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UPI-Bade Bade Deshon Mein Aisi Choti Choti Baatein...Hoti Rehti Hai

Episode Description

Nothing like a spot of nostalgic DDLJ to get you all warm and fuzzy. And if you ever think nobody cares whether you're alive, try missing a couple of payments. India has made the world of digital payments look like “choti baatein” (translates to "no big deal really") but did you know that in FY 2021 alone, we recorded 44 BN digital payments worth Rs. 5554 crores. Ab yeh mat puchna crore mein kitne zero hote hain 😎. Digital payments has democratized finance like never before – har shahar, har gaon, har mauhale mein UPI ne logon ki zindagi badal di hai (UPI has changed lives of Indians in every city, village, and locality). The India stack is the backbone that supports and drives this digital payment transformation. Our episode decodes how India has evolved from a country with a large unbanked population to the world leader in real-time payments. As always, looking forward to your feedback. Do record or write in to tell us what you think of the show.

Transcript

Hi, I am Samiran! Hi, I am Nilesh Hi, I am Sheetal and you are listening to 3TBs. 3 Techies Banter.

Hi I am Sheetal, welcome to 3TB, a podcast where 3 techies Banter, it is a podcast where you can explore tech in a non-tech way. It is about how tech and the economics behind tech impacts us today and in future, it is full of information, it has fun facts, paradoxes, it has jokes, little stories about the consumer and about the economy and it is full of common sense, spoken in a language we all understand which is non-jargonistic English. Thank you for listening to us. Today, is this conversation is in continuation to our previous podcast which is On the India Stag, in the last podcast if you have not heard, you should go back and listen we started talking about the fact that this time we are going to dedicate our entire month to something we are all very proud of called India Stag. India Stag has 3 layers and previous podcast we spoke about the 1st layer which is digital identity and Aadhar and today we are going to speak about second layer which is Digital Payments. Why is it that we have picked up India’s Stag, I think we have covered a lot of it last time, so I am only going to focus on Digital Payments today and why is it that it is so critical, that we understand Digital Payments. So, I don’t know if you are aware of it but 40% of payments by value today are digital, which means it is about 3 trillion Dollar Market, 2 out of 5 transactions today are digital and by 2026 we are expecting 2 out of every 3 transactions are going to be digital and the market opportunity is 10 trillion dollars. This digital payment wave is absolutely dominating Tier1 and Tier2 city but next wave which is going to be even larger it is Tier 3 to 6 and we believe that 60-70% of new mobile payment customers are going to come from these Tiers. Just to put slight perspective, why I am talking so much and why the speech on digital so important, its only as late as 1987 that HSBC open its first ATM in the country, I know all of us are use to NFT and IMPS but it was only in 2005 where NFT was introduced to the country and then at the same time it was Oxygen wallet which came into being. Think about it you had 150million people in early 2000s who were talking about using Debit cards and credit cards, and suddenly over the last decade and I am talking about 2010 to 2020 which is often term as decade of payments, that we have seen the digital payment sky rocket, in last 2 decades digital payment has grown up 160x at that speed. When we talk about digital payment, we actually include everything debit cards, credit card to UPI, national electronic toll collection system to PPI which is Prepaid Instruments and it is really fascinating the way this country has taken to digital payment, we were cash dominating country and suddenly the vision of being nearly cashless economy seems so possible. Let me tell you all of this is not going to be possible without the stag and handover to Samiran kind of bring the sense of how Stag is critical for us to arrive this space in Digital Payments.

Thanks Sheetal. Nothing is more confidence boosting than having active listener and while we were talking my talk sneak into the room and lying next to me so if there is nothing so there is one listener now.

Before we just go, will give you quick perspective that how far we have come, as far as History goes somewhere in 10s century the Chinese actually had Bank Note and they realise Barter will not work and they start, Europe get in 17th century and it went for long time till we have Telegraph that is when Money order and money use to transfer. Next inflation point is the really the birth of Internet, that’s when people started thinking rather than looking at website we can actually buy and sell stuff, so how do you buy and sell there use to be vehicles for payments and all. Lot is evolved and we can be extremely proud of ourself because lot of stuff happened in west, in the last 10yrs we have to find better word for leaping as we have leap faster than a frog.

