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Why peer to peer digital payment system UPI should remain free in India

80 points by pvsukale3 4y ago

2Gkashmiri 4y ago
absolutely. i am a professional who deals with businesses and i have seen how UPI has immensely helped reduce dependency on cash... i use it everyday. right now UPI is mandated to be mobile phone based, it has to keep the registered SIM card at all times, you cannot change your phone, cannot have a single account on muliple places, you dont have account portability but those are all technical issues. Because of an actual recession, the government is finding new ways of collecting taxes, recently they put GST or a tax on paid public toilets. So, everytime you pay to use a paid toilet, you are giving 18% tax on that transaction. That is the level of "tax hounding" the government has resorted to. i fully agree with the author here, i would even suggest, all the private players like google pay/phone pe who have their own apps built on top of UPI network should be made to pay-to-play because they are definitely earning because of cross-selling/upselling/advertising. google/amazon wants to float a new UPI app, heck even trucaller has one so why should they not have an interest free bank deposit to pay for the infrastructure. they would continue to earn by up selling etc anyways and the network would continue to get funds to run.
- bergenty 4y ago
  What happens if you lose your phone? There must be some way to transfer the account right?
  - 2Gkashmiri 4y ago
    nah, its not like that. your "upi address", like "abc@sbi" is tied to that phone/sim card/bank. if you change your phone or use a different app, that "handle" is reserved and not portable. if you change your phone or lost it, just get a duplicate sim card, install a UPI app and get a new address.
    - phanimahesh 4y ago
      The handle is tied not to the device but to the mobile number. If you change your device you reregister on the new device and can continue to use the same handles.
      - 2Gkashmiri 4y ago
        dunno. i changed phones and lost out on a vanity address because "it was already in use"... maybe things have changed ? i am not sure
  - wtmt 4y ago
    UPI is not a money holding account by itself. It’s an identifier for your bank account. You can have multiple identifiers for the same bank account (like email aliases pointing to one mailbox). UPI is primarily available on smartphones through an app. The setup process involves the UPI app (could be bank’s app or a third party app like Google Pay) sending an SMS with a specific code to NPCI (the private consortium operating the UPI service). If you lose your device or uninstall the app or the UPI account is deactivated due to inactivity, you just fire up the app and get it to send the SMS again for authorization.
    - bergenty 4y ago
      How do you validate yourself as the owner of the bank account especially if that validation happens over SMS? Is there a password or pin that is secret? Or do you have to go to the bank website and initiate an SMS send to your new phone? How are very rural people able to navigate all that complexity given how prevalent UPI is at this point?
      - 2Gkashmiri 4y ago
        its like this. your bank account has a phone number linked to it. in normal cases here is the workflow. you install UPI. UPI app sends sms verfiying your mobile. app lists all banks. you select your "bank". you set pin. done.
      - 2Gkashmiri 4y ago
        even illiterate people are able to navigate a cell phone. take for example infants or 1-2 yo kids. they cant read, cant speak but they can open youtube and even reach their favorite video.
      - nmzaheer 4y ago
        It a two factor authentication system. One is your mobile number i.e. the UPI app first verifies whether the number belongs to you and it is being sent from the same device. To do that, it auto sends a encoded SMS to the NPCI server and awaits a response on the same device (no provision to manually enter the response. It has to be auto read by the app). This ensures that nobody else can claim ownership of that mobile number. Having known that you own the number, it allows you to link your bank account to the UPI ID. This mechanism involves again sending a SMS to the bank server to verify whether an account exists that is linked to the mobile number you just proved that you possess. If that is true, then you need to prove that you own the bank account. This is done by asking you to enter your debit card details along with the ATM PIN. If that is successful, then that bank account is linked to the UPI ID you just created. Further, the app now forces you to set a UPI PIN that can/is different from your ATM PIN. Now you can perform UPI transactions with your UPI PIN.
e3bc54b2 4y ago
Good god this is a great article! Starting from TLDR at top, it is well reasoned, well sourced and very detailed. And I agree, UPI should remain free, precisely to allow the vibrant ecosystem and innovation formed around it. Banks nowhere are known to be nice guys, even TFA gives multiple examples when they were dicks until forced down, and its no good idea why they should get paid for UPI transactions when they are already turning out profit from it.
deepakshenoy 4y ago
Thanks very much! I would love to hear your comments. I think UPI is incredible and well loved because it's free - putting a toll on something moving at this insane speed is just going to slow it down tremendously.
- signal11 4y ago
