UPI: A big leap towards cashless economy

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Bikky Khosla | 30 Aug, 2016
The Unified Payments Interface (UPI) is live now. With this unique solution, our entire payments ecosystem is set for a dramatic transformation. The new platform, a brainchild of outgoing RBI Governor Raghuram Rajan, was launched in April this year and it is now made available by 21 banks for their customers. UPI will make money transfers as easy as sending an SMS. It works on single click two factor authentication, allowing a smartphone user instantaneously send or receive funds 24X7 across banks, using only a virtual address and providing no other sensitive information.

But UPI is not only about transferring money. More importantly, it is a major step towards transforming India into a cashless economy, the benefits of which can be immense. According to an estimate, the direct cost of running a cash-based economy is close to 0.25 percent of our GDP. UPI has potential to bring this cost down significantly. Besides, cashless transactions can arrest tax evasion and boost government revenue. Also, majority of our merchants and retailers currently lack the infrastructure required for accepting card payments. Now, they can go cashless easily. In addition, e-commerce will get a boost as payment has always remained a big hurdle for mass adoption of online shopping in India.

It is a pleasure to see that UPI has come at a time while the number of mobile Internet and smartphone users in the country is increasing at a rapid pace. According to a recent report, India's smartphone subscription is expected to be 810 million, which is four times the subscriber base in 2015, by the year 2021. Another study adds that the country's 3G and 4G subscribers have tripled to 120 million in 24 months and the number will reach -- due to increasing affordability -- to near 300 million by March 2018. In the background of this and with more banks likely to jump the bandwagon soon, there is little doubt that the number of UPI users will pick up fast in coming days.

A recent Credit Suisse report has identified UPI and Aadhar as two key enablers with which the Indian payment system will now leapfrog to digital where cost of transactions will be near zero. The report also points out that such instruments are expected to grow the consumer and SME loan market from $600 billion to $3,020 in the next 10 years. It sounds encouraging. With more cashless transactions, our SMEs will have a clear banking track record, leading to more chances for them of getting a loan. It seems days are not far when we will be able to use our mobile phones to send loan applications, which, in turn, will be processed instantly by banks on a real-time basis.

I invite your opinions.