Reference material accumulated from multiple public sources to understand basics of Indian payments industry

1. PAYMENTS 101
INDIA PAYMENTS – A PRIMER
KAPISH KAUSHAL
https://in.linkedin.com/in/kapishkaushal

2. The following document is a collection of personal notes on understanding the basics of the Indian
payments industry. All the information in the document was accumulated from public sources –
Annual Reports, Payments Publications, Newspaper Articles, Magazines etc.
Source List (Not Exhaustive)
▪ Red Book – Published by BIS
▪ The Economist
▪ The Ken
▪ PYMNTS.com
▪ Let’s Talk Payments
▪ Investopedia
▪ Economic Times
▪ Annual Reports – Banks, Card Networks, Merchant Acquirers etc.
▪ Reserve Bank of India – Whitepapers / Statistics / Annual Publications
▪ Company Websites

3. PAYMENTS – INDIA
Table of Contents
1. Card Networks (Rupay and Rupay Contactless)
2. Payment Methods - IMPS, NEFT, CTS, NACH, NFS, Bharat Bill Pay, AEPS
3. Unified Payment Interface (UPI)
4. Mobile Applications (BHIM, Paytm, PhonePe, Amazon Pay)
5. Merchant Acceptance (CC Avenue, Bill Desk, Insta Mojo, Razor Pay, Pine Labs, Citrus)
6. Others (FINO)
7. Mergers and Acquisitions
8. Glossary
9. Difference Questions
10. Financial Inclusion
11. Miscellaneous
1. Card Networks
RuPay
▪ New card payment scheme launched to offer a domestic open-loop multilateral system
which will allow all Indian banks and financial institutions in India to participate in electronic
payments
▪ Advantages of RuPay
o Since the transaction processing will happen domestically, it will lead to lower cost
of clearing and settlement for each transaction. This will make the transaction cost
affordable and will drive usage of cards in the industry
o Transaction and customer data related to RuPay card transactions will reside in India
o There are under-penetrated / untapped consumer segments in rural areas that do
not have access to banking and financial services. Right pricing of RuPay products
would make the RuPay cards more economically feasible for banks to offer their
customers. In addition, relevant product variants would ensure that banks can target
the hitherto untapped consumer segments
RuPay Contactless
▪ NPCI developed RuPay Contactless specifications - open standards, interoperable and
scalable and can be adopted by all card schemes
▪ Interoperable, open loop EMV based product where amount users can add money to the
card through various payment modes such as cash and internet banking.
▪ RuPay Contactless specifications have been developed to offer vendor agnostic, scalable,
inter-operable, secured, user friendly and cost effective ecosystem of low value payments to
facilitate building a cashless transaction environment. The specifications will allow member
banks and any other RuPay service provider / issuer to bring out open loop RuPay products
while providing them the option of offering inbuilt stored value and stored data
functionalities
▪ RuPay Contactless offers the unique proposition of One Card for all payments. This card can
be used for transit payments (bus, metro, cab etc.), toll parking, small value offline retail
payments as well as normal day to day retail payments
▪ On the lines of Oyster card in London or Octopus card in Hong Kong

4. 2. Payment Methods
IMPS
▪ Immediate Payment Service
▪ Robust and real time funds transfer which offers an instant electronic funds transfer that
could be accessed on multiple channels like mobile, internet, ATM, SMS, branch etc.
▪ Real time and more mobile related (limits on payments that can be made in one day,
amount, different number of beneficiaries etc.)
▪ IMPS rides on the existing NFS interbank ATM transaction switching infrastructure and the
message format was co-developed with MPFI
NEFT
▪ Indian name of ACH
*99#
▪ UPI for non-internet based mobile devices in the form of dialling option *99# and is known
as USSD 2.0
▪ Key services offered under *99# include sending and receiving interbank account to account
funds, balance enquiry, setting / changing UPI PIN besides host of services
NACH
▪ NACH is a funds clearing platform set up by NPCI similar to the existing ECS of RBI (Shift to
real time mode from batch mode)
▪ Can be used for making bulk transactions towards distribution of subsidies, dividends,
interest, salary, pension and also for bulk transaction towards collection of payments
pertaining to telephone, electricity, water, loans, investments in mutual funds etc.
▪ Launched with an aim to consolidate multiple ECS systems running across the country and
provides a framework for the harmonization of standard & practices and removes local
barriers / inhibitors
▪ Benefits of NACH Debit to Banks: Standardization and digitization of mandates allowing
complete trail of the mandate lifecycle, will result in higher revenues for the banks and its
clients as scope of services expand pan India, corporates get to have direct access to the
NACH systems making it easier for them to get access to status of transaction / mandate
without delay
▪ NACH credit is an electronic payment service used by an institution for affording credits to a
large number of beneficiaries in their bank accounts for the payment of dividend, interest,
salary, pension etc. by raising a single debit to the bank account of the user institution
▪ From May 1, 2016, NACH will be applicable to all ECS transactions. This applies to utility bills,
insurance premiums, credit card bills, SIP of mutual funds or any payment which is recurring
in nature. Fresh registration of ECS will be stopped after May 1, 2016
Cheque Truncation System (CTS)
▪ Cheque truncation is the process of stopping the physical movement of cheques. The
movement of the physical instrument is stopped and replaced by electronic images and
associated MICR line of the cheque

5. ▪ Cheque truncation speeds up collection of cheques and therefore enhances customer
service, reduces the scope for clearing related frauds, minimizes cost of collection of
cheques, reduces reconciliation problems, eliminates logistics problems etc.
▪ NPCI acts as a cheque processing centre (CPC) and will process electronic cheques and
images received from member banks
▪ RBI manages the clearing house, carries out settlement of clearing transactions that NPCI
processes and looks into all policy related matters
▪ Prior to CTS clearing, the instruments used to get settled in MICR clearing
National Financial Switch (NFS)
▪ Multilateral ATM network in the country
▪ Largest interoperable network in the country and it manages more than 95% of domestic
interbank transactions
▪ NFS network comprise of 745 members which includes 100 direct members, 645 sub-
members including regional rural banks (RRBs) and white label ATM operators (WLAOs)
▪ The network now has 2,30,000 ATMs
▪ NFS connects the ATM of member banks under a single network. Since all the ATM of the
member banks are connected, the customer can use any ATM other than that of his
specified bank
▪ The banks without ATM network but which can provide core banking facilities with 24x7
services can join the NFS through a sponsor bank
▪ NFS enables interconnectivity in a way that transaction executed at any of the bank’s ATM is
routed to the connected banks. So, the banking and the payment system is rendered easy,
accessible, affordable and feasible with NFS
▪ Transactions made at any ATM could be routed to the connected banks
▪ NPCI charges banks for processing inter-bank ATM transactions
▪ Each time a customer of ICICI Bank, for example, withdraws cash at the ATM of HDFC Bank,
ICICI has to pay HDFC a transaction fee of Rs 20. Further, ICICI Ban has to pay NPCI a
switching fee of Rs 0.45
▪ NFS has introduced sub-membership model which enables smaller, regional banks including
regional rural banks and local co-operative banks to participate in the ATM network
▪ NPCI has also tied up with international card schemes like Discover Financial Services, JCB,
CUPI which allows their cardholders to use ATMs connected to NFS network
Bharat QR
▪ Person to Merchant mobile payment solution
▪ This solution is mutually derived among NPCI, Visa and Mastercard payment networks. Once
the BQR codes are deployed on merchant locations, user can pay the utility bills using BQR
enabled mobile banking applications without sharing any user credentials to the merchant
▪ Cardholder has to download his / her bank’s Bharat QR enabled mobile banking app. User
has to scan the Bharat QR code at merchant store and select card to make payment
▪ Bhim QR is UPI based QR. It is preferably used for P2P or P2M dynamic transaction using
virtual payment address.
▪ Bharat QR is specifically used for P2M transaction wherein payment is done via cards (debit
card / credit card / prepaid card)
▪ All UPI applications have to support Bharat QR