  Hey Deepak, I saw your comments about this on Twitter, and it’s good to see this article as well. Personally I don’t think UPI will ever go to a fully-paid model, but I’d love to know what you think about the potential for a “freemium” model, eg with payment protection or improved anti fraud built in. My sense is that combating fraud/abuse costs money and currently UPI essentially relies on the customer not making mistakes, and if they do get defrauded they have to work the Indian justice system to get their money back — not easy at the best of times. Also about this > Banks earn 50x to 100x more than the cost of UPI/payments in just float income A bunch of banks complained about loss of float income with RTGS & IMPS, is there any information about how they see UPI (which is built on IMPS?) affecting float? (I get that they have a lot of float income, but many Indian banks appear to be very inefficient and that float money is probably being used elsewhere already.) Finally, internet shutdowns — today apparently a huge chunk of transactions are cash-based in India. But UPI’s clearly growing fast — and as it grows further, will the Indian government’s propensity to kill mobile data at the slightest sign of trouble affect people’s perception of UPI, by making it seems less reliable than cash? Or is there hope India will revisit internet shutdowns? Thank you!
  - deepakshenoy 4y ago
    A freemium service can already be built with a payment escrow for anti fraud protection, for willing merchants and customers. Fighting fraud is useful for banks to invest regardless of whether it's UPI or not, I'm not sure if you need separate models for UPI. Request abuse is pretty easy to track i imagine, for any bank or even for npci...and npci has a big profit pool. Indeed internet shutdowns are a problem but i think the state will have to move out of shutdowns as UPI gets popular. You are right, that is a pain.
mandis 4y ago
Is UPI one of the rare times when a government organization has created an innovative technology that works for a scale of 100 Million+ users?
- sg47 4y ago
  That too without a middleman to skim off the top.
- wtmt 4y ago
  NPCI, the organization operating UPI, is owned by public and private banks. It is approved by the Reserve Bank of India (RBI) and is marketed by the government. About two years ago, RBI had concerns about NPCI having a monopoly and wanted more players to create and interoperate similar services, but it canceled that plan (reasons unknown).
hackpert 4y ago
UPI's penetration in (urban and semi-urban anyway) India is honestly incredible. I worked with/on the tech when it was very nascent in 2016 and in 2022, on visiting India after a long time I was stunned to see _everyone_ has a little PayTM QR code card. Vegetable vendors, taxi drivers, roadside hawkers, small business owners. It's brilliant because the system is banking the traditionally unbanked, and generating tremendous amounts of data that can hopefully be put to good use by economists, honestly unlike any other system in the world. Even MPesa in Africa has stupidly high withdrawal and transaction fees, which UPI doesn't need at all.
osrec 4y ago
For anyone looking to get a better handle on the numbers, INR 10 cr is approximately GBP 1 million.
- yumraj 4y ago
  the blog says: 10 lakh crore rupees per month not INR 10 cr 10 lakh crore rupees per month = INR 10,000,000,000,000 which at the current rate of ~INR 79 to $1 comes to $126,582,278,481.00 per month as in $4,219,409,282.00 (over $4 Billion) per day
sudhirj 4y ago
A lakh is 100,000 and a crore is 10 million, or 10,000,000. In India, the next order of magnitude after 10,000 is one lakh (hundred thousand) and a crore is a hundred lakhs (100 x 100,000 or 10M).
- ignoramous 4y ago
  The context is UPI ... has reached volumes of 10 lakh crore rupees per month 1,000,000 * 10,000,000 => 1E13/mo rupees => $125,000,000,000/mo Google, Facebook, Amazon, Walmart are all shareholders in the parent company that runs UPI along with some 19 other Indian banks.
  - MAMAMassakali 4y ago
    UPI is owned by NPCI(National Payments Corporation of India) which in turn is owned 67 share holders. Top 10 share holders are major banks and they hold around 80% shares. Other owners are smaller banks, other non banking financial institutions and Google(GooglePay), Amazon(AmazonPay), Flipkart/Walmart(PhonePe) etc.
spaceman_2020 4y ago
UPI is amazing. And its quickly spreading everywhere. I was on a week long vacation in Goa and literally did not have to use cash even once. Right from local stores to restaurants to kayak rentals, everyone accepts UPI. Not a single transaction failed. Not a single transaction lagged.
MichaelZuo 4y ago
Cmd+F to find ‘liability’ and the word only appears once in the very bottom disclaimer explaining that the author does not accept ‘liability’ for anything written. I guess the topic of who has liability for this financial system, and the cost of that liability, is too unimportant to be worth mentioning? e.g. In case of a breach of personal information, transaction records, etc., who would be held responsible?
- pdrojack 4y ago
  The Bank where you account is.
  - MichaelZuo 4y ago
    So then isn’t it obvious the bank should charge some fees, make some profits, etc., to cover the cost of their liability burden? The article seems to write in a roundabout way such that it gives the impression there’s something special happening, outside of what the default expectation would be.
naruvimama 4y ago
null0pointer 4y ago
UPI doesn't seem to be peer to peer at all.
perryizgr8 4y ago
I was on the fence on this issue, but this article has convinced me that UPI needs to remain free. At least if the goal is a society that relies less on cash.

