'Can I GPay you?' ... I finally get to experience UPI, here's my take on why it works and what makes it different

I left India in 2009, and then lived and worked in different parts of the world as a banker. ‘Payments’ started to become a fascination for me as I ventured into HSBC’s Payments business back in 2014. I’d just moved from Hong Kong to take on a new role in New York.

During a business trip, as I got out of the taxi at the Philadelphia airport I realised that I didn’t have enough cash on me. The driver however suggested that I could pay the fare by card and then flashed a neat little white device.

It was the first time that I saw Square’s credit card reader, an innovative solution to help anyone accept a card payment. This new device that enabled card payments in transactions like 'a cab ride' started to transform the way consumers paid in the US, and in-turn helped reduce the dependence on cash. The taxi experience of course then went into top gear with the entry of Uber, where-in the payment just happened in the background as passengers stepped in and out of the cab.

Another memory I have of the time is going to a bar in New York with some friends. When we finished, one of my friends who paid the check (bill) asked the rest of us to just Venmo him our share. For a moment, I was confused by what he meant (adding to the confusion was the fact that my friends call me ‘vinmoh’) but soon enough my friends educated me about this wonderful P2P (peer to peer) wallet that made transactions such as these unbelievably simple.

These innovations, I observed, were building blocks of a transformational shift happening in our world powered by the growth of the internet, smartphones, and the app store. A new digital ecosystem was kicking into action, super-charged by the likes of Amazon, Uber, Airbnb and PayPal, with ‘payments’ as a key driver in enabling the commerce layer. As a consumer, these new experiences were a real thrill and my foray into payments from a work standpoint couldn’t have come at a better time. I started to become a passionate participant in this (previously not as sexy) world of payments.

While all of this played out in the US, the payments scene in Asia took its own turn. My home country, India, was at the forefront of developments with the unveiling of the now much-acclaimed ‘India stack’; driven by the introduction of Aadhar or Unique ID for every Indian, then eKYC (or paperless KYC) and then the launch of the Unified Payments Interface / UPI (or India’s real time payments system) in 2016.

As everyone raved about the ‘India stack’, as an Indian citizen located abroad, I could only watch the story unfold from afar. I still didn’t have easy access to UPI (you needed an India phone number to be linked to your India bank account to use UPI.. although the RBI now intends to change this).????

Last month I decided to take a career break and moved back to India from the UK. One of the things I was excited about, was to finally get my hands dirty with the ‘India stack’ and UPI in particular (almost a kid in a candy store moment for me). After landing in India, I didn’t have to wait long.

On day 1, when I went to a neighbourhood pharmacy to pick up some medicines, the store operator pointed at a QR code sticker expecting me to pay with GPay (GPay or Google Pay is one among several prominent UPI apps in India. GPay has become the de facto verb for UPI payments where I currently reside, however I’m told that other apps e.g., PhonePe, Paytm have won the UPI verb war in other parts of the country).

As I didn’t have a UPI app setup yet, I asked him if I could pay by card instead. He shook his head and mentioned that he got rid of his credit card machine (electronic point-of-sale terminal) a while back. Cards weren’t as relevant anymore as UPI is used by everyone. It is also free and instantaneous as opposed to accepting a card payment where you’d have to pay a fee (linked to merchant discount rate) on transactions and yet not receive the money rightaway (card networks can be notorious for their long-ish payment settlement cycles, i.e. when they release the money to the merchant, which again varies from country to country). The only other option left for me was to pay by cash, so I slowly made my way to the ATM (cash machine) to withdraw money and pay for the medicines.

In that moment it was loud and clear to me, I needed UPI to survive here.

Setting myself up on UPI became my immediate priority. I got myself a local phone number and linked my India bank account to it. I will not get into the nuances of using non-resident bank accounts (here) but suffice to say I was up and running in a matter of minutes. I was ready to enter this new world and making payments at stores, petrol pumps (gas stations), or even to friends became a breeze. All you do is just scan the QR code (or look up the phone number / UPI handle of whoever you want to pay), enter the payment amount (unless it’s a dynamic QR code) and pin and then hit pay.

Having now been back in India for almost a month, I can see how the ‘India stack’ is transforming the country.

