Launch of WhatsApp payments expected to boost growing digital payments in India

The NPCI has placed an initial limit on the number of users WhatsApp can expand its service to at 20 million. PHOTO: AFP

NEW DELHI - Digital payments in India registered significant growth in recent months amid the Covid-19 pandemic, a trend likely to be further reinforced with the launch of a payment facility on WhatsApp earlier this month.

The number of Unified Payments Interface (UPI)-based payments hit a new milestone in India with more than two billion transactions in October, government data showed. The National Payments Corporation of India (NPCI) valued the transactions at 3.86 trillion rupees (S$69.8 billion).

The UPI is a popular instant real-time payment system developed by NPCI to facilitate inter-bank transactions. Traffic on the platform has jumped from 1.31 billion transactions valued at 2.16 trillion rupees in January this year, when India reported its first Covid-19 case.

This trend received a further fillip on Nov 6, when WhatsApp rolled out its UPI-reliant payment service in India the day after receiving approval from the NPCI. While Facebook has been testing payments on WhatsApp in India since 2018, a full rollout was delayed by concerns about data storage and sharing.

The launch comes after Mr Mark Zuckerberg's firm invested US$5.7 billion (S$7.7 billion) for a 9.99 per cent stake in Indian billionaire Mukesh Ambani's digital services firm, Jio Platforms, in April. Facebook's service joins a market dominated by other international players and their payment apps such as Google (Google Pay), Walmart (PhonePe) and Amazon (Amazon Pay).

Mr Pranjal Kamra, the CEO and founder of Finology, a financial advisory firm that relies on online payments for its services, said the ability to transact financially on WhatsApp will further democratise digital transactions because of its wide user base that also includes the elderly, who have so far mostly stayed away from standalone payment apps.

He explained this by giving the example of Instagram Stories-like features that allow users of various apps to share content temporarily with others - something that is still relatively unknown among the elderly. "But after it came to WhatsApp (via WhatsApp Status), even middle aged and elderly people are now comfortable with such a feature across platforms," he told The Straits Times.

"I see a similar thing happening now because UPI is available on WhatsApp. A lot of people will suddenly try it out, specifically people above 50 who are still reluctant to use standalone digital transaction apps," he added.

The NPCI has, however, placed an initial limit on the number of users WhatsApp can expand its service to at 20 million. WhatsApp has more than 400 million users in India. NPCI has also placed a cap to ensure that no single payments app processes more than 30 per cent of total UPI transactions.

Promoting digital transactions has been a priority for the current government in its effort to reduce corruption. While demonetisation in 2016 gave an initial push to digital payments in the country, the pandemic has seen this trend expand significantly.

"The real driver was the lockdown and the move away from cash, seen as dirty and potentially a carrier, to a contactless ecosystem," Mr Prasanto K. Roy, a Delhi-based public policy consultant, told The Straits Times on e-mail.

"Groceries and food deliveries went contactless, the popular and once-dominant cash-on-delivery for e-commerce vanished and pre-paid took over, restaurants on-boarded contactless dining - and backing all this up was contactless payments," he added.

The NPCI in August also launched UPI AutoPay to enable automatic debit for recurring payments on the platform, which will further facilitate digital payments for frequently used services like mutual funds and loan repayments, metro fares, electricity bills, among others. This is important in a country where digital payments in India are largely mobile-driven

Such transactions are expected to grow tremendously, said Mr Roy, with a lot of ground still left to cover among those included in the formal banking structure. Many of those who have recently opened bank accounts under the Pradhan Mantri Jan-Dhan Yojana, a government programme to improve access to institutional financial services, are not spending their money digitally, he said.

An estimated 190 million people also still remain unbanked in India. Moreover, there are emerging problems that could slow the growth of digital payments - such as those around lack of cybersecurity as well as inadequate infrastructure to support growing online payments. "An explosion of phishing frauds and scams in 2020 is shaking the confidence of new users," said Mr Roy.

Customers also have faced payment failures, including those declined because of poor Internet connectivity or even those where cash is not dispensed from machines due to biometric mismatches or network or other faults. "Payment failures - something that doesn't happen with cash shake trust further," he added. "These concerns are serious and need to be addressed. There are efforts on, but they aren't enough."

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