Real-Time Payments Lessons from India’s Wildly Successful UPI

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Categories: Experience DesignMobilityFinancial Services

5 Real-Time Payments Lessons from India’s Wildly Successful UPI

On a recent trip to India, I was inspired to rethink current real-time payment opportunities for U.S. businesses of all kinds. QR codes for cashless transactions are ubiquitous and you’ll see them everywhere you go in India.

It's estimated that nearly 65% of all payment transactions that happen in India are done through UPI (Unified Payment Interface). Indian merchants processed 19.65 billion transactions in volume and Rs 32.5 lakh crore via UPI in Q3 2022 alone, with the bulk of transactions taking place in popular apps such as PhonePe, GooglePay and Paytm Payments Bank App.

And so, as we visited a prominent historical site in South India, I had stepped out in the morning to drink a cup of 'chai' (tea). The cost of the tea was 5 Rupees – less than 10 cents in USD. I did not have the required cash on me and paid the Chaiwalla digitally, in real time, by simply opening my mobile phone and scanning a QR code.

It blew my mind how far India has come in terms of adopting real-time payments and cashless transactions. What are some of the lessons businesses in the U.S. can learn from India's runaway success with UPI systems?

What is India’s Unified Payments Interface (UPI)?

The Unified Payments Interface was developed and launched in 2016 by a non-profit government entity called the National Payments Corporation of India (NPCI). UPI allows users to instantly transfer money from one bank account to another using a mobile phone.

UPI enables users to link one or more bank accounts to a mobile phone, and transfer funds between them without requiring the bank details of the beneficiary. It provides a single platform for various banking services such as money transfer, bill payments, and merchant payments.

Operating on a two-factor authentication process that includes a unique Virtual Payment Address (VPA) and a Mobile Personal Identification Number (MPIN), UPI makes it secure and convenient to process digital payments. It has played a significant role in promoting a cashless economy in the country.

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5 Real-Time Payment Lessons We Can Use

There are several lessons that the United States can learn from India's implementation of UPI. Here are a few key outcomes and benefits, and what we can learn from them.

1. Promoting cashless transactions

UPI has been successful in promoting cashless transactions in India, which can help reduce the use of physical currency and improve transparency in financial transactions.

2. Interoperability

UPI allows for interoperability between different banks, which means that users can transfer money between different banks seamlessly. Real time payments adopted in the U.S. by over 400 financial institutions through the likes of Zelle does not allow for this interoperability.

3. Encouraging innovation

UPI has encouraged innovation in the fintech space in India, with many startups building innovative products and services on top of the UPI platform. You can use mobile applications from Paytm, GooglePay, BhartPe etc. on your mobile phone to do UPI.

4. Financial inclusion

This is a huge part of the success in India. Everybody from a small tea vendor on the street to a large merchant in a high-tech shopping mall, can use the UPI infrastructure.

5. Transaction security

UPI has been designed with the customer in mind, with a focus on ease of use, security, and convenience. With your mobile phone acting as the key part of the identity, every transaction is secured either through face recognition or through an OTP (One-Time-Password) mechanism.

Overall, the implementation of UPI in India has been a runaway success and has revolutionized the payments landscape in the country. The United States can learn from the Indian experience and adopt similar measures to improve the financial ecosystem and promote financial inclusion.

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The Current State of Real-Time Payments in the U.S.

The United States has made significant strides in implementing RTP payments in recent years. The Federal Reserve launched the Faster Payments Task Force in 2015, for example, to explore ways to improve the speed, efficiency, and safety of payments in the US.

In 2017, the task force released a report recommending the creation of a faster payments system and as a result, several real-time payments systems have been developed and launched in the US in recent years. The Clearing House (TCH), a consortium of US banks, launched its real-time payments (RTP) system in 2017, which allows for instant payments between banks 24/7/365. The RTP system has seen significant growth in recent years, with over 400 financial institutions in the US now offering RTP to their customers.

In addition, other real-time payments systems have been launched in the US, such as Zelle, which is owned by a consortium of US banks and allows for instant peer-to-peer payments between bank accounts. Venmo and Cash App are also popular real-time payments apps that allow users to send and receive money instantly.

Looking Ahead to a Friendlier RTP Future

While the US has made significant progress in implementing real-time payments, there is still room for improvement. Existing real-time payments systems are not yet fully interoperable, which means that users may not be able to send money between different systems or banks. In addition, concerns about the security and privacy of real-time payments, and regulatory issues must be addressed.

There is still work to be done to ensure that these systems are fully interoperable, secure, and regulated. With continued investment and collaboration between banks, fintech companies, and government agencies, real-time payments have the potential to revolutionize the payments landscape in the US and improve the speed and efficiency of financial transactions for consumers and businesses alike.

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