6. ▪ Similarly, your Paytm account can only be used to pay merchants who have a Paytm QR
code. Conversely, merchants who only have a Paytm QR code can’t accept QR based push
payments from any apps other than Paytm
▪ Customer >>> Mobile Banking App >>> Bharat QR >>> NPCI does the switching
▪ Merchants will need to display one QR code at the storefront or through the acquiring
bank’s mobile application
▪ Consumers will not need to scan different QR codes at the same merchant provided by the
different payment networks
▪ UPI QR codes got integrated with Bharat QR codes
▪ Banks are looking at their base of merchants who have current accounts to sell this
proposition
AEPS
▪ A system allowing Aadhaar biometric authentication based transactions from a bank account
that is linked with Aadhaar number
▪ AEPS allows Aadhaar holders to transfer funds to anywhere in India across banks just by
using their Aadhaar number and biometrics (card-less and PIN-less). Several 1000's of Micro-
ATMs (handheld machines with biometric sensors operated by BCs) use AEPS system to
provide cash withdrawal and fund transfer facilities in urban and rural parts of India
▪ Bank led model which allows online interoperable financial inclusion transactions at PoS
(Micro ATM) through the business correspondent of any bank using the Aadhaar
authentication
▪ The objective is to empower a bank customer to use Aadhaar as his / her identity to access
his / her respective Aadhaar enabled bank account and perform basic banking transactions
like cash deposit, cash withdrawal, intrabank or interbank fund transfer, balance enquiry and
obtain a mini statement through a business correspondent
▪ Another objective is to facilitate disbursements of government entitlements like NREGA,
social security pension etc using Aadhaar and authentication thereof as supported by UIDAI
▪ BHIM Aadhaar Pay is meant for merchants to receive digital payments from customers OTC
through Aadhaar authentication
▪ AEPS or the Aadhaar Enabled Payment System was built with a vision to extend banking and
financial services to the unbanked pockets of the country, through a system called Micro
ATM
▪ Micro ATMs are essentially a bank led model where banking or business correspondents are
authorised to provide basic, essential banking services to people through a simple machine
that authenticates digital transactions via the Aadhaar identity system
▪ The Micro ATM machine is identical to POS hardware, but comes with an in-built, keypad,
printer and scanner to allow for authentication through biometric information (fingerprint).
A simple process of entering Aadhaar number, selecting the Aadhaar linked bank account
and authentication via fingerprint is all it takes to process transactions through the AEPS
Micro ATM
▪ Transaction flow would be similar to a POS transaction (bank to bank transaction; no card
validation is required)
▪ The cutover of AEPS transactions happens to 23:00 hours each day. All transactions before
this time are included in settlement for that particular day. The settlement is affected by
NPCI’s RTGS. As a joining procedure, the participating banks need to submit a mandate for
crediting and debiting their RTGS accounts with the RBI in favour of NPCI. On the basis of

7. this mandate NPCI would affect the settlement by debiting / crediting respective bank’s
current account with such sums as may be specified by NPCI in its settlement instructions
Aadhaar Pay
▪ The Aadhaar Pay App is a system that is specially designed for merchants and enables digital
transactions through the Aadhaar identity system, via a simple smartphone app with no
additional need for any hardware or POS equipment
▪ It is essentially the merchant version of AEPS that functions without a POS device
▪ Since the whole Aadhaar payment system is authenticated via biometrics, the app also
functions only in conjunction with a fingerprint scanner. In case the merchant’s smartphone
does not come pre-enabled with a fingerprint scanner, an external scanner, that is STQC
(Standardisation Testing and Quality Certification Directorate) certified can be attached to
the smartphone in order to process payments
▪ In order to leverage the solution, merchants have to register with a bank (that supports
Aadhaar Pay) by submitting e-KYC details and downloading the app through the link sent to
their smartphones. Once Aadhaar Pay app installation is complete, merchants can easily
start accepting payments
▪ Merchant installs the Aadhaar Pay app on his/her smartphone (after completing an e-KYC
process with the bank) and ensures that a biometric scanner is attached to it.

8. ▪ Customer enters the his/her 12- digit Aadhaar number, after which the app will fetch the
linked bank accounts and the customer will need to select the bank account from which the
payment is to be made (in case there are many bank accounts linked to the Aadhaar
account)
▪ Customer authenticates payment by scanning his/her fingerprint and successfully completes
the transaction, and the merchant receives the payment directly into his/her bank account
▪ The Aadhaar Pay app brings in an era where digital, cash-less transactions can be made
without the need for even debit or credit cards, something that was never imagined to be
possible before
▪ From the cost and convenience standpoint, the Aadhaar Pay app removes the need investing
in expensive POS equipment, completing all transactional requirements with just a single
app
Bharat Bill Pay
▪ The current bill payment system in India offers a variety of physical and digital payment
delivery channels to the public
o Physical Channels: Biller Outlets, Manned 3rd
Party Outlets, Self Help Kiosks
o Digital Channels: Bank, 3rd
Party Site (Integrated / Multiple Payment Gateway), Biller
Website (Integrated / Multiple Payment Gateway)
▪ Banks: Quick Pay (Electronic Bill Presentment and Payment), Standing
Instruction, ATM
▪ 3rd
Party Site (IPG / MPG): EBPP, Internet and Mobile
▪ Biller Website: Internet and Mobile
▪ The physical channel continues to dominate the bill payment space
▪ Majority of the bill payments under “Existing Categories” are presently made through cash
and cheques; about 70% in cash at biller’s own collection point
o Existing Categories: Mobile and Landline Payments, Electricity, Gas, DTH, Credit
Cards and Insurance
o Emerging Categories: Education, Club, Housing Societies, Taxes and B2B Invoicing
▪ NPCI will function as the authorized Bharat Bill Payment Central Unit (BBPCU)
o BBPCU will also undertake clearing and settlement activities related to off-us
transactions
o NPCI will set up necessary operational, technical and business standards for the
entire system and its participants
▪ Bharat Bill Payment Operating Unit (BBPOUs) will be authorized operational entities,
adhering to the standards set by the BBPCU for facilitating bill payments online as well as
through a network of agents on the ground
o Banks and non-bank entities can apply for authorization to become BBPOUs
▪ On-Us Transaction: These are the transactions in which the agent and the biller are linked to
the same BBPOU, or the customer is making a payment through an online portal provided by
a BBPOU which is also linked to the biller. These transactions will not pass through the
BBPCU and the settlement will be carried out at the OU level itself
▪ Off-Us Transaction: "These are the transactions in which agent and biller are not associated
with the same operating unit. The agent/ agent institution, who initiates the transaction is
linked to one operating unit (OU1) and biller is linked to another operating unit (OU2). In
these scenarios, the OU1 will pass the transaction to the BBPCU which will then pass these
transactions to the respective OU. If the biller is linked to multiple OUs then the transaction
would be passed to the default OUs of the biller. In addition to this the below mentioned

