Financial services sectors the world over follow a common template: companies innovate, regulators regulate. The former searches for pools of customer dissatisfaction to target with innovative products that often push the regulatory envelope. The latter keenly observe from the sideline, stepping in every now and then to lay down rules to impose some semblance of order.
But in August 2016, India took its first formal step to break the walls that existed between those who were being regulated and those who were regulating. Impatient and wary with both the pace and quality of private sector innovation, The Reserve Bank of India, India’s apex banking and payments regulator, took the unprecedented step of revealing its hitherto invisible hand of regulation. It appeared in the form of an innocuous sounding three-letter acronym: U.P.I. Otherwise known as the Unified Payments Interface, a payment system designed to be the quickest way to pay.
The disruption and opportunity created by UPI enabled the runaway success behind Flipkart’s PhonePe, which went from being an unknown payments startup to having 100 million registered users in less than two years. UPI was also what enabled the likes of Google and Whatsapp to launch peer-to-peer (P2P) payments in India.
It’s no wonder then that India’s payments and financial services players were eagerly awaiting the next iteration of UPI: UPI 2.0—an upgraded payment system with a slew of new features. Of these features, the most important one was “automatic payments”.
Automatic payments would allow users to instruct merchants to debit their bank accounts automatically—at pre-determined intervals.
This small feature would unlock a world of seamless, automated transactions. At the simplest level, this would mean automatic ‘first of the month’ payments like salaries to household help, children’s schools and loan payments. But the same feature could also enable online stores to automatically debit customer bank accounts every time they bought something.
After all, the best form of payments is not having to go through the payment process at all.
This meant the 250 million transactions that UPI processed in June could double with ease. It would have seen more people adopt digital payments, resulting in higher transaction volumes and higher revenues for payments companies. And businesses could, once and for all, stop losing customers because they couldn’t finish a payment.
But UPI 2.0 will not feature automatic, recurring payments, in what has come as a disappointment to the entire payments industry. Almost everyone we spoke to expected automatic payments to be part of UPI 2.0.
Blindsided
Automatic payments were such a given that most leading payment companies had already spent the last few months upgrading their products to support it.
Even as RBI-governed and bank-owned National Payments Corporation of India (NPCI), which manages all the retail payments systems in the country, was negotiating with RBI on the various features of UPI 2.0, few banks and payment apps had begun work on recurring payments.
