The number of transactions through real-time payments system Unified payments interface (UPI) have hit a new high of 1.14 billion, versus 955 million a month ago, a 20 percent rise on a month-on-month basis.
In an exclusive interview with CNBC-TV18, Dilip Asbe, MD and CEO of National Payments Corporation of India (NPCI), said UPI is there to replace cash, which is predominantly used for low-ticket transactions.
“In India, the cash requirement is driven by low ticket transactions. When you want to spend Rs 10,000 or Rs 5,000, normally the debit cards are there and UPI is not there to replace the debit card, UPI is there to replace cash, which is mainly used for low-ticket transactions,” he said.
“There are players like BharatPe, PhonePe and PayTM. Once these QR codes, which are there at merchant locations, go from 10 million to 45 million, you will start seeing the impact because today what happens is consumer sees it at one location, but doesn’t see it at another location. So he still needs that cash. Once the cash is available, consumer doesn’t try any other mode of payments. Once you see the town is painted in red, obviously consumer is going to say why not use the app and make the transaction at all small ticket locations,” Asbe pointed out.
The NPCI CEO says merchant acceptance is the key and that supply side has to be ubiquitous fully. Partial story is not going to help reduce cash transactions. "So on the demand side, we will have to grow the number of unique users. Today at least one-third of the population should be there on the UPI or the digital payment system to see real impact on cash in circulation. Our efforts are in that direction,” he noted.
Internationalisation is considered and the NPCI is adopting various steps to leverage the growth and do more for the market. "We are working with a few countries including Singapore and the UAE. We have to sort out a lot of nitty-gritties in terms of connectivity,” he added.
Edited excerpts from the interview:
Congratulation on that billion mark
I do not think only NPCI deserves this congratulations. It’s the ecosystem -- the banks, fintech, policy setting by the government and the RBI, the app providers. So I think the entire ecosystem has contributed to this successes of UPI and this is just a start. So I think a citizen scale payment system is what we are aiming for. So we believe that this is a start.
I want to understand that, because as you said it’s an ecosystem that has come together to ensure that this is a success. But why specifically has UPI taken off in the manner in which it has. What do you believe are the contributing factors for why UPI has taken off in the way that it has?
There are many factors. UPI takes advantage of smartphones. So it is very simple for a user to onboard and do a transaction whether it’s a P2P transaction, whether it’s a scan and pay transaction. So it’s very simple for the user to do it. The second thing is it kind of forces the partnership between banks and fintech.
And one wouldn’t have thought that would have been an organic partnership, right?
So with this at least one thing has happened for sure that NPCI is very pro-bank; after UPI, nobody puts this allegation back on us. So I think the combination of fintech and banks coming together has played a key role in this whole success because the bank’s core strength is money management, backend, the lifecycle management for the transactions and at the same time the fintechs have put in the beautiful app so that it takes care of the consumer interaction on that side, uses the distribution strengths of fintech. So it kind of worked, plus the policy enablement by the government and the RBI; in the last 3 years, I think we have seen more circulars from the RBI than in the last 10 years. So you would see that so much focus from the RBI and the government on digital payments and obviously UPI has been beneficial for it.
I will come to each of those issues but let’s talk about this wonderful symbiotic partnership that has emerged between fintechs and banks because when fintech started to emerge banks were worried or at least people were worried about the future of banks themselves. Would this mean that we would actually see the demise of banks – that hasn’t happened?
It will never happen because I think the trust in the banking system, thanks to the RBI and its credibility and its policymaking, is very high. So I do not believe that consumers are going anywhere else other than the banks and we leverage that in UPI; we ensure that the customers remain with the banks and use the better frontend for the transaction.
Let me flip the question around. If you are saying that banks aren’t going anywhere because of the trust factor and that is so crucial then what about the future of fintech. I will ask you this in the context of wallets for instance or payment banks. There was a lot of enthusiasm, there was a lot of confidence that this could be the next big thing, but there are now question marks on the viability of the business model itself?
I think the payment banks, when it was envisaged, was a long-term business model. I do not think anybody envisaged that at that time that they will make money in 3-4 years. When the RBI gave the licences, they gave it to all large firms like Paytm, Airtel and Vodafone, all the big guys got the licence rightly so because the RBI was very clear that it’s a long-term business model and it’s not a 7-10 years kind of a time for breakeven. Now when you look at the UPI Aadhaar Enabled Payment System (AEPS), the payments banks are making a lot of transaction there. Obviously the profitability will come over the period. When you look at Airtel Payment Bank, for example, they are doing great as far as the transaction, locations and AEPS and other transactions are concerned. Tomorrow they will leverage Bharat Bill Payment; Paytm starting electronic tools collection in a very big way. So I am saying there are a lot of models which will enable but it’s a long-term view.
