Introduction to Mainstream Payment Methods in Southeast Asia - India: Native Wake India

Editor's Note: Payment methods are unique to different countries and regions depending on their geography and human environment. What are the unique features of payment methods in India? Which payment methods are more popular in the region? The author of this article introduces the mainstream payment methods in India in detail, let's explore together.

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As the world's fifth-largest economy and the second-largest country in South Asia by area, India has a huge population, which means that its domestic payments are varied.

Since 2010, the Government of India has promoted the Aadhaar identification system, similar to the Citizen Identification System (CIS), which has greatly facilitated citizens' access to banks and financial institutions and enabled the rapid opening of basic financial accounts.

In 2011, nearly 100 million people opened accounts for basic payment transactions. Since then, the Indian government has promoted policies such as "Digital Transactions", "Ban on Large Cash Transactions" and "Reduction in Payment Gateway Fees", and since 2015, e-payments in India have been booming. Since 2015, e-payments have flourished in India, giving rise to a variety of digital transactions.

As per international practice, let us introduce the current mainstream payment methods in India and related infrastructure knowledge.

Paragraph 2: Basic knowledge

PSP: Payment Service Provider

BHIM: An e-wallet provided by NPCI that integrates a variety of unified payment products to support users in offline transactions (similar to traditional domestic telephone booking debit services).

BharatQR: QR code-based payment method for cash collection

UPI: Unified Payment Interface, a unified payment method based on Aadhaar's KYC capabilities that provides a unified payment portal for accounts.

Rupay: A card clearing organisation similar to Visa and MasterCard.

NEFT: The National Electronic Funds Transfer System, also known as the Retail Payment Clearing System, provides settlement services for small amounts of money.

NFS: National Financial Swift, which provides interbank network funds settlement services.

RTGS: Real Time Gross Settlement (RTGS), which provides settlement of large sums of money on weekdays.

IMPS: Instant Payment Service, requires IFSC parameters to transfer money between bank accounts.

NPCI: National Payments Corporation of India (NPCI), the country's national payments authority, focuses on providing unified payment solutions to drive the growth of digital payments in India.UPI, IMPS and BharatQR are among its products.

Aadhaar: India's identity agency, the Chinese equivalent of the Public Security Bureau's identity authentication service platform, is closely linked to Indian government agencies, utility payment platforms and financial trading platforms.

Paragraph 3: Digital payment methods (introduction to mainstream online payment methods)

E-wallet: supports users to make and receive payments via UPI codes.

Internet banking: online bank transfer payment operations, support users to transfer money across banks.

BBPS (Bill Payment System of India) Payments: the national integrated bill payment system that provides easy utility bill payments to the public through the network of national clearing organisations.

UPI Payment: A unified payment account system provided by national payment institutions that integrates the payment channels of most domestic banks and third-party payment platforms. It adopts the VPA (Virtual Payment Account) model to bind users' bank and third-party virtual accounts, supporting multi-bank and third-party account binding and fund payment operations.

BharatQR: Fixed QR code collection model, an aggregated collection code provided by NPCI. The code also integrates with most of the banking and UPI collection channels to support consumers scanning and making payments to the recipient's bank or UPI account using various banking and UPI apps, and supports only the individual-to-merchant (cardholders and UPI holders) funds transfer model.

Paragraph 4: Payment institutions (payment service providers)

The major payment institutions in India are categorised into the following three types:

Non-Bank Payment Institutions (NBPIs): third-party payment platforms with payment licences, notably Paytm (backed by Alibaba technology and equity), PhonePe, Mobikwik, freecharge, Flipkart and others.

National Payment Institutions: the National Payments Corporation, which has launched BharatQR, UPI and IMPS, which are unified payment service platforms, and BHIM, the national e-wallet that aggregates these products.

Bank Payment Institutions: Includes many state-owned and joint venture banks, as well as domestic and foreign banks such as the Reserve Bank of India (RBI).