So maybe we need to find the Kangaroo.

Absolutely, I remember watched the movie John Carter he goes from Earth to Mars and he can really jump long distance that is what we are doing with technology now. Infact we have moved so far ahead, infact in February there was an article of Beggar called Raju Patel, he actually begging arms and using QR code, you can scan and give him money, he is accepting cash also, apparently banks now asked him to get Aadhar Card and PAN he has actually linked it and got an account in SBI, where he is depositing his begging proceeds and if you read the other side of septum if you been any of the temples donation box have QR code, lot of the initial digital payments cash and all they were allowing you to gift, cash coupons to Siddhivinayak Temple so it started gaining attraction, not try to trivialised it that is the level of adoption and I think there have been several triggers and obviously demon has one of it, good or bad it has pushed people into digitalisation. Sheetal, as you rightly said we have reached certain plateau in terms of Tier1,2, next wave is definitely going to be 3 to 6, infact RBI think it is so important that have actually constructed and there is digital payment index, if you look at the Index from 2018 to now, Index have grown 3-4times, that is the penetration of the payments, and as we wrap up this section we kind of talk about payments. Going back to my favourite topic of Beggar, my hypothesis for very long time is Begging in Bombay is actually a transferable Job because I have seen same beggar near Siddhivinayak temple and have seen them at Nariman Point also, apparently, they are rotated around everybody gets equal opportunity and this is also true of Nariyal wala, I have seen below Nirmal towers and I saw him next near Bombay Stock exchange, so I don’t know if Digital payments can do anything there.

Before we end this section, since our topic is on numbers and talking about India Stag truly, it has leap kangaroo, all other nations, I want to talk TPS (Transaction Per second) and if you look at it purely from transaction per second, UPI is doing 10,000 transaction per second but the interesting thing here to note is that unlike typical respond which is one you respond something and you get something, in case of UPI it is a complex interface, there are atleast 8 request respond that happens because there is multi party, things that will go to your bank then acquiring from issuing, so all this backend requires 7-8 request respond, so UPI is doing somewhere between 50,000-70,000 TPS so when we say leap kangaroo it really mind bulging, master card, VISA, in late 1960-70s and today they are 30,000 TPS space and UPI already doing 60,000-70,000.

So Nilesh, one thing is what is the mystery around this Ubiquities of this QR code as the method of Payment because I have seen Indian Beggars but I have also seen Chinese beggars they have this QR code card which you scan it, but what is the deal with it, is it easy, safe.

The biggest thing is Samiran, when I was with Master card and we use to talk with Banks from network perspective you are ok because you are middle party as you are not issuer or acquire, the toughest job is acquiring, so the acquisition of merchant is the toughest job and in India on 4 front of acquiring HDFC and ICICI. Why acquiring is difficult because you are supposed to take care of whole process, signing up of merchant, there is risk involved because the service or a product has to be delivered by the Merchant.

Correct, there is to be tons or huge documentation you need to sign.

Exactly, documentation and then you have to care of cost also, most of the time you will see it is so difficult in acquiring part that many other banks rides on the rail of HDFC and ICICI, so it becomes easier since they have already penetrated as they have their own tie-up. So coming to why this QR code is Ubiquities this was a fantastic idea and this was coming from NPCR QR based payment, Visa was also close to Master card, when it come close to QR code even this guys wanted. But the fact is it is the cheapest mechanism of acquiring Merchant, you can sign the merchant left, right, centre, if I am not mistaken, we are already at 250 million merchants, I mean if you talk to Master in Visa this is mind bugling number, so that is the small answer to it that QR code is the easy way of Merchant acquiring.

That is really interesting. So, when we come back in the next session we will talk about payments.

