The National Payments Corporation of India is in the process of rolling out a completely open source platform for the Unified Payments Interface (UPI) platform, said Nandan Nilekanil, co-founder and non-executive chairman of Infosys. Speaking at RedSeer’s Ground Zero 4.0 conference on Friday, Nilekani said that with the upgrade, UPI will go to over a billion transactions per day.
“Demonetisation led to an acceleration of demand for digital payments. UPI was launched in 2016. In October 2016, it did less than 100,000 transactions and today it does 2.3 billion transactions a month. Government action can less lead to acceleration of demand and that led to many payment companies being able to benefit from the rise in demand,” Nilekani said.
According to NPCI data, UPI recorded 2.23 billion transactions worth over ₹4.16 lakh crore in December 2020, up by 105% from the previous year. With the entrance of WhatsApp Pay and Bajaj Finance in the UPI space, the adoption and usage of UPI for daily and consumer payments is expected to grow manifold this year. A total of ₹33.87 lakh crore transactions were processed on the UPI in 2020.
On the digital banking opportunity
Nilekani said that India is still largely an under-banked country, though 80% of the population has access to bank accounts they do not have access to credit. “Now with the Account Aggregator model which is now coming through you can start giving them credit. You need companies that provide neo-banks, you need companies that provide APIs so that you can plug and play this in a very simple way. There is great opportunity, but you also have to be very clear that there are strategic risks here. Whatever you are providing, if it gets commoditised by something else then they need to think differently,” he said.
“There is absolutely a role for neo-banks which are very focused on some particular markets, which provide a great consumer experience which hide the complexity of banking for the consumer, there is a huge role for that. But also remember in India in particular, a lot of technology has been created at population scale…Those opportunities are not going to be there for startups because they will be provided by national digital platforms. Therefore, neo-banks have to be much more focused on the consumer side, that the target market of what you are doing will create such a fabulous user experience that there is no need to go to a conventional bank,” Nilekani said.
Business architecture should be agile
Whether is a government move or an act of god event like the pandemic, demand can suddenly open up, Nilekani said. “When you think of scale it is very important that what business we are in, we keep an eye on the changes happening outside us—not just in our company, but in our environment, in our competitive scenario, in the world of technology, in government decisions—and being very quick and agile when you see this kind of changes and take advantage of it,” he said.
“When you design your business model or design your technology, design it to be able to do things A and B, not A or B. You can’t predict what will happen, but if your architecture allows you to do both things then no matter which path is taken, then you are able to do that,” Nilekani said. The pandemic has shown that having more strategic options in your business is very important, he added.
“Optionality varies on what the sector is. It’s a mind game, do a stress test of the business if something goes wrong. The more you test it for these stress tests, you’ll do much better,” Nilekani said.
COVID-19 accelerated consumer behaviour change
In a post-COVID world, demand has gone from push to pull because of the infrastructure rolled-out which includes cheaper smartphones, lower data costs and greater access to the internet. “COVID-19 has shown a dramatic acceleration in consumer psychology in the use of digital platforms and therefore, we are seeing new ways of engaging with digital technology to access services has become common,” Nilekani said. Some of the new use-cases where digital platforms have witnessed a rise in demand include e-learning, tele-medicine, e-commerce, food delivery and others, he added.
“With more people becoming literate and being able to buy on the phone, there is a natural progression of demand happening due to consumers. But you can also have demand where you invest in demand creation. A lot of the early work in startups in India was actually subsidising transactions with discounts and chargebacks to bring behaviour change so that consumers would learn how to do an online transaction or a digital payments. That is one way to create demand, but that is also an expensive way to create demand because you have negative economics and customer acquisition costs keep going up,” Nilekani said.
“COVID-19 has accelerated the digitisation of our societies and made more and more people, who would not normally use technology, become very comfortable with it. This is very important because what would have costed you many billions of dollars and many years to bring consumer behaviour change, has now been brought in by this pandemic. This acceleration has reduced years of behaviour change to months and weeks,” he said. Nilekani added that post the pandemic customer acquisition costs for startups have reduced given the rise in consumer demand for digital services.
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