Let me then ask you about what we are seeing now in terms of the next steps to ensure that you do go from a billion a month to a billion a day. What will be required on the part of the ecosystem to put in place and also in terms of the value of the transactions? How do you address the smaller transaction? This is what we keep thinking and in India the cash requirement is predominantly driven by the low ticket transaction; when you want to spend Rs 5000-10,000 normally the debit cards are there and UPI is not there to replace the debit cards, UPI is there to replace cash, which is predominantly used for low-ticket transactions. So believe this scan and pay -- and there are players like BharatPe, PhonePe, and Paytm - once this QR codes, which are there at the merchant locations, once they go from 10 million to 40-45 million, you will start seeing this impact because today what happens is consumer sees it at one location and he doesn’t see it at another location. So he still needs cash. Once the cash is available, consumer doesn’t try any other mode of payments.
Once you see the town is painted in red, obviously consumer is going to say why not use the app and make the transaction at all small ticket locations. So I think the merchant acceptance is crucial and that supply side has to be ubiquitous. Partial story is not going to reduce cash. So on the demand side, we will have to grow the number of unique users. Today at least one-third of the population should be there on the UPI or the digital payment system to see real impact on cash in circulation. So our efforts are in that direction, but it is a little uphill task. I am saying that only because the literacy levels are going to go lower and lower as we keep on expanding UPI and consumers would be vulnerable to challenges like phishing attacks. We will have to keep educating. I do not see any answer on that.
Some very important things that you spoke of, but let’s talk about this aspiration of being able to become a less-cash economy. I think there is an acknowledgement now that it will have to be less cash or no cash…
I think all of us are now aligned to that.
So does it worry you that we have seen post demonetisation, the return to pre-demonetisation levels of cash in circulation?
Not really. I think one thing which we will have to see is that a lot of people who are outside or in the informal system has been brought inside the formal system. The whole direct benefit transfer (DBT) which was on cash, has been brought, in the last 4 years to a formal, which is direct to the bank account. So all these people are going to take out the cash from the ATM or micro ATM at the rural location. So obviously the cash in circulation is not going to go down immediately and even Nandan Nilekani’s reports talk about it that obviously 3-4 percent change over the next 5 years is not unreasonable in my assessment. I think we are stepping towards that.
Since you spoke about the Nilekani committee recommendations, let me ask you about that because now I guess for this aspiration of a billion a day to materialise - incentivisation and what kind of incentivisation or further incentivisation is needed and of course the disincentives of the use of cash, we have already seen some measures being announced in the budget and so on and so forth. Of the recommendations that the Nilekani committee has put out, what do you think needs to be prioritised?
The RBI has set up this committee, the committee has submitted the report. The RBI is reviewing it with all stakeholders in the market; the recommendations and the implementations by the stakeholders repetitively. I think there are a few things which we are doing very aggressively. One, trying to expand the use of UPI in terms of new used cases. So we launched the Sebi IPO on UPI, so instead of doing anything else, such a complex use case has been brought inside UPI and just by a few clicks you can do the IPO application. So we are aggressively pushing the new used cases in the market. We are aggressively pushing the new used cases in the market.
What else could we see, you gave us one example, and what else could we see in terms of new used cases?
Looking at QR code now we are trying to see how QR code can be more popularised. We are trying to work with the government to see whether GST amounts can be included in the dynamic version of the UPI QR code obviously with the subject to regulatory approvals. But I am saying that there are various things which we are trying to do. Internationalisation is again studied and looked into as far as UPI is concerned, RuPay is concerned, so I am saying there are various initiatives which are happening in NPCI right now to try to leverage the growth and do more for the market.
How soon and what is the realistic timeline for taking UPI international?
It will take time. We are working with a few countries.
Singapore and the UAE are the two countries – we are looking into it now. We have to sort out a lot of nitty-gritties in terms of connectivity and customer charges, disputes and those kind of things. Six-nine months are a reasonable time to look at a pilot subject to regulatory approvals.
Regulatory approvals from the jurisdictions that you hope to get and India as well.
