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Editorial

VISA vs Rupay. Who will the Indian Government Support?

According to a recent Reuters report, American multinational VISA has complained to the United States government that the Indian government is ‘promoting’ domestic rival RuPay, making it an uneven playing field for other foreign rivals. VISA believes that India’s formal and informal policies favour the National Payments Corporation of India (NPCI) against other payment networks. NPCI is a not-for-profit organisation that manages both UPI and RuPay Networks. Rupay is an Indian multinational financial services and payment service system, launched by NPCI on 26 March 2012. It matched with the Reserve Bank of India’s vision of having a domestic, transparent, and multilateral payment network.

In this piece, we explore the growth of domestic payment networks and how it concerns foreign payment giants like VISA, MasterCard, American Express, etc. 

The Background

  • Debit Cards, Credit Cards, and Unified Payments Interface (UPI) are the in-thing when it comes to payments. You can find a UPI QR code even at the remotest locations in India. Payment Networks are the intermediaries that process these payments. A Payment Network processes digital payments and ensures that money reaches from one point to another. 
  • We are well aware of the payment networks like American MasterCard, VISA, American Express, BHIM UPI, RuPay. While VISA, American Express, and MasterCard are based in the United States, payment networks like UPI, RuPay, IMPS, NEFT are India-based payment networks. The American payment networks command global dominance over global transactions, while the Indian payment networks haven’t paved the way outside India.
  • NPCI is a not-for-profit organisation that aims to promote financial inclusion, faster and safer payments. On the other hand, companies like VISA, MasterCard, American Express are private organisations that completely dominate the global payments market. Many people, entities, and organisations have vested interests in these card companies. 
  • NPCI has intensively promoted digital payments in India and set an example for the world. Even an unregistered fruit seller can accept digital payments to a large extent. UPI Payments are free. So far, the burden of charges lies with the bank and the merchant, not the customer. The scenario might change soon, where customers might pay a small transaction fee for making payments across UPI. 

Why Is VISA Complaining?

VISA executives, including CEO Alfred Kelly, met US Trade Representative (USTR) Katherine Tai, and raised concerns about a level playing field. According to a Reuters report, a memo prepared for USTR Katherine Tai read as follows,  “Visa remains concerned about India’s informal and formal policies that appear to favour the business of National Payments Corporation of India (NPCI), the non-profit that runs RuPay.”

In 2018, MasterCard had made a similar complaint in the US about Prime Minister Narendra Modi, stating that he associated the use of RuPay cards with nationalism, claiming it serves as a ‘kind of national service”.

India has indeed been pushing for domestic payment networks with a tinge of ‘nationalism’, encouraging citizens to use the local card RuPay. The Pradhan Mantri Jan Dhan Yojana (PM-JDY), a scheme to make banking available to all, offers RuPay with all bank accounts by default. Almost 50% of all RuPay cards are linked to PM-JDY. In November 2020, Finance Minister Nirmala Sitharaman pushed banks to issue only RuPay cards as the first alternative to customers.  

Furthermore, the Reserve Bank of India (RBI) had restricted MasterCard, American Express, and Diners Club International from issuing credit cards over violation of local data-storage rules. Domestic banks and card companies would eventually benefit since they would better penetrate their cards in the market while competition stays away.

The Way Ahead

While the government policies might be unfair for foreign payment networks favouring domestic networks, both serve different interests. VISA, MasterCard, and American Express generally cater to the wealthy or privileged class. These companies entered India when owning debit or credit cards exhibited financial status. These companies work for profit serving the interests of those working for or holding a stake in the company. 

UPI and RuPay were developed to serve the interests of the commoner. A decade ago, smartphones weren’t everywhere; India lacked financial literacy and coverage. The situation now is different. Financial literacy and access to technology have improved multi-fold. NPCI is a not-for-profit organisation; whatever it earns can be channelised for the welfare of the Indian citizens. India is not the first country trying to break the monopoly of specific payment networks. Russia had Mir, Europe has European Payments Initiative (EPI), etc. 

Do you think India is doing right by pushing for domestic payment gateways over foreign ones? You can let us know in the comment section available in the marketfeed app. 

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Editorial

What is e-RUPI: The Future Of Payments in India?

e-RUPI has been in the news for a while now. PM Narendra Modi officially announced the launch of e-RUPI on August 2, 2021. It is an initiative by the National Payments Corporation of India (NPCI) in association with the Department of Financial Services (DFS), National Health Authority (NHA), and the Ministry of Health and Family Welfare (MoHFW). NPCI is the very same organization that looks after UPI or Unified Payment Interface. 

