Thanks to advances in digital technology, smartphones could replace physical wallets in the near future. And while many consumers would gladly give up their plastic, cash is still king around the world.
So what happens when India — one of the most currency-dependent countries in the world — takes a financial leap toward the future? It creates UPI, one of the most advanced payment systems in the world.
What is UPI?
Launched in 2016, United Payments Interface (UPI) is a payment system that facilitates transfers between bank accounts via smartphone. Without the hassle of entering credit card details or banking passwords, customers can transfer funds directly from their own accounts to peers and merchants.
A product of the National Payments Corporation of India (NPCI), UPI’s goal is to move India toward a cashless economy. By allowing smartphones to double as debit cards, UPI is poised for astronomical growth. India is currently home to 780 million feature phones and only 120 million smartphones. As this percentage shifts in the coming years, cashless systems like UPI will increase market share.
How Does UPI Work?
Hailed by many as one of the most sophisticated public payments infrastructures in the world, UPI provides merchants with virtual addresses free of sensitive personal information. Similar to an email address, consumers can use this unique ID to transfer money or make payments to any merchant, person or bank.
Most payment systems require an account number, account type and bank name, but with UPI, no account details are required. Payments also happen in real time, 24-hours a day, so users no longer have to wait hours for payments to go through.
How Will UPI Affect Mobile Wallets?
When paying for an Uber ride with a mobile wallet like Citrus Pay or Apple Pay, money must first be transferred from the rider’s bank account to their mobile wallet, and then on to Uber. With UPI, Uber instantaneously receives funds directly from a customer’s bank account.
By eliminating the mobile wallet middleman, traditional banks stand to regain some of the ground they’ve lost to emerging mobile wallet technology. And while mobile wallets are pressuring financial regulators to add them as UPI service providers, many banks don’t want to incentavise the use of mobile wallets.
Will the Wallet Fall?
With UPI, making cashless payments is easier than ever. All you need is a bank account. In contrast, mobile wallets can only transfer funds between merchants and peers who use the same wallet app. And unlike money sitting in UPI-connected bank accounts, money parked in mobile wallets does not earn interest.
Mobile wallets also require the use of a smartphone, whereas rudimentary UPI banking activities like checking balances and getting mini statements can be conducted on feature phones.
Backed by banks, UPI also offers limited risk and features highly encrypted transactions and two-factor identification – once when logging in and once when authenticating a transaction.
Add in low transaction fees and platform innovations, and UPI may seem like the clear winner in the face off with mobile wallets. Sure, mobile wallets are great for making mobile payments, but UPI is designed for seamless, speedy transactions on a single platform.
Could UPI Enhance Mobile Wallets?
So, are mobile wallets over? Not quite. In the year since UPI debuted in India, the service has garnered 4.2 million registered users. That number is minute compared to the 170 million users on Paytm – the country’s largest mobile wallet company.
In fact, mobile wallet growth rates are topping out at 160 percent annually – 20 times what they were three years ago. Mobile wallets that offer speed, security and ease of use could retain a loyal customer base, as both services hone in on the real endangered species – cash. However, if mobile wallets are to survive, they will need to evolve and mature to stay relevant in tomorrow’s economy.
While some experts believe UPI makes mobile wallet tech redundant, others view UPI as a way for mobile app companies to add more users. UPI could provide the infrastructure for end-user mobile wallet apps to implement UPI features. By working together, this payment architecture could move countries toward universal electronic payments and a cashless, more financially inclusive society.
Mobile wallets also have unique benefits UPI can’t offer, such as cash pick-up, micro-credit facilities, hyper-local transactions, stand-alone app utility and a loyal, established customer base. And unlike mobile wallets, adopting UPI on a global scale would require training merchants, staff and retailers, and upgrading existing POS technology.
The Fight for Frictionless Payments
While the battle between mobile wallets and UPI rages on, the winner will be the platform that offers merchants and users the greatest speed, security, access, user experience and financial sustainability.
Low-tech and frictionless, cash remains a popular choice for people across the globe, but the age of demonetization is here. And though billions carry cards and cash in their wallets, paper and plastic may soon be obsolete in the age of the smartphone.
Regardless of what today’s – or even tomorrow’s – technology holds, P2PE encryption technology protects customer data the moment a transaction begins. To keep your company safe and secure, contact Bluefin today to learn more about our seamless P2PE encryption solutions.