9. online transactions are also considered Off-Us transactions a. If the customer makes a bill
payment using the online portal provided by an agent institution / OU where the agent and
biller are not linked to the same BBPOU. b. In case the Operating Unit has not on-boarded
any agent or biller but is still part of BBPS. In this scenario the payment will be considered an
Off Us transaction. "
▪ Sponsor Bank: Will be required for non-bank BBPOUs for settling accounts in RTGS
▪ UPI is one of the payment mode of bill payment in BBPS
▪ NPCI executes the settlement between BBPOUs (or their sponsor banks if the BBPOU is not a
bank) by debiting / crediting their respective RBI settlement account. Currently, there is one
settlement everyday
▪ One stop payment platform for all bills providing an interoperable and accessible “Anytime
Anywhere” bill payment service to all customers across India with certainty, reliability and
safety of transactions
▪ Bharat Bill Pay offers myriad bill collection categories like electricity, telecom, DTH, gas,
water bills etc. through a single window. In future biller categories may be expanded to
include insurance premium, mutual funds, school fees, institution fees, credit cards, local
taxes, invoice payments etc.
▪ Bharat Bill Pay transaction can be initiated through multiple payment channels like internet,
internet banking, mobile, mobile banking, POS terminal, mobile wallets, MPOS, kiosk, ATM,
bank branch, agents and business correspondents
▪ How the Customer Makes the Payment:
o Connect to any internet banking / app of your respective bank or visit bank branch
or retail shop
o Click on bill payment or BBPS tab
o Choose the category of biller and enter the bill details
o Initiate a payment and get instant confirmation
▪ Through Bharat BillPay, for example, customers of Tata Power will be able to pay their bills
on a payment app like Google Tez, regardless of whether Tata Power and Tez have a direct
agreement. This happens because NPCI routes the bill payment to the aggregator that has
partnered with Tata Power. So, any and all bills can be accessed by consumers at any or all
consumer facing points like a bank, kirana shop, brick and mortar outlets run by ItzCash and
Oxigen, and consumer payment apps like Mobikwik, Google Tez, Phone Pe or Paytm
▪ NPCI’s Bharat BillPay could do to BillDesk, what the NPCI did to card networks when it took
over the running of the ATM network. Previously, Visa and Mastercard charged banks Rs 4-5
($0.06-$0.075) for each ATM transaction. After NPCI entered the fray, it brought this down
to Rs 0.50 ($0.0075)
▪ Customer (Physical / Online / Mobile) >>> Bank Account / Card / UPI / Net Banking >>> Bill
Pay >>> Relevant party does the switching
▪ In case of ON-US transactions, the BBPOUs will identify a settlement bank where the agents
and the billers need to maintain their settlement accounts and the BBPOU will arrange to
settle the amounts to the billers and agent institutions / agents through the settlement bank
and designated settlement accounts. In case of OFF-US transactions, since the clearing and
settlement to BBPOUs will be done by the BBPCU, the BBPOUs will have to indicate a
designated settlement bank account through which the OFF-US settlement transactions will
be processed by the BBPCU. In case of a non-bank BBPOU, the designated settlement
account will be of its sponsor bank

10. ▪ Billers will be onboarded in BBPS by BBPOU’s only. Thereafter the biller will be part of the
BBPS and available as on-us biller for the onboarding BBPOU and off-us biller for other
BBPOUs
▪ Although a biller can participate in BBPS through multiple BBPOUs, there will be a core or
default BBPOU through which biller will get BBPS services. All off-us transactions will get
routed to the default BBPOU while handling bill payment. The biller will have the option to
change BBPOU after giving a 60 day notice
3. Alternate Payments
UPI
▪ UPI is a way to transfer money: The easiest way to think of UPI is that it is a payment
method to transfer money between 2 parties. It is similar to NEFT and RTGS transfers in that
way. Even though it is being promoted as a “payment interface” and an API, it is easier to
think of it as a way to transfer money
▪ UPI is interoperable between banks. This is really important. By standardizing UPI as the
“money transfer API”, NPCI is forcing banks to improve their interoperability. This will let
customers manage their bank accounts on multiple banks over a single application (from any
of the banks)
▪ UPI is not going to replace Net Banking. UPI does one thing and it does well (money
transfers). Net banking applications provided by banks do far more things. For e.g. you can
apply for health insurance on your bank portal.
▪ A system that powers multiple bank accounts into a single mobile application (of any
participating bank) merging several banking features, seamless fund routing & merchant
payments into one hood
o Money transfer between any two bank accounts by using a smartphone (instant real
time payment system)
o Allows a customer to pay directly from a bank account to different merchants, both
online and offline, without the hassle of typing credit card details, IFSC code, or net
banking / wallet passwords
▪ UPI is built over IMPS infrastructure and allows you to instantly transfer money between any
two parties bank accounts
o Unlike traditional wallets, which takes a specified amount of money from user and
stores it in its own accounts, UPI withdraws and deposits funds directly from the
bank account whenever a transaction is requested
▪ Features: Immediate money transfer through mobile device round the clock, single mobile
application for accessing different accounts, single click 2 factor authentication, bill sharing
with friends, utility bill payments, OTC payments, barcode based payments
▪ The UPI application needs to be downloaded from the bank’s app
▪ Benefits for End Customers: Round the clock availability, single application for accessing
different bank accounts, use of Virtual ID is more secure, no credential sharing, single click
authentication, raise complaint from mobile app directly
▪ Benefits for Merchants: Seamless fund collection from customers – single identifiers, no risk
of storing consumers’ virtual address like in cards, tap customers not having credit / debit
cards, suitable for e-com and m-com transaction, resolve the COD collection problem, single
click 2FA facility to the customers – seamless pull, in-app payments

11. ▪ Benefits for Banks: Single click to factor authentication, universal application for transaction,
leveraging existing infrastructure, safer, secured and innovative, payment basis, single /
unique identifier, enable seamless merchant transactions
▪ When you shop online, you can pay through UPI when you see UPI as a payment option. On
clicking that, you will need to enter your payment address (xyz@upi.com). Once entered,
you will receive a collect request on your BHIM app. Enter your UPI-PIN here and your
payment will be complete
o To initiate a transaction, you can use two types of address – global or local. Global
address includes your mobile, Aadhaar and bank account numbers. A local address
can be a virtual address. The virtual address will allow you to send and receive
money from multiple banks and prepaid payment issuer
▪ UPI is providing additional benefits to IMPS in the following ways: Provides for a P2P pull
functionality; simplifies merchant payments, single app for money transfer and single click
two factor authentication
▪ NPCI provides an SDK to all PSPs on UPI network to enable them to provide a consumer
facing application, which can be built using the SDK. Aside from running the network, NPCI
also runs its own PSP backend, customer facing app
▪ For the consumer, over 60 applications are available to use UPI by creating / managing VPAs,
sending, receiving payments. Although the UPI specification mandates required features for
an app to qualify as an UPI app (ability to pay / collect transaction history, balance check,
linking bank accounts, management of VPA, dispute management, handling intents / QR),
different PSPs, app makers with partnerships with PSPs offer additional features to users
▪ Although some bank apps allow linking a merchant’s current account to a VPA, thereby
allowing self-onboarding to accept UPI payments, each bank / PSP defines a transaction limit
for such VPAs. A merchant has to contact the bank and get onboarded as a merchant
formally, similar to onboarding card acceptance process. Besides from providing a merchant
VPA, PSPs also provide merchant with applications for online merchants, API / SDK for online
merchants for processing payments through their web / application
▪ UPI for Face to Face Merchant Transactions
o UPI Merchant Apps / Digital POS: Some PSPs offer merchants an app through which
a storefront cashier can accept payments, either by generating a dynamic QR code
which customer can scan and pay using their app or by entering amount and VPA of
customer to initiate a collect request which customer can accept. These apps create
an acceptance infrastructure using the mobile of storefront cashier, suited for small
merchants. This category of apps might soon merge with Bharat QR and become
digital POS apps, if not already (Apps: BHIM Lotza Merchant App, HDFC Bank
SmartHub App, IDBI UPI POS, ICICI EasyPay)
o UPI @ POS: While merchant apps are best suited for small shops with low volumes,
the PoS machine is nearly inseparable in modern retail and a few POS products
support UPI as an additional payment mode separated. The PoS machine generates
a QR code which a user can scan and make payment and unique features of this
solution as it creates paper trail for the transaction which increases trust to both
merchant and customer, and solves pain point of storefront cashier in reconciling
digital payments end of day (Devices: BonusHub, HDFC DiGiPoS, Innoviti, Platus,
PineLabs)
o UPI for Face to Screen / Remote Merchant Transaction: E Commerce sites, online
payment processors, large enterprises have different, complex payment needs and
integration of UPI flows for business need. PSP backends can provide access to these

