RBI to have on-device wallets in UPI apps for small-ticket transactions

RBI proposed an "on-device" wallet in UPI apps aiming to conserve banking systems' resources without changing the transaction experience for the user.

As half the transactions on  the Unified Payments Interface (UPI) platform are of small value, the Reserve Bank of India (RBI) has sought to enable them through an “on-device” wallet in UPI applications. This will help reduce stress on the banking system and make the transaction process even simpler.

The RBI has also said it will launch UPI-based digital payment solutions for feature phone users, who are in excess of 440 million. These users have limited access to innovative payment methods and the existing ones have failed to pick up.

According to the RBI, 50 per cent transactions through UPI are below Rs 200 and these low-value transactions utilise significant system capacity and resources of the banking system. At times, it leads to customer inconvenience due to transaction failures.

“It is, therefore, proposed to offer a simpler process flow by enabling small-value transactions through an “on-device” wallet in the UPI app, which will conserve banks’ system resources, without any change in the transaction experience for the user,” the RBI said.

Sources said the wallet feature will be for transactions worth Rs 200 or less because the main objective is not to clutter the banking system for such micro transactions. The amount consumers can put in the wallet will be capped to around Rs 2,000. Also, micro transactions are driving the cash usage, so the objective is also to bring these transactions on the UPI platform.

Dilip Asbe, chief executive officer (CEO), National Payments Corporation of India (NPCI), the umbrella organisation for retail digital payments, said on Twitter, “Low or micro-ticket offline transactions are the only way to scale to a billion a day payment volume. It will provide superior user experience (faster checkout), and we shall ensure it is seamless and easy to onboard.”

“Perhaps, it will be a prepaid payment instrument and UPI will be used to put money into the wallet, which can also work in the offline mode,” said Naveen Surya, chairman, Fintech Convergence Council. 

Many payment players like Paytm, PhonePe and Mobikwik, among others, have their own wallets but experts feel the UPI wallet will not impact the existing players. 

“The wallet business was running on cashback or a special discount format so that business anyway got impacted when customers started using UPI directly for their transactions. The existing wallets will not be impacted so much because the intent of the UPI wallet is to reduce the number of transactions that are going through UPI beyond a particular threshold,” said Jaikrishnan G, Partner, financial services consulting, Grant Thornton Bharat.

As far as UPI-based payments for feature phones are concerned, experts said RBI’s plans will bring them into the mainstream digital payments. 

As many innovators have come up with solutions for feature phone payments under regulatory sandbox for retail payments, RBI will use those solutions to facilitate UPI-based digital payment solutions on feature phones.

“It is a gamechanger of sorts for the common man in India who can now be eligible for other financial services such as Buy Now Pay Later, digital insurance and small-ticket loans as well,” said Bipin Preet Singh, MD, co-founder, and CEO, MobiKwik.