Tech Tonic | The gaps in India’s digital payments ecosystem need plugging - Hindustan Times

Tech Tonic | The gaps in India’s digital payments ecosystem need plugging

By | Edited by Anish Yande
Apr 26, 2024 12:17 AM IST

All indicators point to India’s growing appetite to spend. A trend is visible in sales data and markets. But recurring payments on UPI need urgent fixing.

There is little doubt that Indians are spending more than ever before. All indicators point in that direction, and a few days ago, a report caught my attention. What they’re saving at the end of the month, seems to be a secondary consideration. Good cue then, to talk about no so bright side of India’s digital payments ecosystem. It shouldn’t be this way, but crucial links in this payments chain, are crumbling. Interestingly enough, and that’s something I’ll illustrate, there was rational logic for those policies. Yet, gaps in implementation and sluggishness in responding to ground realities, are why we are where we are. Someone needs to step in at some point.

According to the National Payments Corporation of India (NPCI), Indians clocked 11,761 crore UPI transactions in 2023(Mint file) PREMIUM
According to the National Payments Corporation of India (NPCI), Indians clocked 11,761 crore UPI transactions in 2023(Mint file)

Think about it – if these speed breakers are ironed out, it’ll only serve to speed up India’s appetite to spend. The report I refer to is the Annual Payments Report FY'24 by Indian digital payments solutions company, Razorpay. Here’s a quick snapshot. Payments for air travel bookings spiked 2.4x between March 2023 and April 2024. Of course, travel accommodation expenditure saw a 29% spike too. Multiplex transactions are up 42%, spending on dieticians is up by 125%, and insurance payments are up 56% too. These are just some examples.

I do wonder at this point, are Indians beginning to adopt a lifestyle of credit? As is the lifestyle choice in a few other countries. The Reserve Bank of India (RBI) data points to as many as 10 crore outstanding credit cards in the country at the end of February this year. Since they are active, most must be used for regular transactions. That’s 21% more than at the same juncture, last year. Mind you, that’s in parallel with the rapid growth of UPI, or the unified payments interface, which continues to see month after month.

The other side to this credit lifestyle coin is how you perceive deals, discounts and cashback. Often a question we collectively ponder over, regular cues include the big Amazon and Flipkart sales that come around more than once a year.

Online and offline payments are mostly fine. According to the National Payments Corporation of India (NPCI), Indians clocked 11,761 crore UPI transactions in 2023, which is up 59% from the year before. That’s a mix of online and point-of-sale (POS) transactions. All looks positive, doesn’t it?

Chances are that you, as have many of us, struggled with regular payments to foreign merchants. Even small ticket transactions, such as Netflix subscriptions, adding money to Apple App Store wallet or YouTube Premium subscriptions. Recurring payments, if the merchant you are paying to is a global player, are in a state of chaos. When this idea was mooted, the noble cause it set out with was to ease opting out of subscriptions that often had you jumping through hoops to find an exit. That was a reality, we mustn’t forget. Therefore, any recurring payment below 5,000 needed a consent-gaining notification to be sent to the customer at least 24 hours before the automatic transaction. For larger amounts, a password was an added layer of consent. Appreciated.

What has happened since has been — and I’ll list some examples — the complete opposite. You cannot use your credit card or debit card for subscriptions and recurring payments on the Apple App Store or the Google Play Store, be it for any app or service. Netflix struggles from time to time with credit cards (the trick is to swap another card’s details when that happens, but not everyone may have multiple cards). Google’s subscriptions such as YouTube Premium and Google One struggle to authenticate any card transaction, even though the option is there. Dropbox subscriptions don’t go through seamlessly, and neither do donations you may have been making for years.

This is not only making things inconvenient for consumers but there will also be a long-term impact on businesses that rely on subscription revenue (particularly small businesses and start-ups). I have decided to forego a few subscriptions because navigating payment methods is tedious. Google One, for example. You may have too. Or use wallets and vouchers, where possible.

Then there was a pursuit of getting RuPay credit cards aboard the UPI or unified payments interface. In theory, a big push for RuPay, a financial service platform from the NPCI, is thought of as a competition to global credit card players such as Mastercard and Visa. I believe the bigger and often ignored advantage of allowing a RuPay credit card on UPI, is to shield your bank account from regular transactions. The payment chain is secure for the most part, but there is always that element of risk with a savings account.

That hasn’t worked out as planned. The reason is simple. UPI transactions from a bank account are free of any processing fee for merchants accepting UPI payments. That’s a big reason why QR codes are everywhere to be seen – vegetable vendors, departmental stores, retail outlets, fuel pumps, and even school fee counters. However, a UPI transaction made using a RuPay credit card attracts a charge called MDR, or merchant discount rate, which is essentially a processing fee that the card issuer levies on the merchant for that transaction. Currently, a charge of around 2% is levied on RuPay UPI transactions – this is shared between the card network and the issuing bank.

That has led to many merchants disabling RuPay cards as a method for UPI transactions made to them (they’ve become used to UPI being free, thus far). You may have seen enough advertisements during the ongoing IPL 2024 cricket tournament about leaving the wallet at home because a RuPay credit card on UPI would suffice. The ground reality is very different. Think about it – try making a UPI payment using a RuPay card on the UIDAI website to order a new PVC-type Aadhaar card for yourself. Or a PAN card reprint on the UTITSL website. Neither will accept RuPay cards on UPI, but bank account UPI works seamlessly.

Credit cards, usually used for bigger ticket transactions, translate into a higher MDR amount.

The RBI could do well to tackle acceptance issues, but for now, their focus is on mandating all credit card issuing banks in India to offer new and existing credit card users the choice of choosing between card networks (that is, Mastercard, Visa and RuPay). Right now, when you apply for a new credit card or renew one, there is little choice of selecting the network, though there are some examples indicating a change – HDFC Bank’s Tata Neu co-branded cards offer a choice between Visa and RuPay variants, for instance.

A few weeks ago, Mastercard and Visa (at least applicable in the US for now) agreed to cut a small part of the transaction fee they collect from merchants. Those exact specifics may not work in the case of RuPay and UPI, but it may be a path worth considering.

Vishal Mathur is the technology editor for the Hindustan Times. Tech Tonic is a weekly column that looks at the impact of personal technology on the way we live, and vice-versa. The views expressed are personal.

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