The National Payments Corporation of India (NPCI) is reportedly running a pilot project with three companies that will help them enable proximity payments on the Unified Payments Interface (UPI). According to a report on the Economic Times, the NPCI has shortlisted three startups — PhonePe, ToneTag and Ultra Cash — for the pilot.
Proximity payments will enable consumers to make digital payments at merchant outlets without any physical contact with the acceptance terminal, theoretically, this should ensure higher levels of security and speed for such transactions. For example, in a contactless payment scenario, the payer won’t have to physically type in a merchant’s phone number, bank account details or Virtual Payment Address. Rather a contactless system like an ultrasonic sound or bluetooth would be used to pair two devices and initiate a transaction via UPI.
This could also serve as a potentially inexpensive way for merchants to accept digital payments without the need for expensive point of sale devices. Though it must be noted that BharatQR based UPI payments technically allows merchants to do the same already. QR based payments are both contactless and extremely inexpensive.
Highlighting the benefits of proximity payments, in a bid document that was made public, NPCI had said that in case of UPI transactions since customers need to manually type in the beneficiary’s virtual ID or bank account number it is prone to manual errors. These can be solved with proximity payments solutions which can identify the beneficiary without any manual typing of names or numbers.
How proximity payments work
The ET report explains the process how proximity payments work. The merchant would enable his smartphone or mobile PoS to generate a voucher and accept payment from the customer. Further, the customer would need to identify the merchant through his phone and initiate a payment. Then the payment would be made via the UPI.
Proximity payments are not completely alien to UPI apps though. Google’s Tez allows users in close proximity to each other make payments via its Cash Mode in which the payer and payee’s phone communicate with each other using sound that is inaudible to human ears.This ultrasonic sound is used to identify the payee and initiate the payment process. But the use of this method is only limited to Tez users and is not interoperable with other UPI apps as it is not a standardised feature mandated by the UPI.