80 points by pvsukale3 4y ago

absolutely. i am a professional who deals with businesses and i have seen how UPI has immensely helped reduce dependency on cash... i use it everyday. right now UPI is mandated to be mobile phone based, it has to keep the registered SIM card at all times, you cannot change your phone, cannot have a single account on muliple places, you dont have account portability but those are all technical issues. Because of an actual recession, the government is finding new ways of collecting taxes, recently they put GST or a tax on paid public toilets. So, everytime you pay to use a paid toilet, you are giving 18% tax on that transaction. That is the level of "tax hounding" the government has resorted to. i fully agree with the author here, i would even suggest, all the private players like google pay/phone pe who have their own apps built on top of UPI network should be made to pay-to-play because they are definitely earning because of cross-selling/upselling/advertising. google/amazon wants to float a new UPI app, heck even trucaller has one so why should they not have an interest free bank deposit to pay for the infrastructure. they would continue to earn by up selling etc anyways and the network would continue to get funds to run.

bergenty 4y ago
What happens if you lose your phone? There must be some way to transfer the account right?
- 2Gkashmiri 4y ago
  nah, its not like that. your "upi address", like "abc@sbi" is tied to that phone/sim card/bank. if you change your phone or use a different app, that "handle" is reserved and not portable. if you change your phone or lost it, just get a duplicate sim card, install a UPI app and get a new address.
  - phanimahesh 4y ago
    The handle is tied not to the device but to the mobile number. If you change your device you reregister on the new device and can continue to use the same handles.
    - 2Gkashmiri 4y ago
      dunno. i changed phones and lost out on a vanity address because "it was already in use"... maybe things have changed ? i am not sure
- wtmt 4y ago
  UPI is not a money holding account by itself. It’s an identifier for your bank account. You can have multiple identifiers for the same bank account (like email aliases pointing to one mailbox). UPI is primarily available on smartphones through an app. The setup process involves the UPI app (could be bank’s app or a third party app like Google Pay) sending an SMS with a specific code to NPCI (the private consortium operating the UPI service). If you lose your device or uninstall the app or the UPI account is deactivated due to inactivity, you just fire up the app and get it to send the SMS again for authorization.
  - bergenty 4y ago
    How do you validate yourself as the owner of the bank account especially if that validation happens over SMS? Is there a password or pin that is secret? Or do you have to go to the bank website and initiate an SMS send to your new phone? How are very rural people able to navigate all that complexity given how prevalent UPI is at this point?
    - 2Gkashmiri 4y ago
      its like this. your bank account has a phone number linked to it. in normal cases here is the workflow. you install UPI. UPI app sends sms verfiying your mobile. app lists all banks. you select your "bank". you set pin. done.
    - 2Gkashmiri 4y ago
      even illiterate people are able to navigate a cell phone. take for example infants or 1-2 yo kids. they cant read, cant speak but they can open youtube and even reach their favorite video.
    - nmzaheer 4y ago
      It a two factor authentication system. One is your mobile number i.e. the UPI app first verifies whether the number belongs to you and it is being sent from the same device. To do that, it auto sends a encoded SMS to the NPCI server and awaits a response on the same device (no provision to manually enter the response. It has to be auto read by the app). This ensures that nobody else can claim ownership of that mobile number. Having known that you own the number, it allows you to link your bank account to the UPI ID. This mechanism involves again sending a SMS to the bank server to verify whether an account exists that is linked to the mobile number you just proved that you possess. If that is true, then you need to prove that you own the bank account. This is done by asking you to enter your debit card details along with the ATM PIN. If that is successful, then that bank account is linked to the UPI ID you just created. Further, the app now forces you to set a UPI PIN that can/is different from your ATM PIN. Now you can perform UPI transactions with your UPI PIN.

e3bc54b2 4y ago

Good god this is a great article! Starting from TLDR at top, it is well reasoned, well sourced and very detailed. And I agree, UPI should remain free, precisely to allow the vibrant ecosystem and innovation formed around it. Banks nowhere are known to be nice guys, even TFA gives multiple examples when they were dicks until forced down, and its no good idea why they should get paid for UPI transactions when they are already turning out profit from it.

deepakshenoy 4y ago

Thanks very much! I would love to hear your comments. I think UPI is incredible and well loved because it's free - putting a toll on something moving at this insane speed is just going to slow it down tremendously.

