UPI Benefits for the Indian Banking Ecosystem
Unified Payment Integration can bring a lot of benefits to the Indian banking ecosystem. It will allow different banks to access the same platform, hence minimizing a lot of barriers. This will result in better usability for customers, shorter waiting times, better functioning apps and security, etc. So here are a few benefits of UPI to the Indian Banking Ecosystem.
Due to the UPI platform bringing the entire Indian banking ecosystem together, interoperability will take place. All payment system players will have access to each other and the barriers between closed systems with be lifted. Hence, the simplicity arbitrage with be removed. A single or two factor authentications will be enabled, making sure that all payment apps are secure. This will force wallet players to look at ecosystem plays.
A big dilemma for banks is that the cost per transaction remains high. This is true for even low value transactions. There is also no room for error as banks are shamed when transactions fail. However, with UPI, this can cease to be a problem. Its launch will encourage low cost and high volumes of payments. With a new ecosystem that all banks will adopt, the cost per transaction will inevitably go down. Since every bank will share the same platform, the difference in transaction costs will be streamlined.
Reduction of Merchant Acquisition Costs
Due to the unified payments platform, merchant acquisition costs will significantly go down. This is simply due to the leveraging of the system. No longer will merchants need to purchase and install point of sale equipment. Instead, merchants can simply install apps on smartphones and continue selling.
This will be a game changer for merchants that can’t afford large equipment or expenses. Hence, UPIs will allow for the merchant acquisition costs to be low enough to accommodate most merchants. This wide net of merchants will benefit everyone from the 1% to the common middle class worker.
Serving a Wider Audience
UPIs will allow individuals to operate their businesses in a seamless way. This is a big leap for an economy like India. It will allow many more people to launch their businesses. Thus, the entry barriers for startups and new businesses will come down.
Convergence on a Common Platform
All the key stakeholders, including the consumer, the merchant and the bank will operate at a single platform. Hence, it will allow for cross pollination of ideas, services, apps, etc. It will cause different systems and services to be combined. This way, banks will be able to offer better discounts, services, prizes, points, etc.
Perhaps, the most important benefit that UPI will give to the Indian banking ecosystem is that it will foster innovation. It’s a platform that will shift the banking sector into the future. Much like how the arrival of the iOS and Android operating systems brought forth a new chapter in smartphones. Before that, Nokia was king, but they lagged in terms of their Symbian Operating System. Within a few years, Nokia didn’t have even a fraction of their peak market share. Today, Samsung, Apple, Huawei, and a few other minor players dominate.
Convenience and Ease of Use
As mentioned above, the simplification of online banking due to UPI will improve the banking sector. This will allow for digital wallet services like Paytm, MobiKwik and others like NEFT to unify. Moreover, you can simply enter your details for getting a billing request on your phone.
The same will go for all types of paid app subscriptions like Uber, Ola, Zomato, Food Panda, etc. Grocery options like Big Basket will be available to the UPI system as well. All types of companies will be able to register their identifiers with the UPI system to receive money from customers.
Remittance Transfers Made Easier
The National Payments Corporation of India has been working with different countries to improve remittances transfers through UPI. The countries on this list include the UAE, and Singapore. Companies like Google, Facebook, and Xiaomi have also entered the UPI payments space as of late. This will allow millions of NRIs around the world to send in remittances with greater ease.
Western Union has also enabled real-time global transfers through their own system, thereby resulting in over 200 countries to be connected to India financially.
At this moment, the challenge is to get the merchants in those countries onboard. With the involvement of major players like Facebook and Google, however, this will prove much easier.
UPI also only requires one payment address instead of two like IMPS and NEFT. UPI also offers a much better experience of receiving funds in the mobile application rather than banking apps.
Over 1 billion transactions have taken place through the UPI system in India. This entails that the popularity of UPI could surpass that of cards within a few years, perhaps sooner. This has made UPI one of the world’s most promising financial systems.
The UPI will open up a platform that will allow for better applications and services. Due to the wide reach of UPI, banks will be able to experiment with huge volumes of data. Most banks will more than likely roll out new apps and authentication mechanisms, etc.