12. systems through an API / SDK to facilitate custom integration of UPI into merchant /
existing enterprise / billing system to offer their customers better payment
experience using UPI. Facility to send and monitor collect requests, custom apps,
MIS reporting are some features of merchant solutions offered by a PSP
▪ Pricing Model for UPI P2P Transactions
▪ Pricing Model for Merchant Transactions:
▪ In case of merchant transactions, it is the ownership of acquiring bank to populate the
correct MCC code, under which the merchant is set up. The UPI system will calculate and
settle the interchange between the acquiring bank and issuer bank basis MCC code
populated.
▪ In case of P2P transactions, the interchange will be basis “Default MCC” populated in P2P
debit leg. The interchange is same i.e. IMPS P2P interchange. P2P MCC code cannot be used
for merchant transactions
▪ Example of a Merchant UPI transaction for fees calculation

13. ▪ Example of a P2P transaction for fees calculation
▪ NPCI Mapper: NPCI has collaborated with UIDAI to create a centralized Aadhaar mapper.
The Aadhaar mapper, at present acts as an enabler for payment owing to the Aadhaar
number mapping to the account number as the financial address
▪ The card networks have been working on bringing a UPI competitor for more than a year
and a half now. They have been in talks with WhatsApp and Google to integrate cards, in
addition to UPI, but the networks haven’t had much luck in getting all the banks on board.
Here is how the card network’s version of UPI would work. UPI has an underlying bank
account which is tied to a UPI ID. To transfer money, one only needs to know the UPI ID of
the beneficiary. In the network’s version, an ID is tied to the 16 digit debit card number.
Globally, Visa has a solution for this called Visa Direct and Mastercard Send. But for this to

14. happen in India, Visa and Mastercard need to be interoperable with each other, and they
also need to bring all banks on board, which is where the project is currently stuck
▪ Nearly 90% of the transactions today on UPI are peer to peer. The cashbacks and incentives that
fuel the P2P transaction pollute the numbers and dilute the average transaction size. The real
value of UPI will come from peer to merchant transactions which are harder to get
▪ Why will you use UPI to pay merchants if you have a card? (Beside the point of cashbacks
that is.)
▪ ‘As a substitute for cards, digital wallets and UPI have developed no significant traction so
far in physical stores possibly due to a lack of well-defined value proposition and a sub-
optimal experience for consumers and merchants

15. ▪ With cards, the burden of conducting a transaction lies with the merchant. He enters the
amount and swipes the card. And the customer enters the 4-digit pin. For UPI the steps are
more than one. Though easy to execute, it is still more than one. The apps need unlocking
using a passcode or thumbprint, then you have to wait for the ‘collect call’ or the request
from the merchant. And only then enter the 4-digit pin to close the transaction
▪ As compared to cards, the new alternatives like UPI, Wallets and QR code require multiple
steps to be carried out by both the merchant and the customer, and that new burden
creates a resistance to adoption
▪ This is one of the reasons why even very easy-to-use payment methods like Apple Pay in the
US too have found it difficult to get accepted
▪ The real opportunity for UPI adoption, however, lies online. Paying through cards or net
banking is still a cumbersome affair in the online world. Even though both UPI and cards
have to go through the two-factor authentication process, UPI’s authentication process is
more seamless than cards.
▪ When creating your VPA, you can link a primary bank account. While the BHIM app allows
you to link only one VPA to one bank account, some banks allow you to have multiple VPAs
linked to a single bank account
▪ The UPI app can be from customers’ own bank or from any bank that is UPI enabled (app
might not be from your own bank)
Bharat Bill Pay UPI Bharat QR
P2M Only P2P and P2M P2M Only
Only for bill payments Money Transfer API Restricted to QR
UPI will be one of the ways to
make bill payment
When selecting the UPI
payment option in a P2M
setting, the acceptance could
be through QR
Can use bank account, cards
etc. to pay (can be initiated
through multiple payment
channels)

16. 4. Mobile Applications
Categories of Mobile Applications
▪ Mobile Banking App: Some banks have an embedded UPI section in their existing mobile
banking app. While an existing user of the bank can use his bank login and would see a new
section in the app to configure and use UPI, new bank users could just use the UPI section
alone, using the regular onboarding process. A key feature to note in ICICI iMobile app is
that the UPI transactions are authenticated by the bank’s own authentication factor,
meaning since the user has already logged in to mobile banking using existing authentication
mechanism, the bank isn’t using UPI-PIN like other UPI apps and could potentially use its
own preferred auth mechanism (Applications: HDFC Mobile Banking, ICICI iMobile, Digibank
by DBS)
▪ PSP App: Most banks have preferred to launch exclusive UPI app to share mostly the same
set of features having different UI / UX. All applications consume UPI SDK provided by NPCI
and interact with their respective PSP backends. Since many features of the app are
common, some banks have preferred to launch the app / backend by branding a white label
solution with bank’s branding, while others have invested in building the app completely.
(Non-Bank PSP Apps: BHIM, PhonePe, Tez) (Bank built PSP Apps: Standard Chartered, Baroda
MPay) (White Label Solution Providers: Infrasoftech, OliveCrypto, FSSTech, LCode
Technologies)
▪ ASP (Application Service Provider) Payments App: Except the three non-bank entities
running PSP backends, any other private, non-bank entity can develop a UPI app, as an ASP,
having a partnership with bank PSP. All such apps use the bank’s PSP SDK, which contains
UPI SDK within itself. Newest UPI platform measures may take additional time to come to
ASP applications, due to the fact that PSPs have to update their SDK with latest version of
UPI SDK and ASP app makers are dependent on PSP SDK for their interaction with UPI. These
are apps by fintech, paytech entities to provide payment solutions to consumers. Some of
them might offer extra options to integrate with their own wallet, bill payments, split
payments, offers device integration features like NFC etc. (Apps: Chillr, Citrus Pay, Samsung
Pay, Cointab)
▪ ASP Integrated App: These are apps are primarily utility apps operating in their own space,
wanting to add payments as an additional layer to improve user experience, tightly integrate
UPI payments into their payments flows for native UPI experience. This tight integration
means the user need not exit the app to make a UPI payment, can manage VPAs, view
transaction history right inside the same app. (Apps: Hike, Truecaller, Jugnoo, Uber)
BHIM
▪ UPI based payment interface which allows real time fund transfer using a single identity like
your mobile number / name
▪ Not a wallet
▪ Application that allows a customer to make simple, easy and quick payment transactions
using UPI. A person can make instant bank to bank payments and pay and collect money just
using mobile number or virtual payment address (UPI ID)
▪ No need to create wallet for using BHIM, any bank account can be linked to the BHIM app
using the bank connect option
▪ Real time fund transfer using a single identity like your mobile number or name

