The launch of the Unified Payments Interface (UPI) by the National Payments Corporation of India (NCPI) on Monday is a breakthrough step not just for the way in which Indians bank but also for how they transact online. In essence, the UPI will simplify the way payments are made — it will leverage the rapidly deepening mobile penetration in the country to facilitate monetary transactions at the press of a button. A customer can use the UPI instead of paying cash on delivery from online shopping websites or other bills etc. The ease and security — the UPI allows for a two-factor authentication — with which transactions can now happen over a mobile will be a boon for a lot of businesses, especially small- and medium-sized entrepreneurs. The NPCI has built on the Immediate Payment Service (IMPS) platform — through which one could transfer money instantly by going online — by adding another layer that allows easy debit capability even on mobile phones. RBI Governor Raghuram Rajan, who has been a driving force behind the structural change in Indian banking, said: “For a number of years, we have been saying we need a revolution in banking in India. I think we can confidently say the revolution is upon us”.
Over the past few years, the Indian banking structure has been undergoing a tectonic change often lost in the bad news about growing non-performing assets, loan write-offs and wilful defaulters. Starting with a report authored by Rajan for the Planning Commission, titled “A hundred small steps”, in 2009 to the Nachiket Mor-led “Committee on Comprehensive Financial Services for Small Businesses and Low Income Households” report in December 2013, the RBI has cast aside its historically conservative approach to unveil a wide range of banking solutions. As a result, as against just 12 new bank licences being issued since liberalisation till early 2014, the RBI awarded 10 licences for small finance banks (which are commercial banks but with a sectoral focus among the unserved sections of the economy) and 11 licences for payments banks (which will only deal with deposits and remittances, not credit).
The greater differentiation in banking structure allows for niche banking and circumvents the traditional problem of Indian banking where huge banks that were expected to perform a variety of roles failed to perform any. The emerging variegated banking structure as well as the advances in technology, such as smartphones and UPI, and its adoption, such as increasing mobile use, have come together to create the “revolution” Rajan is talking about.