In 2009-10, Dilip Asbealong with a few others, was exploring the possibility of using Aadhaar to create a digital payments ecosystem in India.
At the time, the National Payments Corporation of India (Inasmuch asNPCIInasmuch as) was still new and making great strides in creating IMPS, NEFT, and RuPay.
Fast forward to 2015-2016, the NPCI and the Indian government realized that IMPS technology – while effective – is not scalable.
So, he launched UPI technology in India through BHIM application. Today, the UPI system processes approximately 10,000 transactions per second. And, the innovation has transformed the way Indians today transact across the country.
The history of UPI
In a conversation with Prime Ventures PodcastDilip Asbe said the idea behind UPI started in 2009 when many conversations were happening around digital payment technology at NPCI.
It didn’t take long for business leaders to realize that “although the IMPS is really, really a success, it can’t be exponential innovation because there was no attraction,” Dilip said.
No one could expect people to remember long IFSC codes, and the ecosystem was almost asking for a simpler payment system.
This was the start of the UPI system, according to Dilip. From the country’s biggest banks to major private players, including Google and Paytm, have backed the idea.
“A lot of people have come together, and I think that’s what’s created a very vibrant ecosystem,” Dilip added.
Scaling the UPI system
The launch of BHIM app has transformed India’s digital payment ecosystem. Supported by government efforts, the entire ecosystem has jumped on the UPI bandwagon.
However, Dilip admitted that spreading UPI’s popularity could have been done seamlessly, but when it came to scaling the technology, NPCI faced an entirely different set of challenges.
He said two major factors helped the government’s payments wing push UPI to 10,000 transactions per second.
“One was working with some of the top architects… We sort of chartered the all-open-source journey quite a bit with UPI and other systems,” Dilip said.
The entire UPI architecture has benefited massively from open source technologies, without which NPCI could not have afforded to build UPI at this scale.
“[And] the second important thing [is] our Board of Directors has been very clear that NPCI must ensure maximum efficiency. We’ve run, grown and transformed, so that runtime can actually run the UPI, growth can build the features, and transformation can look at what’s going to happen up to two or three years later,” continued Dilip.
The key to UPI’s success has been parallel execution. Currently, the system is capable of operating at 50,000 to 70,000 transactions per second.
“As far as UPI is concerned, P2P is free for the customer. You can’t charge the customer, otherwise that option in UPI would go for a six,” Dilip explained.
The ecosystem also cannot have a high MDR because digital payment technology is also used by small merchants and kirana stores, where trading margins are usually quite low. Dilip stressed that reasonable MDR is the way forward.
The future of UPI
Dilip said Autopay should hit the market in a few months. The NPCI is also investing heavily in RuPay to improve India’s credit infrastructure.
However, the internationalization of UPI will take time as other countries still do not have a functioning real-time digital payment system, and regulators need to be aligned on both sides.
To learn more, listen to the podcast here.
02:00: UPI: history, challenges and surprises
6 p.m.: UPI Scaling: Building a Resilient System
28:00: Business models and MDRs
33:00: New opportunities: AutoPay, NCMC, e-RUPI
39:00: Internationalization of the UPI