17. ▪ Unlike mobile wallets which hold money, the BHIM app is only a mechanism which transfers
money between different bank accounts. BHIM also allows users to check the current
balance in their bank accounts and to choose which account to choose to use for conducting
transactions, although only one can be active at any time
▪ BHIM boasts several advantages over conventional digital wallets. For instance, users of UPI
based applications can transfer funds from one bank account to another without any
processing fee. The transfer is also significantly faster than NEFT, which until now was the
preferred mode of transferring money. Unlike traditional methods, customers can add
beneficiaries instantly on UPI, without having to provide their bank account details and IFSC
code
▪ Transactions via digital wallets are more complicated, requiring users to first add money to
their account before being able to send funds to other wallets. When it comes to
transferring money back to the bank account, these platforms usually levy a fee
▪ Embedded within banking app (like BHIM Bandhan, BHIM United etc.)
▪ NPCI will do the switching if paid by UPI
▪ BHIM allows you to use two VPAs. First one is default VPA (mymobilenumber@upi). The
second one, the customer can create
▪ If someone links their Aadhaar number in two bank accounts and in the event, you send
them money via BHIM, the money gets credited to the account where the Aadhaar number
was linked the latest
▪ This started as a standalone app, but now I think has been embedded into the banking apps
(at least based on Google Play Store) (However, internet videos and web links show it is still
available as a standalone app as well)
▪ I guess the only difference between the standalone BHIM app and BHIM embedded in a
banking app is that all banks might not be offering that embedded feature in their apps
Paytm
▪ Paytm revenue model can be divided into the following categories
o Marketplace (Paytm Mall): Revenue from this subcategory is generated as fees and
commissions from the sellers, which differ for different category of products
o Recharge Services: Paytm charges commissions from the operators
o Bill Payment: Charging commission to the service providers
o Payment Solutions: Paytm offers smart payment solutions for online businesses.
The payment solutions will allow them to accept online payments through Paytm.
The payment option comes with no setup fee and maintenance charges. However,
the company charges a commission of 1.99% on every transaction
o Paytm Wallet: The money deposited by users in Paytm wallet is deposited by Paytm
in an escrow account, as per RBI guidelines, with a partner bank. This escrow
account deposit fetch Paytm certain interest which is decided as per the contract
between the bank and Paytm
o Digital Gold: Paytm has partnered with gold refiner MMTC – PAMP to launch
“Digital Gold” that will allow its users to buy, sell, and store gold digitally without
any additional cost. Users can also get their gold delivered to their house with just
paying a minimal delivery charge
o Paytm Bank
▪ Paytm pays fees to card networks or banks whenever you use any payment instrument like
any other online e-commerce company. Paytm pays hefty charges when you use your credit
card to card networks and issuing banks

18. ▪ Will transfer money to its own bank account and from there transfers to merchant’s bank
account using UPI
▪ BBPOU in Bharat Bill Pay
PhonePe
▪ The payments player is manufacturing one million calculator based POS devices, which will
be deployed at physical stores across the country
▪ Our POS device is designed specifically for the mass market. It is very cheap, easy to use and
highly durable.
▪ Interoperability between wallets and bank accounts is the need of the hour. Consolidation
among wallet players is also inevitable. Most wallet players don’t have a business model
today. Pre UPI, the belief was that wallets were more convenient for the customer. Post UPI,
there is hardly any motivation left for consumers to load a wallet
Amazon Pay
▪ Launched in June 2017, now accounts for 48% of all digital transactions on the platform
▪ Aggressively using its wallet instrument on 3rd
party merchant sites across food, travel,
movie tickets etc.
▪ The main channel of monetization of such payment data of customers will be through
offering financial services such as loans and insurance
▪ Amazon is in talks to invest in lending startup Capital Float and use the latter’s tech for
customer financing
5. Merchant Acceptance
CC Avenue
▪ Avenues is the country’s largest SaaS provider and an emerging global player, powering
1lakh + Indian businesses with end to end e-commerce solutions
▪ Avenues caters to merchants across several industry verticals including online retail,
education, hospitality, travel and event management, amongst others
▪ Integrated within its core businesses are 4 allied businesses viz CC Avenue, Res Avenue, Bill
Avenue and Event Avenue
▪ CC Avenue: Payments platform for e-commerce businesses in India. It is designed to help its
1 lakh + merchants accept online payments through a spectrum of new-age payment
options including credit cards, debit cards, Amex, EzeClick, net banking, prepaid instruments,
UPI etc.
▪ Bill Avenue: Unified inter-operable online bill payments platform built on the Bharat Bill Pay
(BBP) infrastructure developed by NPCI. It offers an “anytime, anywhere” bill payment
facility to customers across India through a network of agents via multiple payment modes
with instant confirmation of receipt of payment
▪ On opting for CC Avenue’s services, gateways of multiple banks are assigned across your
account. CC Avenue’s smart system detects the best performing gateway in terms of success
rates and routes your transaction through it. In the event of downtimes, schedule
maintenance breaks, load on the break servers etc., CC Avenue’s intelligent algorithms
identifies the drop in success rates and automatically routes transaction through another
bank’s gateway. This ensures that the conversion statistics always remain on the higher end

19. ▪ CC Avenue Checkout offers a smooth, fast and frictionless buying experience. This feature
enables customers to store their credit and debit card credentials, billing and shipping
details in a PCI compliant environment for future use. Card details are saved in an encrypted
form and returning customers have to only enter the CVV and 3D secure password when
doing their next transaction
▪ CC Avenue offers two interfaces: Variable Amount Interface and Shopping Cart Interface
▪ Variable Amount Interface: If you have developed your shopping cart and you need
CCAvenue.com exclusively for final amount authorization you can use Variable Amount
Interface. Once the customer finishes shopping on your site, you forward the final amount to
the CCAvenue 'secure server final payment check out' page. Your customer then selects his
desired payment mode and enters his/her payment details and shipping information to
complete the sale
▪ Shopping Cart Interface: If you do not have a shopping cart developed yet or don't want
to spend your precious resources on designing one, then this interface is just right for
you. Use the readymade Shopping cart provided by CCAvenue; which can be customized
to match the look and feel of your site. At the top of the shopping cart, simply put up
your industry standard 468 x 68 banner, customize the background colour to match that
of your website, add the links and give it a total look and feel same as your website. On
your site, list your product or services and insert an 'Add to Cart' button next to this list.
We provide these buttons along with snippets of HTML code. Once your customer clicks
on the 'Add to Cart' button, he is seamlessly taken to your customized Shopping Cart
hosted on CCAvenue's secure server. Here, he has the option of paying up and finishing
the transaction OR adding more items from your site. Customers can select products for
purchase and add them to a virtual "Shopping Cart" on our secure server. When he has
finished shopping, the customer clicks the 'Checkout' button, enters his/her Payment
details and shipping information to complete the sale.

20. Bill Desk
▪ Market share in digital payments: 80%
▪ Bill Desk does two things: As a payment gateway, it helps merchants such as Amazon accept
payments through multiple payment methods. As a payment aggregator, it helps utility
providers such as Tata Power, Airtel and Maharashtra state electricity distribution company
to accept bill payments
▪ In this new model, aggregators like Bill Desk need to obtain a license from the RBI to be a
part of Bharat Bill Pay. This is necessary in order to tie up with billers, as billers now need to
be hooked up to the Bharat Bill Pay system so that all the bills are accessible in a centralized
system manned by NPCI. On the other end, consumer facing apps such as PhonePe or
Google Tez, which let consumers pay bills, need to tie up with an aggregator. With that one
tie-up, they get access to all the billers brought on by all aggregators on Bharat Bill Pay
▪ For aggregators like Bill Desk, Bill Pay will level the playing field. It will end up standardizing
Bill Desk’s business by mandating uniform levels of service and pricing among all
aggregators. In doing this, it will reduce bill payments to a commodity, eliminating the
differentiators and leaving Bill Desk wide open to competition
▪ Till now, Bill Desk was so deeply integrated with billers that billers ever hardly moved to a
different aggregator. That made Bill Desk nearly impervious to competition. But with Bill
Pay, for the first time, Bill Desk will come face to face with new competitors such as Phone
Pe, Paytm and PayU. Bill Pay is of paramount importance to these fintech’s, as all of them
harbour lending ambitions, and bill payments yield a wealth of user data
▪ In the pre-Bill Pay world, Bill Desk got paid anywhere from nothing to Rs 5 per bill processed,
based on market dynamics. PSUs were loath to pay for the service and passed on the charge