There and India as well, both.
This is just for UPI or for RuPay as well?
RuPay as well, none other than the prime minister himself has been taking it across the geographies and NPCI as an implementing agency will have to fulfil the vision what he has been laying down for us.
Give us an update on RuPay because there is a lot that we have seen happened with UPI and it has been the big disruptor but RuPay, what is the market share now currently?
I may be wrong, but our assessment is we are approximately one-third market share as far as the transactions are concerned. Obviously, the card market share is much higher, but as far as the transaction value-volume is concerned, we are about one-third in the domestic market that is on the debit side. Credit side, we have just started, we are trying to see how we can scale up quickly.
As far as RuPay is concerned we are trying to work with a few countries again. Again that is in the very initial stages, we have recently gone live in Bhutan, so Indian cardholders going to Bhutan can do a transaction in Bhutan ATMs and point of sale machines. There are again three-four countries, some are in the Gulf, and we have signed the MoUs. Any international project is about 12-18 months as far as the timeline to really materialise, go live. So it is initial day, but I think you will see lots of actions after nine months or so on the international front.
What have been the learnings, clearly UPI as I said has really seen this sort of big take off, but for BHIM for instance and now for RuPay, what have been the learnings where you believe some tweaks are required to give them similar pushes?
The UPI is a mobile payment system, RuPay is a physical card-based system and we compete very hard with Visa and MasterCard as far as domestic market is concerned. Obviously, there are multiple providers who are given the service, so we are fully aware that we cannot be 100 percent of the market like UPI but we have to keep competing with Visa and MasterCard and try to keep fighting for our share.
I think 30-40 percent is a great market share as far as the domestic card scheme is concerned where all the players are present unlike China.
So that is the aspiration that you have?
Yes. We would want to be a major player.
How do you take on Visa and MasterCard? You were talking about the fact that in order for a service to be successful it has to be ubiquitous, so just to be able to put the RuPay infrastructure in place and compete with the likes of Visa and MasterCard, which have been entrenched incumbents?
There is no short answer there, again we will have to go brick by brick. When we started RuPay it was the ATM acceptance scheme, then we started e-commerce, then we started international markets along with Discover and JCB. Now we are trying our own international connectivity with some of the countries which we are talking about, obviously it will take some more time. But this is the way we will have to go for. Other thing what we have been trying to do is trying to add a lot of merchant alliances. So can RuPay be the preferred partner for some of the merchants so that they are able to give some discounts, some value back to the customer and they start asking, can you use RuPay, so this is what we are trying to do.
We are working with banks as well. Earlier our pricing was fixed fee pricing and now we have tried to convert it to a volume-based pricing so that obviously incentivises the bankers to issue more and more RuPay cards because then they start going on the lower tier of the pricing. So we are trying to work out RuPay and obviously the efforts are on, it will take some more time, but that is a way we will keep doing.
As the digital payment market continues to grow and the estimation is over the next three years Credit Suisse has put out a number of a trillion dollars by 2023. But what would be the big risk that you foresee? When we talk about the banking side, too big to fail is a challenge that not just Indian banks but also globally the financial services sector has to grapple with, what does that mean in terms of digital payments? Is that something that you are going to deal with from a systemic perspective? As far as the banking system stability is concerned we are very well-positioned in my assessment. Whenever the RBI authorises the payment system, we kind of work out a mechanism that the bank failures, the settlement guarantee all are in place, otherwise RBI doesn’t allow us to start the payment system. My question was not on the bank side it was more on the payment providers, on the fintech side?
If you look at it there are two kinds that we see, one is the consumer education and second is the cyber security and we keep investing in both. I don’t see a short answer in either of them. Cyber security, obviously we are trying to learn more and more things, from our expertise standpoint also we are getting better. So NPCI standpoint, we kind of have best-in class tools to keep on protecting the central infrastructure what we have, so might be over provisioning but we keep on investing on cyber security side.
On the consumer education side, NPCI alone cannot do anything. We will have to keep joining hands with the banks, the RBI and the other ecosystem players to keep on investing into this area because one entity can’t cover the landscape we have today.
What kind of investments are being made, especially on security and ensuring that there is enough protection especially since we are talking about digital payments? What kind of money is the ecosystem pumping in towards it?
