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Driving digital payments across MSMEs through UPI Interoperability

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The digital payment ecosystem in India is evolving, with stakeholders resolving individual use-cases to widen access to financial products and services.

Driving digital payments across MSMEs through UPI Interoperability
How do you pay for your groceries, electricity bill, or meals today? Perhaps, you used to withdraw cash to make payments before the pandemic. But now, you probably juggle with multiple UPI IDs every day, depending on which store you're at. If so, you are not alone. UPI grew by 200 percent in the last five years and processed over four billion transactions in October '21 alone.
The digital payment ecosystem in India is evolving, with stakeholders resolving individual use-cases to widen access to financial products and services. One such recent example is, paving the way for the Interoperability of UPI IDs using a unified 8 to 10 digit number.
The National Payment Corporation of India has issued the pilot for 'Numeric UPI ID mapper' to enable UPI numbers. In other words, every UPI user can generate a UPI Number – 8-10 numeric code digits – that can be used across all payment platforms. The pilot will likely strengthen India's mobile payment user base and enable merchants to accept the digital payment ecosystem easily.
Ease-of-payments
UPI has been at the heart of India's digital payment revolution, witnessing over four billion transactions in November alone. However, much of the digital payment revolution was consumer-centric, leaving merchants to deal with many challenges with e-payments.
One of the major pain points was maintaining individual UPI IDs on every mobile wallet. Despite signing up on dozens of mobile platforms, most merchants found it challenging to facilitate digital payments because they weren't using the same app as their customers. That resulted in merchants losing a significant portion of their consumer base and eventually losing their confidence in digital payments.
The UPI Interoperability will enable millions of small business owners to offer easy, convenient, and instant payment options – all using a single UPI number. They also won't need multiple QR codes to accept payments.
On the other hand, Users won't have to remember different UPI IDs. They might as well use their phone numbers as a UPI number. This will allow existing users to adopt UPI as their primary payment method and open the door for new users who've been shying away from using digital payments because of minor inconveniences. Moreover, a single UPI number will allow small business merchants to streamline their payments digitally.
Streamlining last-mile digital payments
The success of the digital payment ecosystem depends on all the stakeholders involved. For merchants, it means simplifying operations and driving cost-efficient infrastructure to grow. However, most merchants spend a great deal of time gathering digital payments history under one umbrella – sometimes, they even lose track of a transaction. Hence, more often than not, merchants are unable to leverage the payment ecosystem in driving sales.
Millions of merchants will be able to streamline their operations by accepting payments from different apps on a unique UPI ID and further developing a sustainable relationship with their customers. The new payment innovations coupled with UPI Interoperability will also enable merchants to offer a range of bundled payment capabilities, including loyalty programs, low-cost EMIs, and much more.
The best part about the announcement is that it came when the Reserve Bank of India proposed UPI-based payment products for feature phone users. Along with UPI Interoperability, UPI-based payment products for feature phones can facilitate financial inclusion and bring people living at remote locations onboard.
Imagine the disruption that could happen if every mobile phone user – be it a smartphone or feature phone – starts using UPI as one of their payment methods to pay to millions of small merchants. It will revolutionize last-mile retail transactions and facilitate deeper penetration of digital payments across MSMEs.
Soon enough, the myriad of UPI IDs in and around us will turn redundant as convenience in the form of the user's mobile number or any preferred number will reign over. This not only removes the hassle of juggling multiple IDs but will shape a brand new form for direct payments, disbursements, cashbacks and more powerful credit in the coming years.
It will also set an example for other developing and under-developed countries looking to revolutionize payment infrastructure. That day isn't far when people in tier 2 and tier 3 cities will also use UPI as their preferred payment mode.
The author, Pratik Daudkhane, is Co-founder at Decentro
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