Let us dig deeper into e-RUPI and analyze its possible impacts on the way Indians pay for goods and services. 

The Concept

The basis of e-RUPI is similar to that of gift vouchers or coupons that you redeem at restaurants, e-commerce websites, or fashion stores. e-RUPI is a one-time contactless payment mechanism where a person can redeem a payment voucher without a card, app, or internet banking access at the merchants accepting e-RUPI. The merchants can be hospitals, seed banks, hospitals, stores, retailers, wholesalers, etc. Customers would be able to redeem e-RUPI vouchers of a certain value to buy goods or avail of a service.

A question arises here: who would issue these e-RUPI vouchers? NPCI has tied up with 11 banks that would facilitate the transaction. These banks would issue the vouchers on behalf of the government, a company, or a person. 

Case Study: How can E-RUPI Benefit Farmers?

Before E-RUPI

Farmers have been on the receiving end of a lot of government schemes and benefits. Indian farmers haven’t been the most financially literate or technologically savvy. Let us take the example of fertilizer subsidies. Before the early 2010s, many farmers didn’t even own a bank account. Before that, the only way to avail subsidies or benefits was to stand at a government office for hours, bribe a few officials, or buy cheap-quality subsidized fertilizer or seeds.

Things changed a little after the PM-Jan Dhan Yojna (PMJDY). The scheme aimed at facilitating financial inclusion, where anyone could open a savings bank account without any limits, conditions, or bottlenecks. Government agencies started directly transferring subsidy money into the bank accounts of farmers. This is called Direct Benefit Transfer (DBT). 

The problem with the current DBT system was information asymmetry. There were administrative issues, glitches, privacy issues, fraud, etc. Moreover, not all farmers were able to open bank accounts. e-RUPI could change things completely for farmers. 

After e-RUPI

Through e-RUPI, after registering for a particular subsidy, the farmer would get a text message that would contain a QR code or other encrypted details. The farmer can now go to the merchant and show the QR code to get the fertilizer at a subsidized price. On the other hand, the merchant would get the payment in full and there will not be any impact on their business. Thus, e-RUPI will benefit the farmer as well as the merchant.  

Advantages of e-RUPI

  • There would be a two-step contactless transaction. 
  • No app, card, or bank account is required to facilitate the transaction.
  • More payments can be facilitated since even those individuals without a bank account can transact using e-RUPI.
  • Safe and Secure – No personal details are shared throughout the transaction. Hence, privacy is maintained.

Application of e-RUPI

e-RUPI can be used to facilitate direct benefit transfers and subsidies, such as mother-child welfare schemes, electricity and water subsidy, healthcare subsidy, fertilizer subsidy, and many more

A private sector company can also avail of e-RUPI solutions for employee welfare and Corporate Social Responsibility (CSR) programs. Currently, there are more than 10 partnering banks (both public and private banks) that facilitate the use of e-RUPI.

Is it a new digital currency?

There has been some buzz in the market where people are calling e-RUPI a cryptocurrency. e-RUPI is NOT a cryptocurrency. Even its working principle does not come close to that of a cryptocurrency. While cryptocurrencies are decentralised, e-RUPI will be regulated by the Indian government and derives its value from the Indian Rupee.

Another misconception is of e-RPUI being a Central Bank Digital Currency (CBDC). This is not the case since e-RUPI isn’t a currency at all. Not to forget that the RBI doesn’t control the function or flow of e-RUPI.

Yet, the e-RUPI system is a big step in paving the way for alternate sources of payment like CBDC or cryptocurrency. Do you think this is a first step in the way for cryptocurrencies in India? Do you think that e-RUPI has some inherent flaws? You can let us know in the comment section of the marketfeed app.

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Market News Top 10 News

Bank NPAs Could Rise To 9.8% in March 2022, says RBI – Top Indian Market News

Bank NPAs could rise to 9.8% in March 2022, says RBI

The Reserve Bank of India (RBI) has said in its Financial Stability Report that Non-Performing Assets (NPA) at Scheduled Commercial Banks (SCBs) could rise to anywhere between 9.8% to 11.2% by March 2022. The Gross NPA ratio for SCBs stood at 7.4% in March 2021. The report further states that Public Sector Undertaking (PSU) banks could see their bad loans rise to 12.52% by March 2022. PSU Banks had reported a gross NPA ratio of 9.54% as of March 2021.

Read more here.

Edelweiss Financial Services to exit insurance business

Edelweiss Financial Services will exit the insurance broking business by selling its 70% stake in Edelweiss Gallagher Insurance Brokers Ltd (EGIBL) to US-based Arthur J. Gallagher & Co. (AJG). AJG currently holds a 30% stake in EGIBL. The transaction is likely to be completed within 10 months. This acquisition is subject to approvals by the Insurance Regulatory and Development Authority of India (IRDAI). 