• Everyone has an Aadhar (so much so that it is hard to operate without one), and this unique identity has in-turn made a previously cumbersome or impossible KYC process (due to lack of verifiable credentials across significant chunks of our population) near instantaneous.
• This has facilitated mass opening of bank accounts (India was a highly unbanked country a decade or so back) as well as access to other utilities like phone numbers, insurance and investment products.
• The availability of smartphones (where-in Android still reigns supreme in India) and super cheap broadband (thanks to Reliance Jio) is bringing the India (India 2, India 3 as some call it) that was left behind, slowly into the mainstream.
• What was a highly cash oriented, offline, and informal economy is slowly turning digital, with UPI being a key accelerator. Transactions across the value chain (e.g., supplier to a small retail store to end consumer) have become simpler, and QR codes are now near ubiquitous be it at roadside tea shops or fancy coffee chains, neighbourhood kirana / retail stores or shopping malls.

Digitisation can help level the playing field.

As an every-day consumer I often compare it with my payment experiences abroad, and there are some areas where UPI definitely stands out

• UPI is truly interoperable; no matter what UPI app (of which there are many, banks and fintechs providers included), bank account (c. 450 banks are live on UPI as of today) or mobile carrier you use, you can transfer money to anybody else in India instantaneously, fee-free, and hassle-free using UPI. In the US, by comparison, you can’t pay from a Venmo wallet to a CashApp wallet (heck you can’t even pay from Venmo to PayPal, in-spite of both wallets being owned by the same company). Even in China, as I understand, Alipay and WeChat Pay were walled gardens for the longest time and while they have now started to talk to each other the experience isn’t entirely frictionless.
• UPI has wide ranging use-cases and is easy to use; it works equally well when you pay to purchase something (i.e., P2M or person to merchant) or to pay someone (i.e., P2P or peer to peer), and both as a push (where the payer scans the payee's static or dynamic QR code) or as a pull (payer accepts a request for payment on the UPI app from the payee) payment. For comparison, while the UK was one of the earliest countries to launch a real-time payments system (Faster Payments) and a very effective one at that, there still isn’t a ubiquitous easy-to-use P2P channel. Splitting a bill and paying someone after a night out can sometimes be as painful as the hangover, you need to get their sort code and account number to set up a Faster Payment (unless you are both on Revolut or a similar neo banking app). With UPI, you open your UPI app (any of several available in the market), look up your contact list for your friend’s phone number and send them money instantaneously.
• UPI has democratised commerce; like what the Square white reader did in the US, but going way beyond, UPI has made everyone a merchant. Any-one (including individual service providers like carpenters, plumbers, cleaners) can now seamlessly accept an electronic payment without the need for a card machine or sharing their bank account details.

Now that product-market-fit and scale has been achieved, much like the playbook of a successful product startup, the focus is on innovation and enhancements to fill gaps, solve for edge cases, and further expand utility and usage.

• Necessity is the mother of invention, goes the saying. With UPI and QR codes becoming the prevalent form of payment, tracking payments from consumers especially in shops and commercial establishments with high footfall became an issue for owners and operators (as the payment is initiated or confirmed by the payer / consumer). Noticing this gap, Paytm came up with a sound box that announces every payment the instant it hits the store’s account (and before the consumer walks away). This feature is available in multiple local languages and has become a revenue stream and an additional branding opportunity for payment companies.
• While smart phone and broadband penetration has significantly grown in the country, there are still many people who use feature phones (non smartphones) or have limited internet coverage. To make UPI accessible to them, the 'UPI 123PAY' service was launched so payments can be made utilising interactive voice response systems, missed calls, proximity sound-based payments etc.

UPI has proven a great alternative to cash and debit cards, but it isn’t yet a substitute for credit based payments. Credit cards have very low penetration in India (<10% of Indians own a credit card). While historically UPI payments were only allowed from funds in your bank account or from debit cards, RuPay (a domestic alternative to Visa and Mastercard) credit cards were allowed to be linked to your UPI app last year. And now the Reserve Bank of India (RBI) and the National Payments Corporation Of India (NPCI) is going a step further with pre-approved credit limits to be allowed as a payment funding source.

What has worked in UPI’s favour is a forward thinking approach and strong public - private partnership. While it is an open payments network operated and regulated by a public body, it is enabled for the end-user via bank accounts and interface apps provided by both public and private players.

Coming back to Day 1, after leaving the pharmacy I walked to a tea shop. After finishing my cup of tea, I opened my (physical) wallet to hand the shop owner a 20 Rupee (INR) note. He frowned, indicated that he didn’t have cash on him and then said to me,

‘Can I GPay you the change?’

I hope you enjoyed reading this, please do share your thoughts and insights. In case of any factual inaccuracies, kindly let me know.

For anyone interested in a deep dive on the India Stack, the original vision and execution playbook, I'd recommend the following podcast:

‘Return on India' - Interview with Nandan Nilekani (ex Chairman, Aadhar)