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India Launches Digital Payment Solutions for Feature Phones

The country’s central bank, the Reserve Bank of India (RBI), recently announced that it would launch Unified Payment Interface (UPI)-based digital payment solutions for feature phones, eliminating the need for an Internet connection. RBI will also launch an ‘on-device’ wallet in UPI applications, which will simplify the process for small-value transactions. UPI was developed under the Digital India initiative and is run by the RBI. The UPI is a system that powers several bank accounts into a single mobile application (of any participating bank), merging several banking features.

Until now, only smartphone users have been able to use UPI services for payments. India has around 1.2 billion mobile users, and of which only 740 million have smartphones. The UPI service for feature phones, which lack the advanced functionalities of smartphones, is expected to benefit a large number of consumers. A news report by The Indian Express noted that 50% of transactions through UPI were below IN₹200 (US$2.65). Low-value transactions utilise significant system capacity and resources, leading to customer inconvenience because of transaction failures as a result of connectivity issues. The ‘on-device’ wallet will conserve banks’ system resources without any change in the transaction experience.

Further, to encourage the use of UPI by retail investors, RBI also proposed to enhance the transaction limit for payments through UPI for Retail Direct Scheme and Initial Public Offerings (IPO) applications from IN₹200,000 (US$2,645) to IN₹500,000 (US$6,613). As per an official, this is an important step in widening the primary market investor base. Until now, the facility was available mainly to retail investors, who are categorised as those who invest up to US$2,645 in an IPO. By increasing the limit, the market is now open to high-net-worth Individuals (HNIs).

The National Payments Corporation of India (NPCI), the country’s umbrella organisation for retail payments, recently reported that over 7.6 million mandates were created in November compared with just 1.14 million in the preceding month. RBI’s move is expected to further increase these numbers. UPI is currently the single largest retail payment system in the country in terms of volume of transactions. This November, UPI recorded 4.1 billion transactions.

UPI has become a popular payment option for IPOs and the transaction limit in the UPI system was increased from IN₹100,000 (US$1,322) to IN₹200,000 (US$2,645) in March 2020. UPI has passed several significant milestones since its launch in 2016. It crossed a billion transactions for the first time in October 2019, and the next billion came in under a year. Since the start of 2021, the monthly transaction value has grown by close to 79%. The number of transactions, meanwhile, has increased by more than 83% from 2.3 billion in January.

RBI has also proposed to issue a discussion paper, which will cover aspects related to various channels of digital payments such as credit cards, debit cards, prepaid payment instruments (cards and wallets), and UPI. The paper will also seek feedback on issues related to convenience fees and surcharges, and the measures required to make digital transactions affordable to users and economically remunerative to the providers. The paper will be released in a month.

The RBI Governor, Shaktikanta Das, also announced that banks can now infuse capital in their overseas branches and subsidiaries without prior approval of the central bank. Currently, banks seek prior approval of RBI for infusing capital in their overseas branches and subsidiaries. He also proposed to revise the all-in-cost ceiling for new foreign currency ECBs (external commercial borrowings) and TCs (trade credit), from 450 bps to 500 bps and from 250 bps to 300 bps, respectively over the ARRs (alternative reference rate).

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