Welcome back to the segment and Nilesh was talking about the fact that QR code is the easiest way to acquire merchants and that is what making it happen and just to add it, did you know that there were 186million transactions in November 2021 alone. So I am assuming that lot of this is thanks to the basic work that has been done in the Indian Stag which is digital identity stuff which helps us to acquire merchant and help us to bring more and more people on platform. What I really want to talk is something that is getting attention globally and that is Rupay, especially given the fact that war happening between Ukraine and Russia and the fact that lot of Banks and companies have refused to accept the swift code for Russia which have made it difficult for that country, there is lot of conversation around how each of the country needs to become independent and need to have its own system, allow it to operate without getting paralysis if an issue like this come out and there is of course a piece bit where Russia is doing own bit and own system which are going to threaten some point of time, the US dollar has a base currency rate. What do you think and how do you think Nilesh, is Rupay going to play a role in helping us becoming independent in this space?

Before I touch upon Rupay let me give you little bit of background about this whole architecture itself which helps out the Rupay part better, so essentially we talked about scale, I think what we have to give the credit to initial architect, the whole NPCI and UI was happening roughly around the same time, and the brilliant mind were working at it, initially what I read up is initially when NPI thought of and this whole Rupay system was envisage, RBI took the 1st step to talk with all the bankers the Indian Banking Association and RBI invited them in such a co-hosted network which is what Master card and Visa is but the vision was always non-profit, so these banks came together and funded it and it was not profit organisation what we see today as NPCI, so the Rupay network was conceptualise with that single focus of how do we make payments digital as well as how we keep it extremely low cost and one of the thing that was driving it was China has already started their own network called as China Union Pay which is now Union Pay International which was earlier called as CUPs, so it was very important for India also to demonstrate it the leadership. So, under the AGs of RBI this whole thing started and I think fantastic work have been done. So, the Rupay network if you see initially when it started hardly people ended up taking Master or Visa card, no one is taking Rupay card, but in the last decade it has gone 160 xs so it is the last decade where people have actually Rupay cards have penetrated in the market. Now with the network in the state and coming to the architecture quickly it was designed for scale, the reason why it is important the open source we will touch upon later in the section, is the cost of transaction, the moment you start deploying oracle or industry strength data basis you are talking about License fee it has to be open source and the vision of Artitech right from start one can read Dilip taking about it he was the CTO now CEO of NPCI the idea was to keep the transaction cost extremely low, so it is a open source stag and now it is tested, it has completely stood of time and we are doing mind bulging number of transaction. I recently heard Dilip has been talking they are going to do something in the industry called Active- Active deployment, today also there is a backup but the level is 4-9s it is essentially 99.9%, so the aim is the mandate of the GOVT and the RBI and regulator is that it has to be like an utility, with this background think about the Rupay been something that may possibly replace it. So swift is something which is that kind of resilient system and it comes under the AGs and BI, in last section we will talk about some of the Globalisation things that NPCI is trying to do, so Rupay is one such resilient network.

So that is very interesting, as you mention about the fact that just like the Aadhar stag this was also constructed as a payment backbone one of the public infrastructure things but at the same time it was open, and if listener look up it is the testimony to the whatever we have put out there, what is the architecture the thinking, ease of deployment, the Rupay system is either already interface or is been reused in the some form or other country like Singapore, Bhutan, UAE, Nepal, Barman and all, so what started as the national network alternative is payment may be someone felt Master card, Visa is difficult to go the last mile, and this is actually gaining attraction and as you mention quite accidently it is standing in very good state, in whole time of crisis globally, we don’t want to debate the good and bad of Russia vs Ukraine but we can say that we don’t want to be the mercy of an International system and allow that to dictate the other policy so we remain self-sufficient. In fact, today’s paper actually has an article which says how India and Russia are planning to kind of ensure that their payment systems work together. There is a much larger issue really of the relevance of Swift and all of that but I think what we have done is created a very - very credible system which is up and running and works. If others are taking it, copying it, using it, nothing better than that to show that you are doing great. So, Samiran that is an interesting point, the fact that we’ve built a platform which works really well nationally, that's been accepted internationally, is likely to become parallel and will keep us in good stead. The question that I always have is and Nilesh this is as a come back to what you were mentioning, the fact that we wanted to keep this at low cost and the fact that currently the way it is designed, there is no service charge to it unlike a Mastercard or a Visa or Amex, they don't have a service charge associated to it. Whereas when we look at the whole NPCI Rupay piece, there is no service charge to it. Now from a sustainability point of view because for a business to sustain itself and grow and to upgrade etc money is required. Do you think we’ve built checks and balances against this or do you think that this is going to be one of those problems that we are going to face sometime in the future and I am just hoping we don't leave the customer hanging out there to try?

