March 24, 2023

In just six years, UPI has become the most popular online transaction method for Indians. Last month, the world’s second-largest internet market conducted more than 6.57 billion transactions using mobile electronic payment systems. Now, it’s taking steps to accelerate its growth.

The payments network, built by a consortium of banks, is India’s attempt to challenge credit card companies on the open market, bring hundreds of millions of people into digital payments and curb the spread of corruption.

“UPI usage increased by 427% between March 2020 and August 2022,” RBI Governor Shaktikanta Das said at a meeting on Tuesday afternoon.

He said the central bank was working to expand UPI to “several countries in Asia, the Middle East and other parts of the world” and was setting up an international subsidiary.

“UPI has become a national pride…I think India can play a major leadership role in the world in the days to come. It’s an amazing product, but as it expands, we need to be very mindful of its infrastructure, ‘ he added.

On Tuesday, Das said UPI’s two new products — one that expands its use cases and the other that will help it continue to expand — have gone live.

A lightweight version of the payment system called UPI Lite is now in use in the country with eight banks including HDFC, SBI and Kotak, he said. UPI Lite, first proposed earlier this year to process payments under 200 Indian rupees ($2.50), was designed to ease the burden on banking infrastructure, executives said at a meeting on Tuesday.

Despite the rapid growth of UPI, its success rate still faces some challenges. UPI Lite is designed to work in a near-offline mode, and seems to handle settlement slightly differently than its full-blown counterpart. “You will receive a daily text message from your card issuer about your UPI LITE transaction, which includes a history of transactions made during the day,” the FAQ explains.

UPI Lite creates a virtual on-device wallet that can hold up to $25. About 50% of UPI transactions are worth less than $2.50. “UPI Lite will provide users with a convenient solution for faster and simpler small-value transactions,” said the National Payments Corporation of India, the special unit of the central bank that oversees UPI.

The central bank is also moving forward with plans to link UPI to credit cards.

Das said Indian banks will be the first to issue Rupay credit cards linked to UPI. By adding support for UPI on top of credit cards, the central bank is trying to further expand the adoption of the new payment system, giving customers “more opportunities” to use credit cards and build credit ratings, executives said.

“This is likely to increase credit card penetration and expand the reach of digital payments in India, positively impacting credit card companies such as SBI Cards and fintech platforms such as Paytm,” Goldman analysts wrote of the move.

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