The solution, called UPI Lite, will likely be used first to enable digital payments under ₹200 in rural areas, said the people, including three government officials and a senior bank executive testing the solution, on condition of anonymity.
The Reserve Bank of India (RBI) on January 5 authorized offline digital payments worth ₹200 to do without internet connection.
UPI Lite will allow feature phone users to make digital payments from their bank accounts. The bank official quoted above said that two key solutions were being tested. The first is a SIM overlay, and the other is a software solution that will take advantage of over-the-air (OTA) updates.
SIM Overlay is a technology that extends the functionality of a phone’s SIM card, allowing payments and other services to be made even without data availability. OTA, on the other hand, will have the solution delivered directly to the firmware of the device.
The bank official explained that the OTA solution would be akin to the snake game on older Nokia phones, which would receive updates over networks without 3G or 4G networks. However, it will be different from the conventional way of doing it and the technology at play here is patent pending.
“The SIM overlay transaction will go through a telecom network. The overlay will be built inside the phone by the telecom provider. The user will need to have it deployed (on their phone) by visiting a store,” one of the government officials said. “A virtual payment address (VPA), usually referred to as a UPI ID, will be created via SMS. Once the UPI ID is created, the payer must select the contact to whom a payment should be made. If the contact also has a UPI ID, the payer will simply need to click on the name, enter the amount, and send the money,” he added.
He further said that users will need to set up a four- or six-digit PIN, depending on the protocols put in place by their banks. Payments made on the SIM overlay method will go to servers operated by the NPCI as part of the UPI system, and transactions occur on the regular UPI network from there. “This whole process will work over SMS networks instead of the Internet,” the official explained.
India has seen a proliferation of digital payments since the demonetization of banknotes in 2016. A July 21 report by financial technology firm RazorPay said that Tier II and Tier III cities in India contributed more than 50 % of all online transactions in the quarter ending March 2021. However, cash still dominates in towns and cities.
“The offline small value mode for digital payments will provide an alternative, secure and low-cost payment method with a near-cash-like feature, thereby increasing consumer confidence as the preferred mode for small retail payments” , said Monish Shah, Partner, Deloitte India. “This can give impetus to several innovative use cases in terms of retail payments, such as ticketing, product bundling, as well as non-standardized pricing,” he added.
Shah added that systems like this could eventually provide companies with “data and analytics tools to understand small payment patterns and deliver innovative, personalized solutions.”
Granted, this isn’t the first time the government has tried to push digital payments to rural areas. The NPCI has offered UPI payments on Unstructured Supplementary Service Data (USSD) networks since 2012, but it has not resumed, mainly because it involves SMS charges, which are too high for rural users.
According to NPCI data, 83 banks were active on the USSD system in December, and transactions were only worth ₹1.21 lakh were recorded in 2021.
There are other solutions such as Near Field Communication (NFC) technology which is also being tested. “We worked with the Maharashtra State Road Transport Corp. to facilitate NFC-based “tap and go” payments with prepaid cards for bus tickets. We have issued over three million prepaid cards for the rural masses of Maharashtra,” said Ashish Ahuja, Chief Operating Officer, Fino Payments Bank.
“Given that feature phones still make up 50% of the market, this will give a boost to payments where internet penetration is low,” Ahuja added.
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