Insightful newsletter of Drishtikone: Issue #215 - The UPI/RuPay Juggernaut

India has turned the FinTech market on its head. We may be witnessing the end of the old credit card system. All this was built on truly visionary moves and worst crises to hit India!

(Photo by Bess Hamiti from Pexels)

“I am not talking about you being a spectator, I am talking about involvement. I am talking about involving yourself into life in such a way that you dissolve into it.” - Sadhguru


Life is about living. The world and its challenges need to be handled. Not wished away. Those who believe in miracles are either idiots or delusional. Believing in some ‘God’ doing silly ‘miracles’ is a sign of the juvenile mind, not that of a spiritual one.

The existence itself is a miracle. Does tinkering with it by moving one object from here to there or changing a pigeon to gold rank higher than the mind-boggling complexity of the Universe that is already there?

So, the purpose of life needs to be to live in the most intense way possible. Looking at every nook, aspect, and creation around us. When crises or disasters strike, then we need to use the information and intelligence available with us to do what is best for the most number of people. We may not be able to do make everyone happy. But we can work to enhance the lives of as many as we possibly can.

When Narendra Modi became the PM, the Indian economy was in a major mess. The currency was basically on the verge of becoming useless, given how deeply the Pakistani machinery had infiltrated the Indian system. Fake currency notes were being issued from RBI vaults to the Indian public bank branches! The security features of India’s currency notes had almost been duplicated by the Pakistanis.

That is when Demonetization happened. (Read detailed article here - Demonetization - Detailed Drama of How Modi Checkmated Pakistan’s Devastating Assault)

Last year, COVID started the worst crisis ever in recent history. Many countries will see the impact of 2020 for many decades to come. Probably centuries.

In such trying times and great challenges, the Indian government created ways to not just connect Indians to a central database, but also create an underlying system that has the capability to turn the world of financial transactions upside down. It has already done so in India. UPI and RuPay are fueling a growth that will be unprecedented. But more importantly, it will include and take along the most marginalized along as well.

That is the power of what one man with a vision, despite existential global crisis can do. That is where we start in 2021. An example and inspiration that can change lives!


Modi - the global giant during the worst crisis

Last year - 2020 was an interesting year. In the midst of the worst crisis that the world has faced, where one country unleashed one of the largest and most egregious bio-attack on the rest of the world, while no one even called it out, very few countries used it to improve things despite the hardships.

India has been exceptionally lucky to have someone like Narendra Modi at the helm. He has made decisions for the country that most will understand after many decades perhaps. However, his popularity in the masses - those who don’t depend on social media spin is built on what happens on the ground. That is why in a recent study by Morning Consult, of the major world leaders, Modi’s approval rating stood at the highest!

The kicker is that the next guy - the Mexican President Obrador’s rating is 30%, while PM Modi has a whopping 55%! (Source)

And, this is not a chance happening because this rating by the company is a continuous 7-day moving average, where Modi’s ratings have remained consistent, while those of others have kept changing.

People do understand in India that Modi has done the best that could have been done in this situation.

Financial revolution unleashed in India - global tremors

The world’s business has been dependent on the underlying payment and monetization mechanism. The basis of economic progress has grown and multiplied based on what changed in terms of the underlying payment mechanism and who owned it.

When the world changed from barter to money (coins), the business grew. Those who had more gold coins were rich. When the currency backed by sovereign authorities came, that became the measure of which society was richer than the other.

The collapse of the Bretton Woods monetary system in the 1970s started a series of interventions by the US. The then-President Richard Nixon and his Secretary of State, Henry Kissinger pushed the Saudi royal family into pricing their oil sales exclusively in US Dollars in return for military protection for the Saudi oil fields. The Saudis had to refuse any other currency.

Over time, as computers became powerful and ubiquitous enough, digital payment system emerged.

Credit cards became the way to spend money and digital currency and credit became the sole way to evaluate a person.

The Credit Card is a play between a Sender, Sender Authentication, Receiver Identification, Bank Authorization, and Transaction of the transfer. This diagram illustrates the process.

The Payment Rails (payment platform or a payment network that moves money from a payer to a payee) are Visa and Mastercard in the case of credit cards. Automated Clearing House (ACH), Paypal, Blockchain (cryptocurrency), Venmo, etc are other examples of payment rails.

The current system has significant issues in terms of infrastructural security and interoperability. And, even access to these systems. Not everyone can get a card or Paypal account in society. There are several barriers to that.

This is where the Indian story and invention of Unified Payments Interface (UPI) gets really interesting!

Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience. (Source)

With its innovative use of bio-metric Aadhar card as the basis, UPI revolutionized the entire payment scenario. It took out the issue of interoperability.

Through a set of application programming interfaces (APIs), UPI linked disparate user interfaces, provided seamless authentication and authorization, and ultimately ensured interoperability among existing players. The APIs provided by UPI enable two entities to execute a payment transaction by exchanging the bare minimum amount of information required. (Source)

And, it standardized a two- factor authentication process by leveraging the Aadhaar infrastructure. The first level by the payment service provider (PSP) and the second, the most powerful way is the authentication by UPI itself - which is based on biometrics (Iris scan/fingerprint) that is collected by the PSP from the sender and gives back a simple yes/no response.

This has changed the very basis of the fintech market in India!

