Digital Economy: RBI Launches UPI-Based Product That Doesn’t Need Internet For Payments: What It Means for India’s Quest for Financial Inclusion

Representative picture. | Photo credit: PTI

Key highlights

  • India’s drive to transition to a cashless economy comes with monumental challenges, some of which the Reserve Bank of India believes can be addressed by expanding UPI to include phone users
  • India’s diverse topology poses serious challenges for Internet service providers and Internet connectivity remains a rare commodity for millions of Indians
  • India’s commitment to UPI has made the country one of the fastest growing financial economies in the world. But the latest announcement by RBI is confirmation that this transformation is far from complete

It is not far-fetched to call India’s Unified Payments Interface (UPI) one of the most significant financial innovations since the country’s independence. The Indians were introduced to the payment system about a decade ago, but actually in 2016 when the country carried out the demonetization, it came to the fore as a legitimate alternative to traditional banking and transaction methods.

And with the emergence of a pandemic, UPI has continued to prove its worth. According to the National Payments Corporation of India (NPCI), which acts as the administrator of UPI, the number of UPI-based transactions and their value tripled in the past fiscal year (2020-21).

In March 2021, the total volume of UPI transactions rose to 2,732 with a value of an incredible 5.04.886 billion rupees. Looking forward, the total volume of transactions and the value in April 2020 was 999.6 million and 1.51.141 Rs, respectively. During the same period, the number of banks that went live with UPI also increased from 153 to 216.

The advances in mobile penetration that India has made have been directly responsible for the increased adoption of UPI. There are now 118 million mobile users in India, according to an October report by TRAI. Although the Jan Dhan program has also enabled greater financial inclusion in the country, the number of bank accounts – around 582 million – is still well below the number of cell phone users.

India’s drive to transition to a cashless economy is riddled with monumental challenges, some of which the Reserve Bank of India believes can be solved by expanding UPI to include phone users. On December 7th, the central bank announced that it would shortly launch a UPI-based payment product aimed at feature phone users to make bulk payments, eliminating the need for an internet connection.

India’s diverse topology poses serious challenges for Internet service providers and Internet connectivity remains a rare commodity for millions of Indians. The new function of RBI is aimed at these people and enables them to carry out transactions smoothly even without internet access.

“In order to further deepen and make digital payments more inclusive, to make transactions easier for consumers, to facilitate greater participation of private customers in various segments of the financial markets and to improve the capacities of service providers, it is proposed to feature (i) UPI-based payment products -Phone users using innovative products from RBI’s regulatory sandbox for retail payments; (ii) simplifying the process flow for low value transactions through an on-device wallet mechanism in UPI applications; and (iii) increase the transaction limit for payments through UPI for the Retail Direct Scheme for investments in G-secs and Initial Public Offering (IPO) applications from Rs 2 lakh to Rs 5 lakh, ”said RBI Governor Shaktikanta Das.

India’s commitment to UPI has made the country one of the fastest growing financial economies in the world. But the latest announcement by RBI is a confirmation that this transformation is far from complete. It is a critical step in building financial inclusion and opening the wide range of financial products that are currently overshadowed to large segments of the population.


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