It's a very hotly debated topic across the world actually. It has happened right from just to give you a background, most of the countries when they started debit/credit card, both had the service charge or transaction fee every swipe. First one to go actually was debit so debit card many countries have had debit cards at zero and that is why you will see many of the Indian vendors will also say ke debit card de dijye aap credit se zyada because credit still has a MDR. Now to your question, the mandate by the RBI and government was always that it has to be almost 0 MDR and low cost and hence I talked about the open-source tax. So, hats off to these guys that they have created a system which is extremely, keeps cost in check but is it sustainable or not. See, MDR is 0 on Rupay. The fact of matter is, if you look at the universe of payments you have P to P which is Person to Person, then you have P to M which is Person to Merchant. Then you have obviously P to G and G to P which is Government to Person and Person to Government. In this whole system, in these 4-5 kinds of payments actually P to M is the only one where you can make money in some shape or form. P to P you cannot charge, if i am sending you money you cannot charge me a transaction fee. Government benefits are any benefits, who will you charge, the beneficiary or the giver so the only way for the sustenance of the network is P to M and that is where the merchant discount rate (MDR) comes into picture. So, if MDR is 0 this system honestly has, how do you fund this system? You have so many servers, in active states, how do you sustain it? So that part when I hear some of the NPCI seniors talk today is that there is some amount of lobbying going on that lets us charge a small MDR. That is honestly meant to plough back into the ecosystem itself; it will still not be a not-for-profit system. So, the short answer to your question is, personally i don't think 0 MDR will be there forever and ever, there will be a very small MDR, a very small percentage unlike a Visa and Master which will help sustain or the other thing which can help sustain the system, we can talk about the future of payment in the last section which will be B2B. so that is an interesting thing we can talk about. In the current universe on P to M (Person to Merchant) where you can make some money.

So, it's interesting, I understand even a low percentage but look at the numbers we are talking about. In absolute rupee terms it could result in a lot of inflow of cash to be able to sustain the system but now at one level we have this one thing where P to M is happening and I think it's picking up and gaining speed and traction but there is this whole brew ha around BNPL. now here something where you don't have anything which is a charge and then you have BNPL and BNPL in a system where, i don't know if there are enough checks and balances to say whether the creditworthiness of a person has been evaluated unlike a credit card where your creditworthiness is evaluated even before you are issued a credit card. When you don't have that, will the two combine and Samiran this question is to you. Will the two combines be a disaster?

This is my favourite topic and I think it is a load of crap frankly, this whole BNP. I think I understand the logic that it is used to improve the penetration of credit in the market which is a very easy way to, so earlier banks did it formally but now you have Ola doing it, Amazon doing it and everyone has a BNPL off late. In fact, the latest entry into the latest market is Apple. So, Apple is going to be using BNPL and I don't know whether they will go with Goldman Sachs or not but that's a big thing. So, I understand that part that you are extending credit to the consumer and all but frankly this to me sounds like a Ponzi scheme because there are really no checks and balances and it is really out of formal regulation. So that is always something that worries me. If there is nothing to check then people do strange things and without naming vendors and all, I know and I have tried to make a payment and it has forcefully converted into a BNPL without my knowledge, without any checks and balances so it is extremely dangerous. While the intent is good, it is very bad and number 2 is i think to just to tie up to this whole MDR conversation, so UPI is now going to start allowing BNPL on the UPI network which means essentially you are going to allow credit card payments on the UPI network which kind of sharply brings into focus this whole conversation about who is going to pay because till the time it was just money moving back and forth it was real money, here you are moving credit which means there is risk, there is default and if there is no charge then we are actually putting the whole system at risk. So BNPL is definitely a space which needs to be carefully watched and tread with care in my view.

