UPI & E-Wallets (Status: It’s Complicated)

It was one fine morning of August 2016, I had just finished my first early morning walk of this year’s second attempt to “get fit” goal. Before I could head back home I had to stop at the nearby grocery store. Quickly grabbed two packets of full cream milk (there come back all the calories I had just burned) and few vegetables. I asked for the bill while reaching out for my wallet and realized I am not carrying it (habitual offender, really doesn’t like carrying anything in my pocket). Worry not I have my swanky smart phone with me and I am tech savvy. So in a lightning motion, I pulled it out, opened the e-wallet app and ready to scan the QR code. Before I could proceed, shopkeeper interrupted “Bhaiya, limit khatam ho gya hai. Cash dedo” (Wallet’s limit is done. Please pay with cash). You can very well guess rest of the story, that morning ends up me heading back home empty-handed, thinking why the heck there is a limit on accepting money.

This is not just me, there are many who went through the similar experience or other sour ones.

The whole idea of e-wallets is to provide a better experience than a physical wallet. Do they?

An e-wallet is accepted only where the merchant supports it, whereas never saw a merchant who said no to money coming out of a physical wallet, absolute acceptance. Physical wallets work fine even if there are no cellular signals, in the remote parts of the country. They never ran out of batteries when in need.

Well, still e-wallets managed to slide a little bit in the daily life of at least an urban user. Perhaps because one doesn’t have to go to ATM, line up in a queue, withdraw money and fill the wallet. No worry(just sadness) if you lose the phone, your money is still safe. One doesn’t have to worry about spare change, wallet provides the ability to pay even in decimals (no more candies, this is another story. In this part of the world if shopkeeper doesn’t have a spare change to return they simply slide out few candies. Maybe they sell more candies this way).

But these reasons don’t really outweigh and compel someone to switch to an e-wallet, except the fact they get cashback on their purchases. So some jumped on the wagon, mostly young and tech-savvy who won’t mind hassling little. Anywhere they go they ask the merchant to pay by this mode. For merchants it was another hassle, there are limits on acceptance, money doesn’t go directly to the bank account, and why to bring it when they have already put so much effort, time and paid to keep that swanky pos machine in the store.

Merchants really had no motivation until 8th Nov’2016, when demonization was announced and in an instant all currency tenders of 500, 1000 rupees became nothing just paper and illegal. Demonetization was the booster shot for e-wallets. Suddenly there was an understanding, both merchant and consumer dwelled on this mode of payment. Demonetization becomes the catalyst and set the motion right towards the master plan of cashless society. Perhaps that was the true purpose and not actually to wash out the black money from the system at the time. But being cashless is also another step towards the same goal. Isn’t it?

But all this doesn’t mean people love e-wallets, it’s still a hassle. And biggest of them to keep the wallet topped up with money and to put that money back to the bank account in case of need. Also e-wallet works in a semi-closed system, one cannot transfer money to a friend using a different e-wallet provider or merchant who is outside your e-wallets’ ecosystem. They severely lacked interoperability.

In my opinion, the government already anticipated that relying on e-wallets can slow down the primary goal of being a cashless society. So they started working quietly on UPI much before the demonetization comes in the act and later also brought BHIM app to masses.

It addressed the problem with reloading the wallet and interoperability. UPI allowed bank accounts to be used without exposing the account details to anyone. One can use in a shop to pay merchant or transfer funds to a friend. The interesting part was money get credited/debited instantly for both parties involved. Unlike traditional pos or e-wallets acceptance, they get paid instantly. If not this, then nothing can make a merchant happy. It’s amazing. It’s like IMPS. It is actually IMPS. UPI run on IMPS, a proven system.

As it made the appearance it’s considered as the e-wallet killer. Not an irrational thought. It did address the shortcomings of e-wallets. E-wallets provider’s think tank sat down and worked towards the new strategy to deal with this new contender. However, interestingly they missed the part which is the basis of UPI’s very existence that it’s here to help. Help who? To be honest not the e-wallets. It’s primary and the only goal is to expedite the ongoing efforts of cashless society, which e-wallets at the moment got deviated from (maybe due competition). But in a way, if it can help growing cashless economy, it also means it goes along and can help the e-wallets indirectly.

One obvious point to consider and understand is that UPI not really an e-wallet app, but the platform for better services. Wise ones understood, got along and began providing UPI services through their e-wallets. I believe if e-wallet provider doesn’t fall in line, they will have to fall out just like Nokia’s episode with android. There is no other way but to support UPI.

Now with UPI in center and e-wallets also providing its service to their consumers, earlier designed ecosystem and usage pattern begin to change. With time e-wallets will become a mere shell and UPI from within will do the magic. This, in other words, means e-wallets must undertake more services and segments under their umbrella to remain relevant. Some already realized this and working on the services like credit, mutual funds, lending etc. Some will not and will perish.

From a bird’s-eye view, UPI indeed speeds up the journey towards a cashless society. It will be interesting to see when e-wallets will be head-on with a messenger WhatsApp (Pay) foraying in their territory, just because UPI armed it to be in this ground.