21. on to the consumers. Private companies, however, absorbed the charge and paid Bill Desk
for the service. Private companies absorbed this charge because going digital saved at least
2% of their costs associated with billing.
▪ NPCI has said that aggregators can charge the billers as they see fit, but given the billers
have a choice of aggregators to choose from, there is bound to be tightening in prices
▪ All this while, most billers chose to integrate with BillDesk because it was the largest player
around. Billers didn’t want to go through the process of integrating with newer aggregators
or payment companies as it was technically demanding. So, newer payment apps such as
PhonePe, which wanted to offer bill payments, simply tied up with BillDesk as it gave them
access to Bill Desk’s roster of over 80 billers. “BillDesk charges a setup fee, annual fee and
also earned from these apps on a per transaction basis,” said the founder of a payments
company on condition of anonymity.
▪ Under BillPay, there are no such charges. While Google Tez and PhonePe are connected to
BillDesk, there is nothing stopping either of these entities from becoming aggregators
themselves.
InstaMojo and RazorPay
▪ Of the 51 million small and medium businesses, nearly 16 million are online. Those in the
payments industry estimate that less than 10% of them accept digital payments as bank
transfers still reign supreme. Also, accepting digital payments needs work. And unlike cash, it
costs a merchant. In the last three years, as the number of ways to pay digitally has grown,
the last thing any merchant wants is to lose a customer because he or she did not find it easy
to pay.
▪ Enter payment gateways. It helps a business accept payments in all possible ways – from
wallets to net banking to cards. And businesses count on their gateway partners to add more
payment solutions as new ones come up. The biggest in this business are home-grown
BillDesk and Naspers-owned PayU together processing close to Rs 17,000 crore ($2.6 billion)
monthly, according to industry estimates. For small companies getting to a gateway is
essential, but it is not easy. Integrating it into the website takes time and one-time costs are
high for SMEs. Moreover, large gateways don’t want to waste their sales muscle chasing
businesses that will see only about 5-10 transactions a day.
▪ Two nimble-footed Bengaluru-based fintech startups saw this is where they could make a
difference. Instamojo was targeted at people like tuition teachers, handicraft makers,
bakers, soft toy makers who were not digitally savvy. Razorpay aimed at getting businesses
that were still an SME but more tech inclined, like startups. Both simplified accepting
payments for businesses. In five years, Instamojo has grown to have about 300,000
registered merchants for customers and Razorpay, in three years, has reached 40,000 on the
last count. But the way they do it is different.
▪ Instamojo called itself a payment solution company and Razorpay, a payment gateway. And
today, both don’t want to be identified by those labels.
▪ Instamojo targets businesses that are in their infancy. They typically gave their bank account
details to customers to get paid as they didn’t have ways to accept all kinds of payments.
Instamojo solved that problem. It generated payment links that businesses could send to
their customers via email, SMS or WhatsApp. It also helped them deal with the reconciliation
of those payments. As these companies get bigger, sending out numerous payment links is
not the most efficient way of doing business. They need a more accommodative solution.
Like a payment gateway that can process hundreds of transactions a day. So far, Instamojo
has stayed away from offering a gateway itself because of the low margins in it and also

22. there is nothing new to offer there. But as a result, it’s come to a point where some of those
customers who have grown with the platform are evaluating other options.
▪ Even though different fintech’s are solving for different payment needs, one thing is
common. Which is that the money you earn from all of it does not amount to much. Which
is why volumes and value of transaction make all the difference.
▪ Instamojo processes about Rs 100-135 crore ($15.2-$20.5 million) worth of transactions in a
month, according to a source. Swain said he cannot confirm it. It charges a flat 2% fee plus
Rs. 3 on every transaction and the company earns 1% out of it. But on an average, the
margins in the payments business are no more than 0.2%-0.3%, say those in the industry. In
the five years, it has been in business, despite having lakhs of merchants, its revenue is at Rs
4 crore ($611,060) in FY2016 (of which income from domestic operations is Rs 2.1 crore).
▪ Instamojo’s closest competitor is PayUMoney (a part of the larger entity PayU India). It also
services small businesses through payment links. It has 230,000 merchants and processes
about Rs 250 crore ($38.2 million) a month. “Retention of small businesses is the biggest
challenge
▪ If Instamojo forms the longest part of the tail of merchants, Razorpay is sandwiched. It
works with merchants that are too big for Instamojo but small for the bigger gateways
▪ Also imminent is newer competition. On the SME-side of the see-saw, there are a few large
companies like Google, Facebook and WhatsApp that have their eyes trained on small
businesses. While some of it could open more opportunities for payment companies, it
could also be a direct threat. For instance, in the US, Facebook has a partnership with
gateways like Stripe to let people buy from online stores set up on the social networking
platform. But when Facebook-owned WhatsApp launches with UPI in India, businesses won’t
even need a gateway.
▪ Of the 40,000 merchants who use Razorpay’s gateway, 80-90% are companies which earn
about Rs 5 crore ($763,825) in annual revenue. The risk of having a merchant base like that

23. is the unpredictability of those companies’ fate. While online spending is on the rise, most of
that increase is coming from large retailers who are not using Razorpay. The smaller and
medium companies are always fighting to stay afloat and not fall prey to the large
companies that could take their businesses.
Pine Labs
▪ Leading provider of retail POS solutions that simplify payment acceptance, while creating
business opportunities for issuers, merchants and brands to connect with consumers
▪ Ezetap and Innoviti are further players in this market
▪ These are aggregators that help in merchants acceptance of digital payments. They help the
merchants have a better digital payments acceptance infrastructure than banks by giving
them value added services. That way, banks only have to focus on processing payments and
servicing the merchant
▪ Of the 3m merchant base who have POS terminals, banks have gone and acquired 80% but
those terminals on their own offer little value. Pine Labs services about 10% or 300,000 of
that merchant base. It is more profitable for banks to use our network as the fees we charge
banks has been trending downwards, because of the growing volumes.
▪ Half of Ezetap’s growth (which services about 200,000 merchants) comes from replacing or
upgrading existing infrastructure to more intelligent systems. And it is the tech for which
merchants will choose working with aggregators than with banks directly
▪ Acceptance of all payment modes on a single POS machine (all debit and credit cards, digital
wallets, EMI, Bharat QR, UPI etc.)
▪ Helps businesses of all sizes to sell more, with a widest range of value added services like
EMI, rewards acceptance, DCC etc.
▪ Gives loans to businesses with minimal documentation and flexible repayment through Pine
Labs POS machine
▪ Analytics to merchants
▪ Plutus – Pine Labs Payment Platform
Citrus
▪ UPI App, Wallet and Bills Management
▪ Sending money directly from bank account instead of wallets
▪ Belongs to PayU payments (digital payment services provider in India, catering to more than
50,000 merchants)
▪ Citrus makes money from its merchant customers – a fixed percentage of the transaction as
fee and a software payment for using the software suite
▪ Founded in 2011 and has 3 business lines – payment processing (including Net banking,
cards, COD etc.), enterprise payment SaaS solutions (success rate optimization, multi-
platform payments, analytics) and consumer payment services (online / mobile e wallet and
P2P payments)
▪ Customers: Indigo Airlines, Airtel, Sun Direct, Shine, Reliance Entertainment, Abhi Bus,
Zivame, Easy Cabs, Delhi Metro, Delhi Jal Board, DDA and Healthkart
▪ Citrus Cube: The app lets the user manage and plan personal payment and bills even while
working offline; customization and personalization reminders for bill
6. Others