So, of all the examples you gave me I thought Apple was the safest bet if you are going to afford to pay the amount of money you pay for an Apple phone.

Absolutely. Apple is the best because they know you’re paying pattern; they know you pay so nobody is worried about Apple. We are worried about the….

OLAs of the world. I agree with you there. So, i was reading this story and i think it fits really well with the buy now and pay later and everything else that you have spoken about where really what is the value you money. You said there is a value of money and I just think it is one of those clearing mechanisms. Here’s the story for you, so there is this small town right and it has gone through tough times like covid and things like that and everyone is partially in debt. Most of them are living on credit and things like that. So, this rich bloke walks into this town and enters the only hotel in the town, it's a small town so it has one hotel and he puts a $100 bill at the counter and he tells the owner of the hotel that he wants to check out the rooms and see which one i like and all of that. So the owner is thrilled and he is also debt ridden so he says yes and sends the guy off and in the meantime he takes this $100 bill quickly and he goes and pays to the butcher to whom he owes the money. Then the butcher quickly takes the $100 and pays it to the pig raiser who in turn pays the feed and fuel supplier who in turn, being a woman i shouldn't be saying this but it’s a story so i am going to say it, he pays it to the town’s prostitute. The prostitute has been using the hotel rooms to service her clients, she comes back and puts the $100 bill on the hotel counter. So it's just travelled this whole bit, this entire system has happened and this rich bloke comes down and sees the $100 bill and he looks at owner, picks up the $100 bill and says, you know what i am not interested in staying here, i don't find a single room with my way. That is what I mean when I say, no one earned anything honestly.

This is like Kanizen economics explained in a genesis. This is the whole world of economics in one.

And that is so interesting because no one’s really earned anything, everyone has become debt free because that same $100 bill has been earned to pay off the debt and all the $100 bill was a clearing mechanism which is what payments may become in the future. I just thought this was an interesting story to take us into the next section. We will take a short break, come back in the next section on this light note of a fantastic economics story.

Hi everyone, welcome back to this last section. Here we are going to talk a little bit about the future, we are going to talk about some of the things we did in the past that might hurt us in the future and try to wrap this up with some kind of an opinion, perspective and some kind of deep thinking. I think one of the things which has very very clearly emerged is to make these payments a vehicle of the future, to make it sustainable you need to kind of give it the means to survive and history has taught us that the only way anything can survive if this is kind of turned to it which is essentially the B2M market or essentially on the larger B2B payments infrastructure which if your company start using it in a large scale. Which is where MDR starts making sense, fees start making sense and all of that and we may even need even further enhanced digital infrastructure to make this work. So that is one part of it. I think the other thing we will focus on, we will kind of come to you on that. The other part we will also touch upon is that while we are trying to be cautious, while we are trying to implement great things, I think one of the things that kind of have been, giving all of us a bloody nose is this whole issue of mandates. How it's broken, I won’t say broken the back off but it’s been an infinite cause of convenience to N number of people and everyone will identify with that with every subscription payment that has failed and stuff like that so i think we will touch upon those 2 things. So, Nilesh, over to you and where do you think is the next logical step for payments to go now? Maybe in India, maybe internationally, whichever.

