RBI widens scope for digital money usage, increases UPI limits and ropes in feature phone users

Asia's Tech News Daily

#banking, #RBI, G-secs, UPI-based payment product, IPO applications, RBI Regulatory Sandbox, UPI

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The Reserve Bank of India (RBI) announced three key measures on Wednesday to make the Unified Payments Interface (UPI) transactions more efficient.

First, the transaction limit for payments through UPI for the Retail Direct Scheme for investment in G-secs and Initial Public Offering (IPO) is enhanced to Rs 5 lakh, up from Rs 2 lakh allowed presently. Second, a UPI-based payment product for feature phone users is set to be rolled out. And third, the simplification of process flow for small-value transactions over UPI. All these measures are aimed at nudging people more towards using digital money transfer through UPI.

Increase in UPI transaction limit for specified categories

The RBI has been making efforts to facilitate greater participation of retail customers in financial markets through the recent launch of Retail Direct Scheme. Now, UPI can also be used to make payments for participating in both the primary and secondary markets. Over time, UPI has also become a popular payment option for IPOs since its availability from January 2019. The transaction limit for payments through UPI for the Retail Direct Scheme and IPO applications is increased from Rs 2 lakh to Rs 5 lakh. According to the reports, IPO applications of Rs 2 lakh to Rs 5 lakh make up approximately 10 percent of subscription applications.

“The simplicity and security of UPI transactions is leading to higher adoption, and the RBI is doing its bit to support this by facilitating its use while investing in the Retail Direct Scheme and IPO applications. The move reduces barriers to investing, and is expected to encourage better participation in such schemes,” says Adhil Shetty, CEO of BankBazaar.

Also read: RBI’s Retail Direct platform for g-secs: Many positives, but still not enticing enough for retail investors

UPI for feature phone users

According to the Telecom Regulatory Authority of India (TRAI), as of October 2021, India has a mobile phone consumer base of about 118 crore. Around 74 crore (Statista, July 2021) have smart phones, indicating that there are large numbers of feature phone users in the country. At present, feature phone users have limited access to innovative payment products. To deepen financial penetration, RBI feels it is important to bring feature phone users into mainstream digital payments. So, today, RBI proposed a UPI-based payment product for feature phone users.

“Enabling UPI on feature phones will increase digital penetration of financial services and help a large segment of people without access to smart phones or reliable internet services to transact digitally,” says Shetty. He adds that there is a need for a simplified process flow, especially for low-value transactions, to reduce transaction failures due to connectivity issues. This could help in much wider adoption of UPI as the de facto cash alternative.

In the first cohort of RBI Regulatory Sandbox, some innovators had successfully demonstrated their solutions for feature phone payments, under the theme of ‘Retail Payments’. These products, coupled with other complimentary solutions, will facilitate UPI-based digital payment solutions on feature phones to promote wider digitization.

Simplification of process flow for small value transactions over UPI

UPI is now the single largest retail payment system in the country in terms of volume of transactions: 14 crore transactions per day in October 2021. One of the initial objectives of UPI was to replace cash for low-value transactions. Transaction data analysis shows that 50 percent of the transactions through UPI were below Rs 200. These low-value transactions, however, utilise significant system capacity and resources, leading to customer inconvenience because of transaction failures as a result of connectivity problems. So, RBI has proposed a simpler process flow by enabling small-value transactions through an “on-device” wallet in UPI app that will conserve banks’ system resources, with no change in the transaction experience for the user.

Finally, RBI will release a discussion paper on various charges in the payment system.

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