(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
By Una Galani
HONG KONG, Sept 14 (Reuters Breakingviews) - India is
setting a new global standard in fintech. A new instant online
payments system, tied to national biometric identity data,
launched in recent weeks. Together with an explosion in
smartphone usage, this could help the world's fastest-growing
large economy skip traditional financial infrastructure like
cash machines, debit cards and point-of-sales machines -
speeding up a move to a cashless economy.
The so-called "Unified Payment Interface" is unlike anything
available in China or the United States. It enables secure,
real-time transfers from one person to another, or to a company.
UPI enables individuals and businesses to manage money held
across multiple accounts at various banks through a single
mobile application - and not one that necessarily belongs to the
customer's own bank. Already 29 big lenders have signed up.
UPI has the power to turn every smartphone into a bank. It
enables a user to pay for vegetables at a market stall and
settle dues for goods bought online. It can also facilitate
domestic remittances, allowing users to both send and receive
money from friends and family within the country. The platform
caps single transactions at 100,000 rupees - around $1,500 - but
the limit on the number of transactions a user can make is up to
It is a powerful proposition in a country where smartphones,
on sale for as little as $45, account for almost half of handset
sales and traditional banks have yet to reach the masses. A user
just needs to download any UPI-linked bank app, create a virtual
identity - similar to an email address - and share that with
friends and vendors. To verify a payment request, a simple PIN
number is required - and even that authentication system will
probably soon be replaced by a simple iris scan.
The new payments process could win public trust quickly
because the system does not require a user to share bank account
details with other parties.
India's innovation stands out for two reasons. The first is
that it relies on a national digital identity database called
Aadhaar, which means foundation. This already covers more than 1
billion Indians and allows verification of a person's identity
in real time, providing they give their consent, without relying
on reams of paper. This process is not possible in many other
countries, even the United States, because such schemes are seen
as an infringement of civil liberties or governments closely
guard such information.
The second unique feature is that UPI is not controlled by a
large private enterprise. It is, instead, part of a
not-for-profit organisation championed by the central bank to
facilitate affordable payments and compete against the likes of
Visa and Mastercard. The system is open for almost
any local bank to use.
Authorities are keenly aware that making transactions
simpler and cheaper is fundamental to promoting financial
inclusion, or bringing financial services to the poor. In turn,
this should curb corruption and increase the country's meagre
tax base. Debit and credit card penetration is very low. Cash
still accounts for around 95 percent of consumer payments in
A team of analysts led by Ashish Gupta at Credit Suisse make
bold predictions for how the technology might change the
competitive landscape. They argue persuasively that the cost of
transactions could head towards zero. And access to retail
deposits will no longer depend on a bank's branch network, but
instead on the sophistication of a customer interface, or app.
In other words, big banks can no longer take customers for
There may be other casualties too. It could deal a big blow
to the country's burgeoning mobile wallet companies, for
example. UPI effectively allows a user to transact conveniently
and directly from their bank account, without transferring money
into a separate digital wallet. These regulated entities can
hold or spend no more than around $1,500 per month.
The most prominent wallet operator is Paytm, which has more
than 135 million users. Its parent, One97 Communications
, is valued at about $5 billion and counts China's
e-commerce giant Alibaba and its $60 billion affiliate
Ant Financial as its largest shareholders.
A big head start, other services, incentives like cash-back
programmes, and the sheer size of the available market will
ensure mobile wallets do not disappear from India in the short
term. Further out, though, diversification or new partnerships
may be required. That might help to explain why Paytm founder
Vijay Shekhar Sharma now has a licence to launch a "payment
bank", a small deposit-taking institution, and is investing
significantly in the project.
Global technology companies will also have to adapt. The
government is pushing Apple and Alphabet's
Google to embed Aadhaar authentication technology into devices.
Samsung has already built an iris scanner into a tablet designed
specifically for the country's bureaucrats and technologists.
What is clear is that India is suddenly a testing ground for
financial innovation. IT billionaire Nandan Nilekani, a key
champion of Aadhaar and UPI, compares the infrastructure to GPS,
or the Global Positioning System - an open system built by the
U.S. government that is now used by private companies to provide
services such as mapping.
India has laid the foundation for a financial revolution. It
might even end up lighting the way for other economies to
On Twitter twitter.com/ugalani
- India launched a new payments infrastructure on Aug. 25.
- The United Payments Interface (UPI) lets individuals and
companies send and receive money in real-time. It allows users
to access multiple bank accounts at various institutions through
a single mobile application.
- UPI is part of the National Payments Corp of India (NPCI),
which was set up in 2009 as the umbrella organization for all
- The platform allows money transfers at a scale and level
of "interoperability" that has not been attempted anywhere else
in the world, NPCI Managing Director and Chief Executive A.P.
Hota said in a statement at the time of the launch.
- NPCI is a non-profit organisation that aims to create
infrastructure, resting on large scale and high volumes, that
results in low-cost payment services.
- On Sept. 12, NPCI announced that it had broadened its
shareholder base from 10 banks to 56 banks. Shareholders of NPCI
are not entitled to dividends on their investments.
- For previous columns by the author, Reuters customers can
(Editing by Quentin Webb and Katrina Hamlin)