So, you touched upon a very important aspect which is B2B payments. So I can just very quickly take an example - while I was with Mastercard, Mastercard bought a company in the UK called Vocal ink. It's a highly profitable company and it's a great acquisition for Mastercard. What vocal ink does, one of their biggest chunks is actually B2B payments and that was like missing in their rapatua which was B2B payments and that is why Mastercard failed in this buyout. So B2B payments are definitely one of the things for the future. Second thing I will touch upon, so in my mind I look at 4 kinds of access on which I see NPCI providing multiple X kinds of growth. So first is B2B payments which are still very nascent. The second thing I will pick is E-rupee and why E-rupee is interesting is, what I love about it and we love are web 3 and decentralized space so this E-rupee is completely a learning from D5, decentralized finance. So, E-rupee is essentially a token, will it be blockchain based, will it have smart contracts but the fact is E-rupee is going to be a token a purpose based token, why i say it's important is that the benefits program will get galvanized because of this. So, you are literally going to provide a token which is purpose built, let's say benefits for a particular end user. So now you are suddenly talking of decentralized finance which will make, no one can, pilferage will go out and multiple aspects, the whole cost of money which is extremely high, all of that goes out with E-rupee. So, E-rupee is fantastic. I think the E–rupee is still, not a couple of years but it is 2-5 years away but that is something NPCI is working on. The 3rd thing that NPCI, which is already happening, is globalization. So, i was not even fully aware but Singapore, so for us today we have this whole UPI payments where we walk in, you have that QR code, you have an interoperable UPI handle actually, you are not really tied with any system per say, you can use the system you want and merchant can be on any other system. Essentially accounts are behind the interface and you are on that globally also. I mean, who wants to think of this whole currency conversion, dynamic currency conversion and all that. So, the RBI very rightly and government decided to have a separate entity called NPCI international because there are still mandates to be implemented in India. These are the things that NPCI still needs to do so NPCI internationally is a separate company. Work has happened in Singapore, that part I was not aware that you can actually in Singapore you can do UPI payments, I am yet to experience it honestly but the idea is that this would be the entity which would take payments or rather NPCI and UPI global. This was the third future part of it. The fourth future part is actually which is going to give and since you talked of mandate, it is going to give the biggest growth. So, Dilip Asbe says it is 10x opportunity is auto pay. Auto pay in UPI is essentially mandates and today that number is a minuscule 5 million if I am not mistaken. So, what he said was 10x is a given, 50 million. So if we were to do this whole auto pay and mandates on UPI that is going to be the next thing that we are working on again in 2-5 years, kind of a time horizon. Again, this is 4 things we will see coming in from NPCI.

So just leading from these mandates, I was reading this article which says that in the same period, assuming rule 50-60%, this whole subscription on digital grew 150-200% and that is essentially auto pay and mandates and below 5,000 you can't and above 5,000 you need an access. So maybe there is an element of security and all of that but I think what it has essentially done is, if you notice a lot of businesses in the last 2-3 years have been built on the back of the subscription model, nobody likes to pay upfront. You and I, nobody signs a check upfront. We are very happy with a Sony Liv subscription which is monthly, and Netflix which is monthly. Even amazon has a monthly subscription if you are buying some supply and you have kind of really broken the back of that so i think this is still a question of debate and it may get sorted. But there are many real life back breaking experiences you might have had.

So I have many such examples, my tryst with Apple pay, my continuing tryst with LinkedIn, all those continue but what you were saying triggered off the cynical side of me. Which says maybe the government is doing this on purpose by refusing to do our credit cards and ultimately agreed to do UPI and mandates, i am sorry. This is a sinister thought that was playing in my head. When Nilesh was talking about it i was thinking this is exactly what he did when he wanted us to go digital, he did demonetization, then he wanted us to do something else and he did something else. This is exactly that to my mind. I am sorry I am very cynical and this is the sinister view I have. This is my conspiracy theory on this one.

You are right on this one, if Visa and Mastercard get wiped out then Rupay credit cards will come in. world domination of Rupay.

This is my 2 bits on the conspiracy theory, really because I mean why have you wiped out my credit cards? Because if it's ultimately going to become the biggest growth engine for UPI which it mandates, then this is just to break our habits and to now reinstall a new habit in our system which I think is fascinating. If this conspiracy proves to be right, only time will tell. But on that note on conspiracy, I was actually going to end it in a jam. What I am not going to talk about but I am going to talk about the bread butter which the government gave us a while back, not to too many people but to quite a few. The jam theory is for another episode and on this conspiracy theory if you really like the way we think and provoke you to think then do continue to share our episodes every banter of ours continues to be like this. Make sure you do follow this show because you will keep hearing these interesting stories. Samiran's not given us a paradox this time, I think we will have something else next time and if you are following us, you will know we are on all major podcast platforms. If you are on an apple podcast, please leave us a rating and a review. Always always both motivates us and helps us grow. So, until the next time we will see you, rather listen to you. Do write to us. Bye for now.