I do not think NPCI can know about that, but generally we see that if the overall IT spend is 100, the security spends are in the range of 15-20 out of that. I think easily now the security spends for many organisations are about 20-25 percent of the total IT spends. So, that is where we look at the trends are going and I think the investments are going to remain in that region.
Speaking about other possible systemic risks and this is where one is hearing about the possibilities of a market share cap and so on and so forth for fin tech companies, is that something that you believe is the way forward?
I would not like to comment on that because I do not think we have taken a firm decision on that. There is some initial discussion happening, but it is still at that level. We are yet to finalise this and once NPCI finalises that, then we will have to go back to the stakeholders and the regulator to take approval. So, I think it is very early stages.
While it might be early stages, what could be the rationale or some of the issues that you would have to ponder over before coming to that decision?
We have been debating that, what kind of risk we have on the app side, what kind of risk we have on the bank side where the app kind of connects back and I think it is all about having the cyber security risk. We believe that there has to be mitigation, and that is where the multi-bank model that we launched for the UPI, wherein all large players now come through multiple banks. So, I do not think on the app side the restrictions are coming so soon. We are still in the initial discussions and we will see how it goes.
How do you see competition in this space because it is also a hyper competitive space at this point in time? There are many who are already in the market, and there are big boys who are waiting in the wings, waiting for regulatory clearances, what is the status on WhatsApp?
I think it is still under the process right now. It might take some more time.
How do you generally see the competitive landscape and what it could mean in terms of driving this whole ecosystem?
I think all of us keep saying that UPI is a consumer choice. We kind of don’t force a particular app; we say it is a consumer choice. So, today the situation is there might be four apps or five apps which are about 80-85 percent of the total value of UPI. The situation will change tomorrow because once the consumer is on one app, it is very easy for him to download. So, I do not see a major risk of four apps or five apps having 80 percent of UPI.
You do not believe that there will be a stickiness in this market, I mean the first mover advantage is a clear first mover advantage?
Obviously it says that, but with the consumer going digital, the switching cost comes to near zero. So, anybody who is number one, you cannot say that he will remain number one unless he keeps on doing better job and better service. So it is like a race where you have to keep running better than others. The moment you go slow, you are about to lose the numbers.
What are the pain points that the stakeholders are coming to you with, the ecosystem is coming to you with that they want addressed?
Many things. We have a governance mechanism, a steering committee where most of the decisions, except NPCI fees, are taken. The steering committee is made up of banks, non-banks, there are industry bodies like Internet and Mobile Association of India (IMAI). So, all the operational issues in terms of what is that we should do if there are certain number of frauds going up, can we put up a limit on that so that it gets curbed, how do we make consumers aware, how do we look at the new creatives which are going back as a marketing initiative to educate customers. So the operating committee, the steering committee takes a lot of governing decisions as far as the products are concerned, and it is not only for UPI, it is for all. NPCI operates the steering committee for all our products be it Bharat Bill Payment, be it electronic toll collection, everywhere.
There have been questions on whether the representation at NPCI needs to change but is that something that you believe should be considered? Have you heard it recently, that is the question I have. I think the RBI, us and everybody is very clear that – and we fully appreciate the fact that there has to be other players involved in the decision making and that is where you would go back and see, NPCI has transparently displayed on its website that who is the member of the steering committee and you would see enough number of non-banks and industry bodies participating there. So I do not hear this out. What are the two or three big ticket items that you believe from a regulatory perspective, from a policy intervention perspective need to be addressed to ensure that there is no slackening of pace here?
I do not think we require anything from the regulator now. I think with the Nandan Nilekani report and the regulatory decisions, I think we have enough on hand for the execution.
Should there be a separate regulator because there was a debate and battle...
I do not think we need that; we do not need. I think it was some time back, now I do not think it is required. I do not think there can be a better situation for digital payments to scale up further. So now the environment is great, the atmosphere is great, I think all the players have to now take this to the next level. So, these are issues which are behind us.
Since we were talking about incentives and as you pointed out the Nilekani committee has made some recommendations, the regulator has also looked at some. The government is trying to do its part as well. What would you say are the key incentives that may be required to give this a further fillip? The GST for instance, the GST Council has been discussing digital payments for a while now.
I think, obviously the decision is with the government, but I think there should be incentivisation from the government as far as GST is concerned on digital payments especially both to the banks and their customers as well as merchants. I am sure the government will consider this. The whole ecosystem has been asking this back to the government and I think GST has just stabilised now. So, I think now the government should think about it.