signal11 4y ago
Hey Deepak, I saw your comments about this on Twitter, and it’s good to see this article as well. Personally I don’t think UPI will ever go to a fully-paid model, but I’d love to know what you think about the potential for a “freemium” model, eg with payment protection or improved anti fraud built in. My sense is that combating fraud/abuse costs money and currently UPI essentially relies on the customer not making mistakes, and if they do get defrauded they have to work the Indian justice system to get their money back — not easy at the best of times. Also about this > Banks earn 50x to 100x more than the cost of UPI/payments in just float income A bunch of banks complained about loss of float income with RTGS & IMPS, is there any information about how they see UPI (which is built on IMPS?) affecting float? (I get that they have a lot of float income, but many Indian banks appear to be very inefficient and that float money is probably being used elsewhere already.) Finally, internet shutdowns — today apparently a huge chunk of transactions are cash-based in India. But UPI’s clearly growing fast — and as it grows further, will the Indian government’s propensity to kill mobile data at the slightest sign of trouble affect people’s perception of UPI, by making it seems less reliable than cash? Or is there hope India will revisit internet shutdowns? Thank you!
- deepakshenoy 4y ago
  A freemium service can already be built with a payment escrow for anti fraud protection, for willing merchants and customers. Fighting fraud is useful for banks to invest regardless of whether it's UPI or not, I'm not sure if you need separate models for UPI. Request abuse is pretty easy to track i imagine, for any bank or even for npci...and npci has a big profit pool. Indeed internet shutdowns are a problem but i think the state will have to move out of shutdowns as UPI gets popular. You are right, that is a pain.

mandis 4y ago

Is UPI one of the rare times when a government organization has created an innovative technology that works for a scale of 100 Million+ users?

sg47 4y ago
That too without a middleman to skim off the top.
wtmt 4y ago
NPCI, the organization operating UPI, is owned by public and private banks. It is approved by the Reserve Bank of India (RBI) and is marketed by the government. About two years ago, RBI had concerns about NPCI having a monopoly and wanted more players to create and interoperate similar services, but it canceled that plan (reasons unknown).

hackpert 4y ago

UPI's penetration in (urban and semi-urban anyway) India is honestly incredible. I worked with/on the tech when it was very nascent in 2016 and in 2022, on visiting India after a long time I was stunned to see _everyone_ has a little PayTM QR code card. Vegetable vendors, taxi drivers, roadside hawkers, small business owners. It's brilliant because the system is banking the traditionally unbanked, and generating tremendous amounts of data that can hopefully be put to good use by economists, honestly unlike any other system in the world. Even MPesa in Africa has stupidly high withdrawal and transaction fees, which UPI doesn't need at all.

osrec 4y ago

For anyone looking to get a better handle on the numbers, INR 10 cr is approximately GBP 1 million.

yumraj 4y ago
the blog says: 10 lakh crore rupees per month not INR 10 cr 10 lakh crore rupees per month = INR 10,000,000,000,000 which at the current rate of ~INR 79 to $1 comes to $126,582,278,481.00 per month as in $4,219,409,282.00 (over $4 Billion) per day

sudhirj 4y ago

A lakh is 100,000 and a crore is 10 million, or 10,000,000. In India, the next order of magnitude after 10,000 is one lakh (hundred thousand) and a crore is a hundred lakhs (100 x 100,000 or 10M).

ignoramous 4y ago
The context is UPI ... has reached volumes of 10 lakh crore rupees per month 1,000,000 * 10,000,000 => 1E13/mo rupees => $125,000,000,000/mo Google, Facebook, Amazon, Walmart are all shareholders in the parent company that runs UPI along with some 19 other Indian banks.
- MAMAMassakali 4y ago
  UPI is owned by NPCI(National Payments Corporation of India) which in turn is owned 67 share holders. Top 10 share holders are major banks and they hold around 80% shares. Other owners are smaller banks, other non banking financial institutions and Google(GooglePay), Amazon(AmazonPay), Flipkart/Walmart(PhonePe) etc.

spaceman_2020 4y ago

UPI is amazing. And its quickly spreading everywhere. I was on a week long vacation in Goa and literally did not have to use cash even once. Right from local stores to restaurants to kayak rentals, everyone accepts UPI. Not a single transaction failed. Not a single transaction lagged.

MichaelZuo 4y ago

Cmd+F to find ‘liability’ and the word only appears once in the very bottom disclaimer explaining that the author does not accept ‘liability’ for anything written. I guess the topic of who has liability for this financial system, and the cost of that liability, is too unimportant to be worth mentioning? e.g. In case of a breach of personal information, transaction records, etc., who would be held responsible?

pdrojack 4y ago
The Bank where you account is.
- MichaelZuo 4y ago
  So then isn’t it obvious the bank should charge some fees, make some profits, etc., to cover the cost of their liability burden? The article seems to write in a roundabout way such that it gives the impression there’s something special happening, outside of what the default expectation would be.

naruvimama 4y ago

null0pointer 4y ago

UPI doesn't seem to be peer to peer at all.

perryizgr8 4y ago

I was on the fence on this issue, but this article has convinced me that UPI needs to remain free. At least if the goal is a society that relies less on cash.