Policy Radar: Offline payments coming soon via UPI Lite

Asheeta Regidi Head, Fintech Policy at Cashfree.

In the post-Covid-19 world, there has been a gradual shift towards acceptance and usage of digital payment methods as they are quick, easy, and contactless. As the country’s payments ecosystem evolves, Unified Payment Interface (UPI) has become the most widely used payment method. 

To further widen the scope of UPI, multiple steps have been taken by NPCI ever since its launch. Taking another step in the same direction, paving way for wider financial inclusion, the NPCI has decided to bring UPI to feature phones and in areas where there is little or no internet connectivity. 

Let’s hop into our latest edition of Policy Radar where we look at the recent policy updates and regulatory changes for the payments industry and how they impact businesses, merchants and end customers. In this edition, we also share our views on the latest norms for PoS terminals, PPI Interoperability deadline and others.

UPI Lite and UPI 123Pay 

UPI has witnessed phenomenal growth since its launch, clocking in a jump of 97.5% last year alone, and 900% since FY 2018-19.

To further push for its adoption, the RBI and NPCI have introduced 2 new features, targeting the next phase of growth (offline payments and feature phone users).

UPI Lite for offline payments

UPI Lite is UPI’s offline payments feature. It is an on-device wallet similar to any other mobile wallet where customers can load up to ₹ 2,000/- balance.

UPI Lite will allow customers to make small value UPI payments up to ₹ 200/- even offline & without AFA. 

The move is aimed at increasing bank efficiency for exploding UPI volumes, since these transactions will now be processed without utilizing a bank’s core banking system. 

It is worth noting that 75% of retail transactions in India (including cash) are below ₹100, and 50% of all UPI transactions are below ₹50. 

Right now only debit to the UPI Lite balance is permitted offline, i.e., payments you make, credits to the balance (for eg. via refunds) will still be done online. 

UPI 123Pay for feature phone payments

RBI has launched UPI 123Pay to enable India’s 40 crore feature phone users to pay digitally without internet connectivity. This is a crucial step towards financial inclusion.

UPI 123Pay allows feature phone payments via UPI, in 4 different ways:

  • A UPI-app installed on feature phones
  • Making payments, paying bills, etc. via missed calls
  • Internet-free payments by secured calls to IVR numbers
  • Contactless, offline and proximity-based payments using sound waves

It is expected that P2P and P2M money transfers, balance checks, mobile and NETC Fastag recharges, bill payments, LPG gas refill, EMI repayments, etc. will be possible via UPI 123Pay.

As per media reports, more than 37,000 users have already joined 123Pay and 21,833 successful transactions have taken place since its launch in early March.

Earlier, feature phone users could make UPI payments using the shortcode *99# but this was a cumbersome option. 

PoS terminals & QR codes to be geotagged

The RBI has released geotagging norms for payment system touchpoints, i.e., all PoS terminals and QR codes. These include: 

  • Capturing and sharing geographical coordinates (latitude and longitude details) of all devices that accept payments with the RBI.
  • The responsibility to comply with the new framework falls onto the banks and non-bank payments players that deploy these acceptance devices.

The Impact

On Banks and payments industry

  • The is a compliance requirement that applies to all payment touchpoints, be it static QR, dynamic QR, softPoS (app) or any form of hardware PoS (Android/ non-Android/tablet/mPoS, etc.)
  • 2 files with merchant data (merchant type/ ID/address) and payments infrastructure data (terminal type/ ID/address) will need to be submitted regularly, as per timelines that will be prescribed. 
  • Nodal officer details were to be provided to the RBI by March 31st, 2022. 

On Businesses and consumers

  • No impact on businesses accepting payments or for customers making payments. 
  • Data on merchants to be reported, including merchant type, ID, payment aggregator details, contact details, etc.

What more can help us

  • Clarity is needed on how inaccuracy with data will be dealt with, for eg. with static QR codes. 
  • It isn’t clear if location data will be collected while onboarding a merchant or afresh for every single payment made or received. For eg: With softPoS being used for home deliveries, the location data will vary for every payment.

PPI Interoperability to come into force

The RBI issued new norms on interoperability of mobile wallets and prepaid cards (PPIs), the deadline for which has just passed on March 31st, 2022.

From 1st April:

  • M-wallets will get a UPI handle – payments can be made to and from a wallet via UPI rails
  • Prepaid cards will be affiliated with card networks (Mastercard/ Visa/ RuPay) and payments can be made via cards 

Interoperability will greatly increase the scope for UPI wallets, for e.g., you will be able to make any UPI handle to UPI handle payment – from wallet to bank account, bank account to wallet, or wallet to wallet. This applies to all full KYC PPIs.

What more can help us

As per media reports, the industry is seeking clarity on some aspects like interchange fees.

In 2019, MDR on UPI and RuPay transactions was reduced to zero which, while being a merchant-friendly move, leads to a loss of revenue for players in the field. It is unclear if this rule also applies to wallet payments made via UPI. 

Other notable updates

Reserve Bank Innovation Hub

The RBI governor Shaktikanta Das inaugurated RBI’s Innovation Hub (RBIH) in Bangalore on March 24th, providing support to financial innovation via the regulatory sandbox and other means.

RBIH has been set up to act as a centre for exchanging views and knowledge sharing among stakeholders from the BFSI sector, startup ecosystem, regulators, academia, etc. It plans to start with identifying and mentoring startups with maximum potential. 

SEBI hikes UPI limits for investments

SEBI has raised UPI limits allowing investors to block funds for up to ₹ 5 lakh per application for public issue of securities. Earlier, in December 2021, NPCI had raised UPI limits from ₹ 2 lakh to ₹ 5 lakh for investments in the RBI Retail Direct Scheme and UPI-based ASBA IPO application.

DigiSaathi: RBI’s 24×7 helpline

The RBI has launched a dedicated 24×7 helpline for digital payments, accessible via a toll-free number, short code, website and chatbots. 

Targeting consumer protection, it is currently available in Hindi and English and more interactive options and language choices will be enabled in future. 

NPCI deadlines extended for UPI and IMPS

Two NPCI deadlines have been extended until June 30th 2022:

  • For UPI: Extended for Aadhaar and OTP-based onboarding onto UPI (instead of debit cards alone) – this opens access to UPI for people who have Aadhaar but don’t have debit cards.
  • For IMPS: Extended for migrating IMPS systems from the older ISO 8583 to the more flexible XML message specifications – this aims to improve messaging in the ecosystem to make IMPS more scalable and future-ready.
This edition has been assisted by Urmil Shah and edited by Sunny Lamba.

Bibliography:

UPI Lite | UPI 123Pay | PoS Terminals | PPI Interoperability | RBIH | DigiSaathi

Asheeta Regidi Head, Fintech Policy at Cashfree.