that companies will expect this and they will try to build controls for it from the very start. So the rise in online scams is the first big fear. The second, looking at the potential there is for growth, fintech employees, all around are looking forward to the new use cases they can now be a part of.

And most payment companies are also super excited, except for one. The fintech startup called FAMPAY. It started five years ago as a way for teenagers to be financially independent. FAMPAY has raised more than $40 million in funding so far from investors such as peak 15 and elevation capital. When it was launched, there were 400. 50 million people aged under 18 years in India. So it issued them a prepaid card backed by IDFC First Bank, which took away the need

for parental micromanagement. The Ken had even done a story on FAMPAY where we'd spoken about how many parents even end up transferring money to their teens' FAMPay account or topping up their cards to let their kids place orders on their behalf. And that was because they thought that teens have an eye for disqual. discounts and offers, especially when it comes to electronics and personal care products. But in 2023, FAMPAY's dreams came crashing down when IDFC Bank abruptly shut down these wallets. And actually, FAMPAY never really made any money. So after that, it started running

an app called FAMPAY by Trio, which lets users track their spending. So now, after this new UPI feature is launched, if other startups want to try what Fampi did, they need to be super careful because NPCI can come and democratize them at any time, which again only goes on to prove the fact that payment companies in India have no safety net at all. And that brings us to the third problem. And this time it is for NPCI itself. You see, new features like this are an opportunity for new companies to build new products and take away market share from incumbents like phone pay and Google Pay. An NPCI has anyway been under pressure to reduce the market share of these payment giants for a while now. So far, it has been unsuccessful. And this new feature

move, if anything, will only help these big players increase their dominance in the market. Most primary account holders will either be on phone pay or Google. Google Pay after all. And when a dependent user links their accounts, the transactions will still pass through the primary bank accounts. So, UPI may get more users, but the bulk of the new transactions will remain with GPay and phone pay. And ultimately, any new app that wants to build for teens or for the elderly will once again

be left with users that they may not be able to monetize immediately. 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. To subscribe, head to the Ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Sear.