The result is that Visa and Mastercard, which were hitherto the biggest players and growing rapidly in India, suddenly had a major setback when UPI and RuPay spoiled their party.

the card market fell by a full 10% in 2019 (versus 2018), while UPI transactions saw a 9X growth in the same period. In September 2019, UPI surpassed cards as the most preferred mode of payment and continues to do so. In January 2020, there were over 1.3B UPI transactions. Even in the credit/debit card market, Rupay held a 58% market share by number of cards issued in 2019, up from a mere 0.3% in 2013 – thanks to the PMJDY scheme. Visa and Mastercard are no longer the dominant players in the card market, which also is losing its dominance to UPI in the Digital Payments space. (Source)

Demonetization gave India the UPI miracle: The real push for mobile payments happened during the demonetization by the Modi government. That was the time when the growth of mobile payments suddenly started growing.

In the 2020 India Mobile Payments market report, S&P Global Market Intelligence shared an interesting graph showing how and when the mobile payments/cards starting really growing exponentially in India. (download the report from here - Source)

And, this growth has been basically on the back of mobile payments fueled by the UPI system.

COVID Impact: During the COVID period, the Mobile payments initiated by payment apps comprising account-to-account transfers grew 163% to $287 billion in 2019, while the debit and credit cards, including online and in apps, rose 24% to $204 billion.

The growth this year for the UPI has been exceptional - October 2020 (2.07 bn transactions / INR 386,106 crores), Novembers 2020 (2.21 billion/INR 390,999 crores), and December 2020 (2.23 billion/INR 416,176 crores).

The change that happened on the back of the second inflection point - COVID (first being demonetization); will likely be a more permanent situation. In an insightful study by KPMG on the impact of COVID on digital payments in India, they found that Indians have moved to digital payments in a very decisive manner. (download the report from here - Source)

Why is all this significant? China’s growth in the last decade has also seen a steady rise in 3rd party payments as a percentage of its GDP. India’s GDP trajectory is at least a decade behind, but the growth of India’s adoption of UPI has been exponential. (Source)

market corner: 10 quick bytes

  1. Digital currency Bitcoin rallies above $30,000 for the first time - more

  2. WhatsApp sets new record with 1.4 billion voice, video calls on New Year’s Eve - more

  3. Goa Shipyard to build 12 patrol boats for Pangong deployment - more

  4. New salary structure to come into force from April 2021. The take-home salary of employees working in private companies will reduce from April 2021 because companies have to change the salary structure of employees with regards to the new wage rules - more

  5. Hyundai receives 35,000 bookings for new i20 in almost two months more

  6. Indian dating apps, services see surge of paying users in small cities - more

  7. Competition Commission of India (CCI) seeks details on an anti-competition complaint filed against Amazon India - more

  8. Amazon announced the details about the detail on its blog post, stating that the deal hasn’t closed yet. It further stated that Wondery is a hit podcast publisher known for producing top-rated podcasts that entertain and educate listeners. - more

  9. 30 cr people to be vaccinated in 1st phase: Max Hospital Cardiologist - more

  10. Centre drafts law to raise the legal age of smoking to 21 years - more

nota bene

Social commerce is emerging as a new model for small and medium businesses to transact. A deluge of cheap smartphones and affordable data prices make it easy for consumers to access services on the internet. WhatsApp, Facebook and Instagram with a collective reach of over 400 million users allow businesses to tap into potential customers. In fact, where social commerce is increasingly scoring over a typical e-commerce marketplace model is that it enables product discovery and conversation with brands to happen online. (Source)

New Airline: As the new year kicks off, the Indian Aviation industry's new airline Flybig will begin its operations officially on January 3. The first flight will take off from  Indore, the airline's base, at 2.30 in the afternoon to Ahmedabad. The airline was founded by Sanjay Mandavia, a pilot-turned-aviator entrepreneur. The airline has tie-ups with over 15,000 agents, many of them in tier-2 cities. (Source)

Another rape/conversion in Pakistan: Pakistani Human rights activist Rahat Austin took to Twitter to share details of a Hindu girl named Miza Kumari, the daughter of Rattan Lal who was abducted, raped, and forcefully converted to Islam to marry a Muslim man in Bahu Bhati village in Sialkot, Punjab, Pakistan. The activist shared a video in which the girl’s parents, who belong to an extremely humble background are heard pleading for help. We’ll kill ourselves if our daughter is not given back. We are poor, we can’t fight with culprits, no one is helping us in Pakistan. (Source)

Alien Object in our Solar System?: Avi Loeb, the chair of Harvard’s Department of Astronomy has laid out a compelling case for why an object that recently wandered into our solar system was not just another rock but actually a piece of alien technology. The object in question traveled toward our solar system from the direction of Vega, a nearby star 25 light-years away, and intercepted our solar system’s orbital plane on Sept. 6, 2017. (Source)

video corner: robots in a twist

Let us celebrate the gregorian New year with a glimpse of things to come. The Boston Dynamics robots dancing to the beats and tune of 1962 hit by Contours - Do you love me? It may look very simple, but the work that has gone into it in terms of structure and computational complexity is mind-boggling given the agility and movements the robots are showing. What does this hold for the human future? We will look into this and other changes that are going to happen in tomorrow’s newsletter.

Btw, Hyundai Motor Corp has acquired a controlling stake (80%) in Boston Dynamics for about $880 million (Source)


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