To clarify, this was not built by the Government of India. This is a common misconception because the entity responsible - the National Payments Corporation of

To clarify, this was not built by the Government of India. This is a common misconception because the entity responsible - the National Payments Corporation of India, sounds like an arm of the government. However, it's actually a private corporation whose shareholders are the main banks. [1] Some of those banks happen to be state owned, however. Also, the government has not and will never give up on Income Tax. Although only an estimated 1.5% of the population pays Income Tax [2], that's still the lion's share of govt revenue. By encouraging digital payments, the govt thinks it will be able to track money better and make people less likely to dodge any tax, whether consumption or income tax. Next, transactions on UPI are free for the time being, as mandated by the govt. But if it becomes successful, the plan is to introduce small fees ($0.01-0.06). It's likely that the customer will pay that fee, rather than the merchant, which is the opposite of what we're used to with card networks. It's possible that this will hurt UPIs popularity for small transactions. But the banks that funded the development and upkeep of this API need to see a return on investment, so they're unlikely to keep it free in perpetuity. One compromise is that the fee will only apply to P2P transactions, rather than point-of-sale transactions [3]. Why did the banks fund this then? Don't banks everywhere jealously guard their APIs and minimise interoperability? It's different in India for a couple of reasons. Firstly, India is heavily regulated. The govt issues many declarations, especially in the banking industry, that are meekly listened to. The govt encouraged the creation of a common API, and it was built. Secondly, the banks themselves want to do it. In India, payment apps are very popular because of the great UX. Most restaurants and many small vendors accept mobile payments through "wallet" apps like PayTM (partly owned by Alibaba). These apps increasingly account for most digital transactions. They're nimble because it's easy to sign up with them - unlike banks they don't need to perform KYC until the user has $200 in his wallet. The banks can see the writing on the wall - either they provide a compelling payment experience or they will be replaced. The next generation of customers might end up opening bank accounts with PayTM instead. Here's the really interesting nugget in all of this though. We have a payment API exposed by all major banks. We're not stuck with only the substandard apps developed by banks, anyone can build one, pending approval by the banking authority (RBI). It's reported in the press that Facebook and Google have both applied for this approval [4], so we could see it integrated with WhatsApp, Messenger and Android in the near (3-9 months) future. If you can pay through WhatsApp, why take out your credit card? [1] - http://www.thehindubusinessline.com/money-and-banking/npci-broadbases-shareholding-base-to-56-banks/article9099863.ece http://www.thehindubusinessline.com/money-and-banking/npci-b... [2] - http://economictimes.indiatimes.com/news/economy/policy/why-income-tax-payers-in-india-are-a-small-and-shrinking-breed/articleshow/56929550.cms http://economictimes.indiatimes.com/news/economy/policy/why-... [3] - http://gadgets.ndtv.com/internet/news/upi-payments-tax-chargeable-india-july-10-1708490 http://gadgets.ndtv.com/internet/news/upi-payments-tax-charg... [4] - http://timesofindia.indiatimes.com/business/india-business/whatsapp-gets-nod-for-upi-payments/articleshow/59537161.cms http://timesofindia.indiatimes.com/business/india-business/w...