#upiplatform challenges fintech digitalpayments banks

[qual2quantconsulting-blog]

Challenges of UPI platform in India

UPI Platform:

The introduction of UPI has revolutionized the way transactions are done, paving way for a cashless economy in India. It has been welcomed by a lot of merchants, ranging from established departmental stores to street food vendors such that it there was a time when it was perceived that there would be no possibilities for the latter taking up such ventures in accepting payments. Now we can see a lot of merchants jumping into the bandwagon along with banks collaborating with payment portals to join the UPI race. Factors such as the increase in the usage of smart phones along with the govt initiatives fueled the same. However, it was taken up with seriousness after demonetization, during 2018 which made a lot of people and merchants use digital payments extensively. Also, UPI offers immense opportunities to the fintech, Banks and ecosystem players.

Growing cases of transaction failure:

While there has been a massive 700% rise in UPI’s value of transaction, which is currently at 800 million transactions on March 2019; there has also been a 2% fall in the total volume of payments, seen during early 2019, which was at 3.6%, a year ago. Despite having its transaction success score of 85% in 2019, the declined

People perceive UPI payments to be a revolution in technology, despite having its own disadvantages. This is because after demonetization a lot of leading Indian banks could not cope up with the pace of digital adopting, which is currently slowing down UPI payments. Majorly, on-going challenges are with the bank server management and connectivity. There has been instance where money gets deducted but takes time to reflect on user accounts, causing delays. Also, there has also been a moment where the UPI portal will malfunction when it tries connecting itself with bank servers, which is also a significant reason for users to moving away from such UPI Apps.

It is estimated that the over 15 million UPI transactions were failed in March-April 2019; and the average value of transaction was at $25 during the same period. A significant share of it has failed due to server-side challenges.

Technology challenges can be addressed in three ways:

Cloud migration would also be a cost-effective initiative as Banks now can cut-down on their on-going operational expenditure.

Bringing Datacentre close to the user groups could be possible solution to address this on-going challenge.

Also, adding a layer of analytics within Bank’s UPI to understand the on-going transaction trends in real-time to understand customer demographics would address the on-going disadvantages with server management

Speaking about UPI for Fintech enterprises, there is a serious debate between the ownership of customers. Experts clarify that for bill payments and recharges, payment platforms have a relationship with customers, but the settlement part is claimed by the banks, thus it’s a mix of both as there are multiple service providers to make a successful transaction. For example, Yes Bank got into a partnership with PhonPe; similarly, SBI, HDFC bank and ICICI bank have partnered with Google Pay. By doing so banks are able to restrict payments instead of allowing payments to go into an insulated wallet ecosystem.

Analyst comment:

UPI has already surpassed many global digital payment service providers with huge adoption rates. However, there are certain on-going challenges affecting the ecosystem, majorly due to the technological disadvantage of Banks to support digital payments. However, UPI 2.0, has already been launched in 2019, which is likely to address some of the connectivity & technology problems as well as it will open up huge opportunity for banks, Fintech, payment ecosystem players and technology companies. Also, In the next 2 years Indian Banking and non-banking players are likely to partner with fintech startups.