24. FINO
▪ 3 companies: Fino Payments Bank, Fino Paytech Services and Fino Finance
▪ Business and banking technology platform, combined with an extensive services delivery
channel
▪ Solutions
o Customer Enrolment Solutions: Unlike a banking model that requires customers to
physically visit a branch, Fino Paytech’s customer acquisition system allows
customers to be enrolled / acquired at the convenience of their doorstep. This
process is quicker and simpler for customers as well as banks, while at the same
time, it retains the core essence of banking as well
o Hardware Solutions / Financial Inclusion Solution: Full suite of biometric products
for enrolment, storage and verification, while also maintaining all back-end system
elements – thus enabling them to develop and offer exclusive financial inclusion
applications. This technology enables Fino Paytech’s clients to offer a rich variety of
simple and accessible solutions with a whole range of products – including handheld
devices, biometric smart cards, backend switches and micro deposit machines
o Operations Solutions: The operations solutions team manages data messaging to
churn out the required information for day to day planning and management of
operations. The principals may either utilize some of the pre-designed reports by
Fino Paytech, or ask for customized reports
▪ Services
o Business Correspondent Services: Our business correspondent services enable
banks to financially include the underserved and unserved rural masses, by offering
a bouquet of financial services like savings, deposits, insurance and remittance
through a pan India network. Fino Paytech is the largest business correspondent in
India, having extensive reach in as many as 499 districts. We also implement the
government’s EBT scheme to beneficiaries across India
o Consultancy Services: Fino Paytech provides its consultancy expertise to national
governments, central banks, commercial and cooperative banks, microfinance
institutions, insurance companies and not for profit institutions. FCS brings on board
unmatched capabilities in the areas of technology architecture, strategy and
planning, implementation, product designing, regulation and policy framework,
channel management and capacity building
o Financial Literacy: Preferred financial literacy partner for various national and
international agencies
▪ Fino Finance Pvt Ltd: Non deposit taking NBFC – MFI registered with the RBI. The company is
engaged in the business of providing customer-centric financial services, mainly in the form
of credit to the underserved and un-served women population and MSMEs of the country
▪ It started off as a business correspondent in 2006. BCs are agents who work on behalf of
banks to help people perform small transactions like opening accounts, accepting deposits,
and making withdrawals (incubated under ICICI bank)
7. Mergers and Acquisitions
Visa and Bill Desk
▪ Visa is close to investing over $250m into Mumbai based payments gateway Bill Desk (June
2018). Bill Desk is the largest online payments processing company in the country and

25. competes with the likes of Naspers-backed PayU, CC Avenue and a bunch of younger
startups like RazorPay.
▪ Bill Desk processes payments worth almost $50bn per year and leads the charts for online
bill payments. In the e-commerce segment, it is neck and neck with Pay U, while CC Avenue
and others come in next
PhonePe and Zopper
▪ PhonePe acquired Zopper, a PoS platform, in all cash deal worth $6m
▪ Zopper’s PoS helps retailers capture the billing details of the customers and in turn helps
them manage inventory
▪ Being a payments app, so far, PhonePe had a limited one-side view of how transactions were
being processed – how much a customer spent and where she spent. It didn’t have insight
into what customers bought
▪ Most payment players are now looking to provide value added services to merchants
whether in the form of billing and reconciliation, inventory management, marketing
solutions etc.
▪ When it comes to kirana stores, PhonePe has the strongest card in its suit. Walmart’s $16bn
acquisition of Flipkart. Walmart’s B2B commerce business in India, where it sells products
directly to 100,000 retailers. This potentially gives PhonePe exposure to all those retailers to
whom Walmart currently sells. Not to just enable payments acceptance, but Zopper’s
solution will help those retailers manage their inventory
▪ This is a very different approach to what PhonePe’s competitor Paytm is trying to build with
its online to offline approach, where Paytm encourages its users to pick items offline but pay
for them online
8. Glossary
▪ PSP (Payment System Player / Payment Service Provider): Provider of the payment services
that holds the direct relationship with the seller and facilitates the rest of the transaction on
behalf of the seller. A PSP is also the merchant of record for the transaction. The merchant
of record is liable for the settlement of the transactions processed. It can be broken down as
PSP backend and PSP user facing apps
o PSP Backend: A PSP backend maintains customer information, manages issuing and
managing virtual payment addresses (VPAs), resolves VPAs to user linked bank
account for an incoming payment, maintains history of transactions, logs etc. In
India, currently only banks and approved technology partners of banks are allowed
to run their own PSP backend. Banks currently operate their own PSP backend,
which is connected to NPCI Net. Three non-banking entities, PhonePe, BHIM and
Tez, operate as technical partners of banks. In addition to building user facing
applications, players operating PSP backend can also provide business solution to
enterprises by means of exposing PSP APIs / SDK. Yes Bank is a sponsor bank for
PhonePe and has a partnership agreement. For merchant transactions, Yes Bank is
considered as VPA issuer and any share of MDR earned goes to Yes Bank, which
might have commercial deal with PhonePe. NPCI runs BHIM backend as a special
case PSP backend, wherein NPCI has agreement with all issuing banks and
consumers’ bank is considered as VPA issuer, even though common@upi is used
VPA and a share of MDR earned goes to each respective bank as NPCI is non-profit.
Through a special agreement between Google and 4 PSP eligible banks (Axis, ICICI,

26. HDFC and SBI), Tez issues VPAs of these 4 banks through a fair distribution and
corresponding banks are considered as VPA issuer share of MDR earned goes to
respective bank as per agreed commercial deal
o PSP will be entities which are allowed to acquire customers and provide payment
(credit / debit) services to individuals or entities. PSP are the entities that provide for
the front end / app for the customer. PSP will provide an app to the customers
which will use the UPI libraries facilitating payments. In UPI, it is mandatory for the
PSP to come on-board as Issuer at the time of on-boarding. It should have the
functionality of initiating both Push & Pull transactions and have the NPCI Libraries
embedded into its App. It cannot come directly as an Acquirer without being an
Issuer.
▪ NPCI Libraries: Set of utilities which are embedded in the PSP App. These libraries allow
secure capture of credentials like OTP, PIN, Biometrics etc.
▪ Virtual Payment Address: Used to depict an identifier that can be uniquely mapped to an
individual account using a translation service. In addition to Aadhaar number and mobile
number as global identifiers (mapped by NPCI), PSPs can offer any number of virtual
addresses to customers so that they can use the virtual address for making and receiving
payments
▪ Aadhaar Payment Bridge: Batch processing system which allows government and non-
government entities to send money to an Aadhaar number, and Aadhaar Enabled Payment
Systems (AEPS) is an online system which allows immediate payment from one Aadhaar
linked account to another
o Aadhaar Payment Bridge or ABP is a centralized system that uses Aadhaar
credentials to transfer wealth benefits from government agencies to individuals via
Aadhaar linked bank accounts
o APB essentially links government agencies and banks on one side and beneficiary
banks on the other side in order to ensure direct transfer of benefits to the people
o The channel essentially eliminates middlemen, corruption and lengthy paperwork
that is generally involved in welfare schemes; making it a channel that ensures that
benefits are availed by the deserving. ABP is one of the main channels to make
disbursements for Direct Benefit Transfer (DBT) today
9. Difference Questions
▪ NACH and ECS
NACH ECS
A robust mandate management system, that
will include a standardized mandate format
and a defined workflow for mandate
verification
Mandate verification is done based on
physicals, resulting in verification issues and
delayed timelines
Unique mandate registration reference
number will be available, which will allow for
better tracking
No such concept of a unique mandate
registration reference number
Provision to capture destination bank’s
unique mandate registration in the
transaction file resulting in lesser rejects
Higher number of rejects observed on
account of mandate related issues
Same day presentation and settlement,
including returns processing
Presentation and settlement are spread over
3-4 day period

