Page 44 - Edelweiss India Conference 2022 FLIPBOOK

THE NEW EDGE

In December 2019, tech giant Google asked the US Federal Reserve to emulate India’s

a resounding success. UPI was rolled out in April 2016 and had facilitated transactions worth
INR4.2tn through December 2020, a huge number for a primarily cash-inclined country.
Within just four years of its launch, the volume of UPI transactions soared past 200mn.

UPI’s success can be attributed to several factors: ease of use, interoperability, a digital push
by the government and growing adoption of mobile usage. The UPI system set a national
open standard for all banks and technology companies. It also managed to allay any fear
around security by restricting the payment information with the banks. Third-party apps
were allowed to collect debit instructions and pass them on to banks using secure backend
systems created by the NPCI itself.

How UPI Works

Open Instant
Consumer Business Mobile, Internet, Contestable
Digital Wallet, Entry
3rd Party Apps
24/7
PhonePe, Unregulated
GPay, Paytm Fintechs
Low Cost

Interoperable Bank A Bank B
between source Interoperable
of funds Regulated Banks
(Payment Service Providers)

Payment Rail Fintech/Bigtech
Friendly

Settled in

B2B C2C Instant C2B
Payments Payments Remittances Payments
Inside the
Interoperable between source of funds banking system

That said, the key reason for UPI’s success is its interoperability, which allows a user to
send/receive payment from another user on the UPI system. By standardising messaging,
UPI allowed for unbundling of accounts from customer experience, resulting in a large-
scale adoption of third-party apps. Mr. Nandan Nilekani, who had led the creation of
UIDAI (Aadhar), attributes UPI’s success to its high volume, low cost and highly scalable
architecture built on an open-source platform.

42 Edelweiss Securities Limited