RBI’s UPI will make mobile wallets redundant

According to a report by Mumbai-based Centrum Broking, mobile wallet services like Paytm, SBI's Buddy, ICICI Bank's Pockets and HDFC’s Chillr will soon be left redundant with the large scale adoption of Reserve Bank’s Unified Payments Interface (UPI). Quoting the Reserve Bank data, the report noted that the value of mobile banking transactions rose 46 percent in December 2015 from a month ago. But this is more than 300 per cent growth compared to December 2014 level, it said.

The report titled- ‘Banking Transactions – Technological Disruption’, said that “Mobile banking has taken the country by storm, growing by 212 per cent growth in value terms in February 2016 over the same period in 2015 and by 131 per cent in volume. If the UPI adoption continues mobile wallets like SBI’s Buddy, ICICI Bank’s Pockets, HDFC Bank’s Chillr and Paytm will be redundant.”

RBI’s push to adopt UPI is an effort to lower the cash economy.Quoting RBI data, the report said the cash floating in the system is about 18 per cent of the GDP, making the country one of the most cash-dependent economies in the world- “The RBI wants to cut down on cash dependence and the UPI has been brought in to do just that. It will reduce the effort, time and cost incurred on simple transactions, below Rs 1 lakh. Through UPI, two or three bank accounts can be linked and therefore any payment/withdrawal can then be done by just sending a message on this app.”

The unique aspect of UPI is that it does not require a specific bank account unlike existing players which offer the product to only those who have an account with them, thus significantly increasing the pool of customers UPI could tap into, compared to banks which have a limited universe of customers.

According to a World Bank report, only 53 percent of the Indian population or 636 million people have bank accounts, while close over 1,000 million have mobile phones. If used to its full potential, UPI can penetrate far more homes than all the mobile wallets put together, the report said.

It further added that banks and other financial service providers will have to go through a drastic digital make over to stay relevant in the market and operate on a low-cost model because those who are left behind in this race might struggle to survive.