Read more here.

SBI MF launches ETF on Nifty India Consumption Index

SBI Mutual Fund is going to launch an exchange-traded fund that shall track the Nifty India Consumption Index. The new fund offer (NFO) which began on June 30, 2021, shall end on July 14, 2021. The Nifty India Consumption Index tracks a basket of companies that represents domestic consumption. The index contains stocks like Hindustan Unilever (HUL), ITC, Asian Paints, Bharti Airtel, Maruti Suzuki India, and many more.

Bharti Airtel launches ‘Black Plans’ to increase revenue

Bharti Airtel Ltd has announced a new plan known as ‘Airtel Black’. This plan intends to bundle telecom, DTH, and fibre under a single billing plan. The subscribers of Airtel Black will be entitled to priority resolution of faults and extra benefits. The move is aimed at attracting high-paying customers and driving average revenue per user (ARPU).

Read more here.

India’s exports hit $95 billion in April-June 2021: Piyush Goyal 

India’s exports have touched $95 billion or nearly Rs 7 lakh crore in the April-June quarter this year, said Minister of Commerce and Industry Piyush Goyal at a conference. The minister also commented that despite Covid-19, India saw foreign direct investment (FDI) inflows of almost $81.72 billion (~Rs 6.09 lakh crore) for the financial year 2020-21 (FY21). The top investors who contributed to India’s high FDI inflow in FY21 include Singapore (29%), followed by the US (23%) and Mauritius (9%).

Read more here.

Zydus Cadila gets USFDA approval to market generic HIV infection treatment tablets

Zydus Cadila has received approval from the US Food and Drug Administration (USFDA) to market generic Emtricitabine and Tenofovir Disoproxil Fumarate tablets. The drug is used with other HIV medications to help control HIV infection. The tablets will be manufactured at the pharma company’s formulation facility at SEZ, Ahmedabad.

Read more here. 

Laurus Labs receives license to manufacture Covid-19 drug 2DG

The Defence Research & Development Organisation (DRDO) has granted a license to Laurus Labs to manufacture and market 2-Deoxy-D-Glucose (2DG). The Drugs Controller General of India (DCGI) has given emergency approval for 2DG for use on Covid-19 patients in our country. Two other companies— Shilpa Medicare and Dr Reddy’s Laboratories— have also received approval to market 2DG.

Read more here.

Mindtree completes acquisition of NxT Digital Business from L&T

Mindtree Limited has completed the acquisition of Nxt Digital Business from Larsen & Toubro (L&T). This will enable the IT firm to capture opportunities in the Internet of Things (IoT) and Industry 4.0 space. The cost of the acquisition was Rs 198 crore. L&T is also the promoter/holding company of Mindtree with a 61.03% stake.

Read more here.

Adani Ports registers 83% YoY rise in cargo volumes in June

Adani Ports and Special Economic Zone (APSEZ) handled cargo volumes of 25.54 million metric tonnes (MMT) in June 2021, registering a growth of 83% on a year-on-year (YoY) basis. In the container segment, APSEZ handled cargo volumes of 0.67 million twenty-foot equivalents (TUEs) in June. The company handled cargo volumes of 75.69 MMT for the April-June quarter (Q1 FY22).

UPI hits record 280 crore transactions in June 

The United Payments Interface (UPI) hit a record high of 280 crore transactions in the month of June 2021. The value of UPI transactions grew by 12% from Rs 4.5 lakh crore in May to Rs 5.5 lakh crore in June this year. The is mainly due to the recovery in our economy, as the number of Covid-19 cases slowly decline and businesses reopen.

Read more here.

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Editorial

The UPI Transaction Cap – All You Need To Know

On 5th November, an official notification from the National Payment Corporation of India (NPCI) came as a bitter surprise for digital payment companies. The notice stated that the amount of UPI transactions on third-party applications would be capped at 30%. This would impact firms such as Google Pay and PhonePe, and also consumers like you and me. Let us understand more about why this limit is introduced and what its effects could be.

Why was this Rule Introduced?

Since 2016, India has been seeing a rapid growth of online payment systems. We know that there are many third-party Unified Payments Interface (UPI) apps such as Google Pay, PhonePe, Paytm, and Amazon Pay. These apps dominate the payment services industry. With these apps, we can send or receive money through our bank accounts with great ease. These companies do not charge us for transferring funds, and even provide us with cashback offers as well. Since these apps have a large number of active users, they can be found as a payment option on almost all online platforms.

