GPAY Payment Gateway: A History of Electronic Payment Systems in India

In recent years, Asia has reached or even surpassed global levels of inclusive financial development. In terms of financial infrastructure, India's Unified Payments Interface (UPI) electronic real-time payment system has successfully replaced its complex and outdated payment system within five years and is recognised as the world's leading real-time payment system. It has also become a key driver of financial inclusion in India.

On 2 July, Boao Forum for Asia (BFA) released a chapter of the Asian Financial Development Report - Financial Inclusion, which in section 2.2 reviews the establishment and features of the UPI system in India. The following excerpts are for the readers' enjoyment.

Launched in 2016, India's Unified Payments Interface (UPI) system is a success story of real-time payments reforms utilising digital technology.The UPI system connects government, financial institutions and third-party applications, and has achieved a leading position in the global e-payments space. Data shows that the UPI system has been rated as the world's leading Real-Time Payments (RTP) system due to its excellent system standards, the number of Application Programming Interfaces (APIs) released, and the engagement of third-party applications.

The establishment of UPI: eight years in the making

Prior to the establishment of the UPI system, India's payment system was complex and outdated. At that time, India's payments infrastructure was outdated and lacked effective regulation. Settlement of transactions was often not possible in real time and efficient clearing systems were lacking.

In 2007, India introduced the Payment and Settlement Systems Act, marking the beginning of its payment system reforms. Subsequently, in 2009, the National Payments Corporation of India (NPCI) was set up as the regulator of retail payment and settlement systems, and in 2010, India launched the Instant Messaging Payment Service (IMPS), which provided the technological foundation for UPI.

In 2016, India officially launched UPI. developed by the National Payments Corporation of India, UPI is an instant payment system designed to facilitate inter-bank transactions. Managed by the Reserve Bank of India, the interface adds multiple bank accounts to a single mobile app (of any participating bank) and enables seamless movement of funds through instant transfers between two bank accounts on the mobile platform.

The UPI project is the culmination of eight years of development by the National Payments Corporation of India (NPCI) under its vision of "Building a Unified, Accessible and Inclusive Payment System".

The Reserve Bank of India has taken a number of proactive steps to promote UPI, such as waiving fees for in-system payment activities in the first few years to broaden the customer base, actively engaging all major banks, convincing banks to agree to a common authentication system, providing substantial support for merchants to use payment apps or QR codes to collect payments, and ensuring that UPI is open to third-party apps.

The UPI Advantage: Five Key Features

The UPI system enables fine-grained retail payment settlements by simplifying and standardising common standards and digital interoperability for domestic banks, providing instant transaction confirmation for remitters and recipients. It enables instant payments and settlements between different financial institutions by connecting parties such as banks, merchants, consumers and telecommunication service providers through mobile handsets, the Internet and ATMs.

UPI is easy to use, has a simple process and is secure in its operation. The process of user payment through UPI (called PUSH) can be broken down as follows:

UPI has five key features:

1. UPI allows personal mobile phones to be used for all forms of payments, including person-to-person, person-to-entity and entity-to-person. Provides a superior user experience by consolidating multiple banking relationships into a single UPI application.

2. Payments can be initiated by both the payer and the recipient, allowing personal mobile phones to be used for both payment (PUSH) and collection (PULL).

3. UPI allows users to create unique virtual payment addresses, enabling them to make payments by providing only the payment address without having to provide sensitive bank account or credential information on third-party applications or websites.

4. UPI provides a clean and feature-rich set of standard APIs to support transactions on the UPI platform, creating a fully interoperable system across all banks, financial institutions and payment systems, eliminating islands of isolation and closure.

5. UPI uses one-click two-factor authentication for secure and reliable payments on personal mobile phones, requiring only a tap on the mobile device and the entry of an MPIN, without the need for a separate payment device or physical token.

UPI's ease of use, security and robust business solution capabilities have made it the payment system of choice for both individual users and businesses in India.The use of UPI has facilitated the growth of existing digital payment systems and has largely contributed to the shift in the digital transactional behaviour and habits of users in India.

The State of UPI: Rapid Growth and a Bright Future

As of January 2020, the number of banks using UPI reached 144, with a monthly transaction volume of 1,305 million and a transaction value of Rs 21.6 trillion (about $285.7 billion). Compared to January 2018, UPI's monthly transaction volume and transaction value have grown 8.6 times in two years.

Currently, the transaction value of UPI in India has surpassed that of e-wallet payments, but still has not reached the total transaction value of credit and debit cards. However, the growth in UPI transaction value is much faster than the growth in credit and debit card transaction value.

It is reasonable to believe that UPI will be a key enabler for financial inclusion in India in the near future. Through continuous optimisation, iteration and updates, the UPI-based digital real-time payment system will permeate every aspect of the lives of the Indian people, bringing a wider group of people into the country's digital economy.

Key to UPI's success: top-down transformation

The establishment of the UPI electronic payment system in India was a major innovative revolution in the country's complex and outdated payment system. As the world's leading real-time payment system, India's UPI specifically overcomes many of the weaknesses of the domestic payments infrastructure by creating a framework that allows for real-time and efficient transaction settlement and effective regulation.

Unlike WeChat Pay and Alipay in China, the establishment of UPI in India was largely driven by the authorities, under the direct supervision of the Reserve Bank of India, India's central bank, which was directly responsible for the development and promotion of the system through the establishment of the National Payments Corporation. Strongly supported by a variety of incentives from the authorities, UPI consolidates the business relationships of multiple domestic banks into a single application, encouraging the participation of merchants and third-party applications. This top-down approach to transformation maximises the integration of resource strengths, facilitates the development of digital payment systems and helps India to gradually develop the habit of conducting digital transactions.

From a technical point of view, the UPI system achieves a good user experience, avoids leakage of sensitive customer information through a common virtual payment address, and achieves interoperability among a variety of financial institutions and payment agencies, eliminating islands of isolation and closure. These features also provide an important reference and technical benchmark for other Asian countries to establish national electronic payment systems.