Paragraph 5: Payment Scenarios

Residential utility bill payment: UPI

Offline merchant collections: BharatQR, UPI, e-wallets

Personal and corporate transfer transactions: Internet banking, UPI

E-commerce and online entertainment spending: e-wallets, UPI, net banking

Paragraph 6: Mainstream payments (UPI presentation)

This section focuses on explaining the BharatQR and UPI payment methods under NPCI's UPI payments in terms of business logic, account binding relationship and fund settlement logic.

1. UPI underlying architecture

UPI actually plays the role of a switch that aggregates funds for transactions. It authorises PSPs to act as entry points for UPI access and to settle funds using clearing products or organisations within the NPCI system.

Its business model is similar to what China UnionPay Cloudflash has done in the past and will do in the future, allowing PSPs to take on the role of acquirers of UPI products while UPI itself handles the exchange of order information and settlement of funds, resulting in a standardised and unified model of funds handling that can largely avoid many risky transactions.

2. UPI account modelling

Users can generate a UPI account that integrates with most card-based and third-party payment accounts;

It uses VPA as a unique account identifier and supports P2P transfers, single point transfers or payment operations;

The application provides a unified national standard technology for QR code collection or scanning;

Provides an API interface, usually in the form of an H5 page embedded in a PSP application;

Real-time fund settlement, providing 7*24 hours*365 days fund transfer support.

3. UPI transaction flow

The payer initiates a payment to the payee, and the payer obtains the payee's VPQA address to initiate the transfer request;

UPI receives the request, verifies that the payee's account is correct, and gets the payee's currently selected receiving bank account;

The payer's default bank account (issuing bank) is notified of the debit and the transaction is recorded, and the issuing bank returns the results of the account and notifies the payer and UPI;

The payee's default bank account (acquiring bank) is notified to collect and record the transaction, and the acquiring bank returns the billing results and notifies the payee and UPI.

Recipient collects via PSP, Recipient generates UPI collection orders via PSP

The payee generates a collection order through the PSP and pushes it to the payer in the form of an H5 link containing the payee's VPA information, i.e., the PSP calls UPI's acquisition interface to generate a UPI collection order containing the payee's VPA information;

The payer opens the collection link through the PSP and authenticates his/her identity and password;

The payer's PSP pushes the authentication information to UPI;

The payer's default bank account (issuing bank) is notified of the debit and the transaction is recorded, and the issuing bank returns the results of the account and notifies the payer and UPI;

The payee's default bank account (acquiring bank) is notified to collect and record the transaction, and the acquiring bank returns the billing results and notifies the payee and UPI.

4. Settlement of UPI funds

Funds Settlement Process

For transactions done through PSPs using UPI, funds are not settled in real time between PSPs. Transactions are first recorded by UPI when they occur;

UPI settles funds four times a day. At the settlement time point, a settlement transaction is triggered and UPI collects the funds from the payer and then pays them out to the payee in a uniform manner;

Prior to the settlement time point, the settlement funds of the PSPs involved in the transaction change in real time, specifically based on the results of the trading accounts of the two parties for the final settlement operation, similar to the PSP transfer and double clearing model in China.

Paragraph 7: Conclusion

Since its launch in 2016, UPI has become an integral part of India's open banking journey.

This is a landmark shift in India's payments experience, which has greatly improved the user experience by providing PSPs with a unified method of aggregating transactions and settling funds, especially after the prolonged COVID-19 pandemic, which has led to greater acceptance of the online money transfer transaction model by the Indian public, greatly enhancing India's capital flows and commercial trade prosperity, and providing a solid foundation for its banking business to connect to overseas through the open banking model financial markets has provided a solid foundation.

Anyway, may you all have a happy Chinese New Year~ May the Year of the Tiger bring prosperity and a raise~

This article was published by Yicheng Zhang on Everyone is a Product Manager and is prohibited from being republished without permission.

Cover image from Unsplash, following the CC0 protocol.