In 2016, the Unified Payments Interface (UPI) system launched in India. Its goal was ambitious: a level playing field for small businesses and impoverished communities through re-imagined banking. In the midst of a global pandemic that has forced a socially distant lifestyle, UPI has never been more important nor more successful.
UPI’s Humble Beginnings
UPI’s primary purpose was to become an online platform that would eliminate bureaucratic and socioeconomic barriers to financial transactions. The goal was to allow anybody, from small Kickstarter businesses to multinational banks, to have the same access to banking capabilities.
UPI creates a standard set of rules for everybody on the platform—all Indian banks have access. Thus, smaller banks have equal opportunities to reach people as big ones. This goal is feasible due to UPI’s innovative techniques. With UPI, the party collecting money from an individual is decoupled from that individual’s bank account. This allows third-party apps such as Google Pay, PhonePe and Amazon Pay to collect and administer transactions without excess burden to the customer.
UPI makes things even more consumer-friendly by eliminating the need to enter long bank account and routing numbers for transfers. A virtual payment address, a simple username akin to an email address, replaces detailed information.
Finally, it is important to note that UPI serves a myriad of functions in the financial world. Simple peer-to-peer monetary transactions are carried out seamlessly. Advanced maneuvers are also handled with ease, including merging banking features from different banks, micro pensions and digital insurance.
Since its launch, UPI has seen tremendous growth in both users and the number of transactions. Its user base is strong—recent numbers indicate over 100 million users. Its goal is to reach 500 million users by 2022. While this seems ambitious, early critics of the program did not expect UPI to gain the traction it has already.
The novel coronavirus impacted UPI both positively and negatively. During the worst of the lockdown, UPI’s transaction count decreased. People staying at home lowered demand for the platform’s services. However, since May 2020, UPI has boomed in both the number of transactions and the amount of money transferred. The number of transactions grew by 12% in July 2020, with 1.49 billion in the month of July 2020. UPI saw 822 million transactions in July 2019, indicating exponential growth during the last year. Similarly, the amount of money transferred in July 2020 was up to 2.9 trillion Indian Rupees, while July 2019 saw only 1.46 trillion Rupees.
As of July 2020, UPI reports services at 164 banks across India. With service 24 hours a day, seven days a week, UPI is lengthening its reach and its impact on the financial marketplace of India.
Looking to the Future
Looking forward, COVID-19 has provided a new opportunity for UPI and digital banking in general. India wants to decrease the amount of physical currency in circulation, and the pandemic has shown many people the virtues of online banking. For example, young adults wary of infecting their older parents have helped an older generation get on UPI and utilize everything it has to offer.
UPI’s recent boom focuses back to the platform’s original goal: creating an even playing field for all people, regardless of background or socioeconomic status. In 10 or 20 years, it would not be surprising to see all banking conducted virtually. Therefore, it is crucial to create a solid infrastructure that eliminates a system of preferential treatment based on wealth. UPI is helping to fight that fight.
– Evan Kuo