UPI — an Indian success story of a decentralised and democratised systemic solution
A deep dive into the factors that led to the accelerated digital snowball to kickstart and take off
The groundbreaking success of India’s Unified Payments Interface (UPI) has become a strong testament to the success of Digital India by achieving financial inclusivity and creating impact at scale.
For the Indian consumer it has become second nature to quickly reach for the phone to use a UPI app to make payments. It is also not surprising when street vendors promptly present a QR code to accept payments. A cash-dependent economy that underwent the most rapid turnaround to a cashless digital transformation has captured global attention. Interestingly, this behavioural change came about in an astoundingly short period across consumers of all ages and demographics.
Amidst Covid, India was home to the highest number of real-time online transactions ahead of countries such as China and the United States. In India 25.5 billion real-time payment transactions were processed followed by 15.7 billion in China, 2.8 billion in the UK. The US was ranked ninth with 1.2 billion transactions.
Initially, UPI was touted as a technology that would only work for the tech-savvy urban demographic. But UPI has brought about the most accelerated, sustainable, and accessible digital transformation for a contextually diverse country like India, and has become a solid example to demonstrate how localised solutions built with a systemic and collaborative approach can bring about real, lasting impact.
“India’s real-time payments success stems from a coordinated approach to mass adoption nationwide and not being tied to, or heavily invested in traditional, expensive, and relatively inflexible electronic payment infrastructure like its US and European counterparts.” — Ankur Saxena, ACI Worldwide Payments.
The success of UPI required a collaborative effort across all the stakeholders within the ecosystem, from the government to banks, private institutions, emerging fintechs and consumers themselves- every participant played a crucial role in driving the adoption of UPI technology.
Through the service design lens we analysed the factors that contributed to the impactful success of UPI and further reinstate the need for a localised, contextually driven Human Centred Design approach toward the implementation of systemic solutions.
1. Indigenous innovation centred toward unique Indian behaviours
“What we needed to supercharge the Indian payment ecosystem was a product which could do both — pull-push and debit-credit. It needed to be a product native to India and not something that we cut-paste from overseas. That’s when UPI came into being” — Arif Khan, Chief Digital Officer at NPCI
The Indian economy has had a slow and steady pace toward digitisation. Before the mobile payment revolution, on average the Indian consumer made only six cashless transactions in a year! Past examples also show that Indians may place low trust in private entities and Government initiatives are largely presumed to be genuine and safe. The UPI initiative driven by RBI and the Government of India drove the adoption for the low-trust Indian consumer mindset as it helped reinforce the reliability, trust and security of the platform from the user perspective.
Primarily the Indian user landscape consists of mobile-first users with 650 million internet users, of which 70% are bypassing desktops and using smartphones directly to access the internet. UPI being a completely mobile first digital payment experience successfully tapped into this ever growing mobile user segment majorly driven by The Next Billion Users.
Another aspect that makes UPI highly usable is that it works seamlessly even on basic mobile and internet infrastructure, thus becoming very relevant for the mobile-first users. It is not dependent on high-end smartphones or high-speed internet like 5G to work efficiently. This is one of the biggest considerations for a country like India and UPI has successfully and effectively navigated the infrastructural constraints of our country. Moving forward, UPI is paving the way to financial inclusivity even strongly by targeting user segments with low digital access with the launch of the ingenious solution of UPI123pay which will enable feature phone users to make real-time payments through SMS and without internet connectivity.
The UPI offering innovated within the infrastructural parameters of the country and the framework of the Indian consumer mindset by taking the unique behavioural nuances into consideration. This localised, indigenous approach towards innovation helped shape a solution that resonated with Indian consumers.
2. Layered implementation for financial inclusivity
Preceding the launch of UPI and its widespread adoption, the Government’s effort toward building the foundational infrastructure to broaden financial and digital inclusivity became the backbone that guaranteed its success. The most crucial initiatives were the nationalisation of banks, followed by the Pradhan Mantri Jan Dhan Yojana (PMJDY), which focused on making various financial services accessible to all sectors of the Indian society. 1.5 crore bank accounts opened on the first day of PMJDY and expanded to 41.25 crores in six years. Further, the JAM trinity (Jan Dhan Account, AADHAR ID and Mobile number linking) required extensive groundwork — from having a unique identifier in terms of AADHAR, to enabling every household to have a bank account and then subsequently linking this identifier to bank accounts. These multilayered initiatives helped in digitising the larger population and easing the access to UPI for masses.