Source: BloombergQuint

As lockdown restrictions were introduced this year, these UPI apps have reported a sharp increase in its active user base. India’s digital payments ecosystem had registered almost 200 crore monthly transactions through the UPI network in October 2020. At the same time, Google Pay and PhonePe together hold more than 80% of the market share in this industry. In fact, on November 9, the Competition Commission of India (CCI) had ordered a detailed probe against Google Pay. It has been alleged that the company is using unfair anti-competitive practices.

To ensure that these big companies do not control the payments market, NPCI believed that it was time to introduce a strict limit on the number of UPI transactions for each payment app. They have stated that the new rule would create a more competitive market. It would also protect the UPI ecosystem, as it is scaling up at a rapid pace. NPCI has also stated that this limit would bring down transaction risks and failures.

Hence, a 30% cap on the total volume of UPI transactions through third-party app providers (TPAPs) would be imposed from January 2021. The 30% cap will be calculated based on the total volume of transactions processed in UPI during the preceding three months. These companies would get two years to ensure that the new rules are imposed in a phased manner. It would also apply to the new member of the industry- WhatsApp Pay. 

Interestingly, the new limit would not apply to PayTM and Reliance’s Jio Payments Bank. This is because they have payments banking licenses and do not fall under the category of third party apps. If you have noticed, a UPI ID on Google Pay would end with @okicici or @okaxis while it ends with @paytm on PayTM.

How Would it Affect Third-Party Apps?

It is believed that this rule could cause a major effect on the user experience of third-party UPI apps. The main cause of rapid innovations in the UPI platform was only because of the user experience created by Google Pay and PhonePe. If you have noticed, there are options ranging from paying your monthly expenses to even splitting a bill amongst your friends. These are the main features that popularised digital payments in India.

With this new limit, the third-party apps would have to remove small online merchants from their platforms. They would also have to cut back on incentives such as coupons and cashback. These were important features that allowed payment apps to attract more individuals to join the digital movement. More importantly, the number of UPI transactions that an individual can conduct per day would be cut down from these apps. Once the daily limit has been reached, people would have to use less-popular UPI apps to make essential payments. 

“This announcement has come as a surprise and has implications for hundreds of millions of users who use UPI for their daily payments and could impact the further adoption of UPI and the end goal of financial inclusion,”- Sajith Sivanandan, the Business Head at Google Pay India.

The Entry of WhatsApp Pay

Facebook-owned WhatsApp has finally received approval from RBI and NPCI to launch its digital payment platform in India. According to the company’s records, the messaging app has an active user base of almost 40 crore members in our country. This would be a great advantage for the company as it makes its entry into the UPI market. Similar to the existing UPI payment apps, WhatsApp will not be charging a transaction fee. A report from the Times of India suggests that WhatsApp could end up achieving a market share of about 30%. This would automatically lead to a decline in the share of both Google Pay and PhonePe in the UPI industry.

However, they are faced with some major hurdles. Even with such a large user base, the regulators have ensured that WhatsApp Pay will only be launched in a phased manner. What this means is that only 2 crore users will be able to use the platform to conduct transactions in the initial stages. Also, the introduction of the 30% cap would harm the user experience of the app. It seems like the entry of WhatsApp Pay has come at a rather difficult time in this highly competitive industry. 

The Future of UPI in India

The future of payments is digital. India has successfully launched multiple methods (such as NEFT, IMPS, UPI) to support this transformation. According to a report from Crisil in 2019, digital payments in India seem to grow at a CAGR of 12.7%. It may jump to Rs 4,055 lakh crore in FY24 with a five-year CAGR of 20%. Also, the prediction shows that all UPI payments will dominate the payments space with 59% payment transactions. For the first time in India, UPI payments had exceeded ATM cash withdrawals due to lockdown restrictions this year. These are very promising figures that would ultimately help our country to establish a much easier flow of funds.

What we are witnessing now is a complete restructuring of UPI payments. This method was completely free of charge and a much-loved mode of online transactions. Now, banks which offer UPI service in our country have started to charge a specific transaction fee on all UPI transfers. Several banks such as Axis Bank and Kotak Mahindra Bank are already charging Rs 2.5 for amounts of up to Rs 1,000. These charges are levied after a free transaction limit is crossed. So, it would be applicable to all the payment apps we had mentioned earlier.

Even if these small charges are imposed, we could say that the usage of UPI transactions across our country would not decline. It would remain to be one of the most convenient and user-friendly modes of payment for all our needs. Let us look forward to how these payment companies would implement the new rule. Only time will tell if users would react positively to these changes.