That is one of the keys ask, what would the others be?
To be honest, I think we have enough on our plate to execute. I do not think we are now looking at more enablement from that. I think the government and the RBI has done enough in the last two or three years. To be honest they have done their part, now I think the ecosystem has to deliver on their side.
Speaking of the ecosystem delivering what are the trends that you are noticing now, especially in terms of the change value and the transactions that we are seeing, what are the interesting insights that you are picking up on and the adoption of digital payments especially in tier III and tier IV cities?
Definitely an encouraging trend we see is QR code scan and pay. We were very sceptical about it whether it will pick up in a short period because it is consumer behaviour change, right now you are taking out cash/card, whether you will be able to take out phone and scan QR code and pay. But I think thanks to all the start-ups, PhonePe, BharatPe, Paytm, I see a huge growth in that, which is a very encouraging fact.
Do you have all the apps on your phone by the way?
Yes most of them, I keep testing but my preferred app is BHIM.
Talk to us about the new version of BHIM
It is going to be launched in stages and I think the IT minister launched it about a couple of weeks back. So what we are trying to do now is BHIM is going to be an ecosystem app, earlier we had positioned BHIM as a starter app position in that app, so lots of features we deliberately did not position in that app but now what we are trying is we are trying to get more offers, we are trying to get more acquisitions and so in the next 2-3 months’ time you will see BHIM app as good as other ecosystem apps.
So you think that is what held it back and now…
No, because the objective was never for BHIM to compete with other apps, because now all the apps are called BHIM app, there is no single BHIM app. So the initial objective was a starter app but now we have moved further. We now want to drive a lot of innovation on UPI, so now we are seeing BHIM as a vehicle to drive innovation back in the market. To give an example, when we launched IPO, first app which rolled out the IPO was BHIM because we had controls, we could roll faster. We are seeing that can we use BHIM to drive more and more innovation and that is what my team and the government is also looking at.
Give us a glimpse of the kind of innovations we can expect-- you would like to see the ecosystem take forward?
I think you will have to wait.
Give us a sneak-peak?
You wait for that we would like to surprise the market.
How much longer do we have to wait?
Next 3-4 months.
What is the experience been like for you - you have seen the ecosystem grow, you have been pretty much hands-on and responsible, driving at a lot at what happened at UPI and BHIM and RuPay- what has been the big learning for you?
I think it is a great experience for all of us, all the people in NCPI that we are able to make such a big change along with the ecosystem to the citizens of this country and we cannot thank enough the board members, the RBI for giving us this opportunity to serve the country.
When we talk about banks, we started with that and I will end with that and you were on that panel when the SBI Chief Rajnish Kumar said that YONO today is India’s largest fintech company and..?
Yes, and I told that Rajnish Kumar should not be sad about investing in fintech, one is sitting right there. He was very happy.
Exactly, so do you feel that is going to be, the YONO, the SBI digitisation and the innovations that banks are going to drive is going to be the next wave of pushing this?
Absolutely, because the banks are doing three-four things the way I look at it. Banks are also building the market places, if you look at YONO, if you look at the pocket, they are also trying to build market places. Second is they are sitting on a lot of data, so they will leverage this data a lot more - all the lending, other decision making they will do. They are trying to build this whole big data platforms, I think now it is all stabilising. So for the next 2-3 years you will see a lot of cross-sell, value-add for the banks, leveraging the data this payment systems are generating.
You spoke about data and the aspiration for us to go more and more deeply into digital. Do you think the number one priority has to be getting data protection legislation?
Absolutely, I think the whole market is waiting for that and once that law comes, I think the NCPI and other entities will have to tweak their policies to suit that, we have been waiting. We are waiting for the government to bring that in the parliament.
One final question, there was lot of fear for instance, the regulation that the RBI brought in on localisation especially for fintech companies, would that lead to disruption, so on and so forth, hasn’t actually happened, people have been able to make the transition and make the switch, may not have been entirely painless but they may have been able to do that. What is the insight there?
I think most of the entities have now completed, I think there are a couple of entities which are pending, and they should also be done in the next couple of months, so I don’t see major concern on that. Obviously any change and regulator knows this - they put us also through a lot of change, initially that resistance comes up but I think all of us know how to adjust back to the regulations.
I cannot comment on behalf of the RBI but I don’t foresee it.
Do you believe that now there should be some regulatory forbearance and no further disruption on account of regulation?