Thereafter, the settlements that were happening with the beneficiary bank account through IMPS or NEFT can now also happen through UPI.
IMPS or Immediate Payment Service and NEFT or National Electronic Fund Transfer are modes of settlements for interbank retail payments.
“The Virtual Payments Address (VPA) of the consumer is connected to an underlying bank account, therefore inward international remittance transfers can now also be settled through UPI,” said one of the bankers close to the development. Since the matter is still at an early stage, bankers spoke on the condition of anonymity.
India is the world’s largest receiver of foreign remittance, and reports suggest it received more than $62 billion in 2016, set to reach $65 billion in 2017. In such a scenario, if UPI can be popularised in this segment of consumers, it could open up a huge scope for the instant payment mechanism.
“The biggest benefit for UPI is that it needs only a payment address, thereby removing the need for the full account number and the IFS code,” said a senior banker with a private sector bank. “This will make fund transfers even easier.”
Explaining the process of how it works, he said, funds remitted to India land with a ‘landing bank’ from where it gets transferred to the beneficiary’s bank account. Till now, banks were using IMPS and NEFT for such transfers, but with UPI it would open up another channel for instant settlements.
“This would also mean that international remittance players like MoneyGram, Western Union, and others will get access to UPI for settlements which, as of now, are using IMPS,” said another banker in the know.
As a technical issue, it is also not a huge challenge for existing banks which are on the IMPS network, to onboard UPI since they have a direct integration with NPCI already. “The fund transfer agents were consuming my IMPS/NEFT APIs, but for now I will just have to tweak my back end to open up UPI which will be an additional field for us,” said one of the bankers quoted above.
UPI has emerged as the poster child for digital payments in India, especially in the wake of the government pushing retail payments onto the digital route. It has been showing steady growth and clocked around 171 million transactions in February alone. Opening up use cases like remittance on to this platform could take UPI to person-to-merchant payments and diversify its use cases, and more such use cases would be developed eventually.
“The international remittance market could be as big as $72 billion, with the average ticket size of transactions being much higher at almost $8,000,” said one of them quoted above. “It is reflective of the scope of UPI.” While NPCI is pushing for higher adoption of the retail-payment mode, it is also working closely with banks to go live on an updated version of UPI, namely UPI 2.0. Banks have already started the certification process for the update and could get ready by the middle of April, say bankers.
Among other features, the next version of UPI is expected to come with collect mandate for consumers who will now be able to pay their recurring payments through UPI. People aware of the matter say that NPCI is still awaiting the final RBI approval for the new version of UPI.