The rise of affordable smartphones and low cost internet data-packs driven by private entities paved the way for digital inclusivity. With a significant part of the grassroots population gaining access to bank accounts, smartphones and affordable internet services, these collectively became a strong foundation to roll out a nationwide digital payment solution. These foundational efforts along with the additional push to use contactless interactions because of the pandemic, helped expand and served as the biggest launchpad for the ambitious UPI initiative to take off.
3. A Public — Private Partnership for large scale implementation
“India’s journey of creating a digital financial infrastructure has been characterised by collaboration between the government, the regulator, banks, and fintechs. This has helped to advance the country’s goal of enabling financial inclusion and also provided rapid payments digitization for citizens” — Kaushik Roy, VP and head of product management, Asia, ME and Africa, ACI Worldwide
Public-Private Partnerships are a strong example of effective collaboration and are instrumental in the implementation of large-scale infrastructure projects. But many instances in the past show that these initiatives fail to find the optimum level of private-sector participation. The National Payment Corporation of India (NPCI) approach defied the widespread notions of a public-private partnership and offered a glimpse of the private sector tipping in by identifying and authenticating the beneficiaries of the solution.
An article on the Wire states that: ‘For starters, the WhatsApp-NPCI arrangement defies 20th-century notions of public-private partnership. In most turnkey or greenfield infrastructure and services delivery projects, the government supplies the “public assets” with the last-mile operation run by the company in question. In WhatsApp’s case, the messaging platform has built a steady base of first-generation internet users, which the government will tap for digital financial inclusion. In other words, the massive datasets harvested by the private sector — Google also has payment gateway designs of its own for the Indian market — will be leveraged by the government for targeted interventions. This sort of collaboration ensures public agencies will not have to reinvent the wheel (and create overlapping databases) to promote financial inclusion.’
Such partnerships that leverage the strength of a sector — infrastructure to influence public policies and innovation offered by private entities — are effective in deploying systemic innovations for wide-scale impact.
4. Decentralised, democratised and open platform
The functional aspect of UPI that allowed interoperability between bank accounts helped decentralise and democratise the payments space and became the biggest convenience for users.
“UPI allows me to switch between my multiple bank accounts very easily. Although I have set a primary account, I can switch at the point of payment which is super convenient.” — UPI user from Delhi
UPI is built on an open framework providing private players and end consumers all the benefits of open-source infrastructure. An open framework enables innovations like UPI that enable private entities to work autonomously. It is because of the open architecture that even a chat messaging app like WhatsApp could instantaneously integrate with UPI for immediate settlements.
The rapid growth of UPI ensured that fintech players left no stone unturned in making the user experience of the apps flawless. This helped make an otherwise complex space like payments feel approachable and user-friendly for the users. Some users who we spoke to expressed that the novelty of the reward systems and gamification aspects of the apps were the first hook that pulled them onboard. User experience is an extremely crucial aspect as even the best technologies can render useless if not approached from a usability perspective.
“When UPI was first introduced, we used to send INR 50 amongst friends to see if we received a cashback or not. It was their initial reward where you got INR 50 as cashback and we were very intrigued to try it out” — UPI user from Delhi
5. Merchant adoption brought visibility and acted as a push for NBUs
The government’s push towards standardisation and expansion of UPI across the merchant ecosystem had a widespread domino effect. It enabled ease of transaction for the consumers and tapped into a huge market share of a largely unorganised sector. Today right from street vendors, vegetable sellers, shopkeepers, jewellers to big showrooms and malls; all accept UPI.
The biggest unexpected effect of the development of the merchant ecosystem was on the nascent digital users who were on the fence about the reliability of the technology in the beginning. Our conversations with some of the users with low digital and internet exposure revealed that the tipping point for them was when they saw their local vendor and vegetable seller push them to pay via UPI, especially during the pandemic.
“I started using UPI during the pandemic as vegetable sellers would say mobile se payment kar dena. It was accepted at most of the places.” — UPI user from Mumbai. For the tech-savvy early adopters of UPI, aspects of convenience and user experience were the major drivers to move from traditional banking apps to UPI platforms for payments and transfers. But, for the nascent demographic with low exposure to the digital space, the push was external. From the service design perspective, it is extremely important to understand how varied and unique the adoption curve for each user segment was to be able to learn and adapt for the implementation of systemic solutions in the future.
This multifactorial approach toward the implementation of UPI has led to its unparalleled success with India dominating the entire digital payment space and emerging as a global leader today. It has created a massive impact not just within the space of digital payments but has left a ripple effect toward an open and democratised market and all the benefits it brings with it. This case study becomes a strong testament to demonstrate how a systemic approach to innovation and solution implementation can help target nuanced issues and bring about radical transformation to help create real, measurable impact.
— Avani Tavargeri (Research Consultant, Xeno Co-lab)