27. Well defined dispute management system’
electronic platform to raise and resolve issues
Dispute management is left to the discretion
of the destination bank
▪ Infinet and SWIFT
IFTAS (Indian Financial Technology & Allied Services) operates and provides the following
solutions for banks and financial institutions:
o INFINET, the communications backbone of all the banks and financial institutions in India
o SFMS, India’s largest financial messaging platform, facilitating RTGS and NEFT
transactions.
o Bank on Cloud is based on IBCC (Indian Banking Community Cloud), the most trusted
cloud platform for banks and financial institutions in India. Bank on Cloud solution
includes IaaS, PaaS, DRaaS and SaaS (CBS, Mobile Banking, etc.) to banks.
IFTAS was established by IDRBT (Institute for Development and Research in Banking
Technology), comes under RBI
SWIFT is global, this is India specific
INFINET is a Closed User Group Network for the exclusive use of its member banks and financial
institutions. It is network platform for the National Payments System, which caters mainly to
inter-bank applications like RTGS, Delivery Vs Payment, Government Transactions, Automatic
Clearing House, etc.
10. Financial Inclusion
▪ India’s first financial inclusion index was launched in 2013 with the objective of becoming
that crucial gauge and policy input. It is based on 4 dimensions – branch penetration, deposit
penetration, credit penetration and insurance penetration.
▪ The index’s readings for fiscal 2016 (the latest period for which the data is available) show
financial inclusion has improved significantly in India, with the all India score rising to 58 in
FY 2016, compared with 50.1 in FY 2013. The score would have been even higher at 62.2 had
we excluded the effect of rebasing of the index and inclusion of insurance data. The PMJDY,
and the RBI’s steadfast focus on unbanked regions, have really made a difference
▪ Despite the strong growth, only 200m borrowers have had access to credit from formal
channels. This is the reason why the credit penetration index of CRISIL Inclusix remained low
at 56 compared with 78.3 for deposit penetration
▪ Kerala was well ahead with a CRISIL Inclusix score of 90.9, while Rajasthan moved up from
“below average” to “above average” and Haryana from “above average” to “high”
Issues with Financial Inclusion
▪ Accessibility: There are 830m debit card users in the country with only 2.9m POS terminals,
where these can be swiped. Similarly, while UPI and QR code operated asset light
instruments is expected to reach 1.5m users by March 2018, there are currently only 7 lakh
shops or POS terminals where these can be accepted. Matching the rise in digital payment
instruments with accessible payment infrastructure is a vital challenge that needs immediate
attention

28. ▪ Digital Literacy: Out of 460m mobile only internet users in the country, only 125m are fluent
in English – the language largely used for instructions in the majority of digital transactions
platforms. Apart from the language, most of rural and low income group population find
that the available digital platforms either too complicated or simply not comparable for their
current expenditure patterns
▪ Financial Policy Structure: Policy interventions that incentivise digitization at the grass root
level are vital for successful implementation of the cashless economy. These include:
o Tax incentives to payer and receiver for using cashless payments
o Discounted / Incentivized MDR rates
o Shift to digital documentation of banking transactions
o KYC and other financial services records
▪ Infrastructure: Limited access to high speed data network, unreliable and weak connectivity,
proliferation of sub-standard hardware like counterfeit mobile phones and pirated software
are some of the challenges plaguing digital infrastructure in India
▪ Reconstructing Mindsets: A strong campaign directed to address the strong pro-cash
mindset is vital to drive digitization. These efforts need to address lack of trust in the digital
framework, extensive dependence on hard cash and hard copy documents
Payment Banks, Small Finance Banks
▪ IDFC Bank acquired Trichy based Grama Vidyal Microfinance, Kotak Mahindra Bank acquired
BSS Microfinance, DCB Bank acquiring stake in Annapurna Microfinance and IndusInd in
Bharat Financial Inclusion
▪ Of the 120m migrant workers within India, more than 80% are from inadequately connected
rural areas and they account for 80% of the country’s domestic remittances. Bihar and UP
account for 60% of the remittance receivers and Odisha and Jharkhand are some of the
other receiving states
▪ Domestic remittance in India is valued at more than Rs 90,000 crores per year, rural India’s
contribution is over Rs 70,000 crores per year. Traditional channels account for only 40% or
Rs 30,000 crores of the rural remittance. The rest of the remittance happens through high-
risk non-traditional remittance methods and this is a Rs 40,000 crore opportunity for
payment banks to tap
▪ Payment banks are capable of facilitating remittances and payments to a larger user base,
especially to underserved areas
▪ SFBs
▪ The whole novelty of payments banks was lost when Jan Dhan accounts became ubiquitous.
It was not the case when the idea of payment bank was proposed. Because 2/3rd
of bank
branches are in urban areas but 2/3rd
of the population were in rural areas where banks did
not penetrate. That’s why Airtel decided on doing payments bank
▪ Because all banks can now use Aadhaar based eKYC to open bank accounts, there was no
cost advantage that payment banks had over other banks
▪ RBI gave payments banks only three legs to stand on by denying them the ability to lend or
issue credit cards – the two things that banks make money on. When the Mor Committee, in
2014, was tasked to find means to achieve financial inclusion, it imagined a world with
payments banks. A differentiated bank – one without the baggage of a branch-led model
and having a digital makeup – that could go to every nook and cranny of India with bank
accounts. Because all payments bank had another core business – like telecom, wallet, post
office – with a wide reach. So, the idea was they should be able to do a better job of
reaching the unbanked

29. ▪ With every successive regulation, payments banks were robbed of whatever little they had
going for them
o First, the regulators came for the shared KYC. Acquiring customers starts with KYC
and if the same entity, albeit for a different business, has to do KYC all over again for
the same user, it made little sense. Both RBI and UIDAI saw reason in this. So, in
October 2016, UIDAI said entities can share the e-KYC as long they have user’s
consent. In the same month, RBI, too, released its guidelines for payments banks.
o Nearly, a year after that, in Sep 2017, came Airtel’s transgression of not taking
consent for opening bank accounts. Soon after, in Nov 2017, UIDAI said there was
misuse and misinterpretation of the 2016 rule that allowed sharing of eKYCs. So, it
said entities must take explicit permission from UIDAI for sharing eKYC, effectively
halting it. Also, RBI in Feb 2018 said telco led payments banks cannot rely on KYC
done by telecom companies, shutting it down once and for all
o Now, sharing of KYCs is central to payments banks in more ways than one. It avoids
the repetitive cost of re-verifying a user, but it is also central for payments banks to
stich partnerships with other financial institutions for giving out loans, insurance,
mutual funds, services it cannot provide on its own
▪ Since payments banks can’t accept more than Rs 1 lakh ($ 1,447) worth of deposits in their
bank accounts, it needs a partner bank to be able to store the additional deposits. So Paytm
Payments Bank partnered with IndusInd bank in January to let its users open a fixed deposit
bank account. It meant any funds over Rs 1 lakh could be instantly pushed to this fixed
deposit, earning a better rate of interest. But this product went live, and then, very quickly,
found itself dead. Why? IndusInd bank needed to do an eKYC of the user all over again to
accept the additional deposits. Another young bank, which didn’t want to be named, had
plans to partner with a payments bank to accept such surplus deposits. It’s still waiting for a
resolution.
▪ In 2016, RBI had an ambitious plan of building a central KYC registry—a one-stop shop for all
bank account users’ KYC information. So, if a bank has done KYC on a person once, another
bank need not repeat it. Technically, by RBI’s books, this allows shared KYC. But UIDAI has
prohibited entities from sharing eKYC. Take that for a catch-22.
▪ “Their problem is that they don’t have a business model. So they are trying to cut any
corners they can find. But KYC is not going to make their model any better. They can’t lend,
but at the same time, they give an interest rate at par with a full-service bank. How can they
make it work?”
▪ In payments banks’ search for better revenue, they found themselves face-to-face with
merchants; Paytm announced the launch of its zero-balance current account facility, a move
aimed at small and medium enterprises (SMEs), who do not have access to free current
accounts.
▪ Jio Payments Bank, too, seems to have realised that the real opportunity lies with the
merchants. As a pilot, Jio has rolled out 150,000 PoS (point of sale) machines or 5% of the
current PoS base—within the first six months of 2019, it plans to open payments bank
accounts for all the merchants. With this move, telco Reliance Jio gets inventory and
financial data. Also, the thing with merchants is that they always have a small working
capital requirement which can be fulfilled by State Bank of India, Jio’s partner bank. A
payments bank is not allowed to lend from its own books, but it’s allowed to help
commercial banks or non-banking financial companies find loan customers.

30. ▪ Fino Payments Bank and India Post Payments Bank (IPPB) are focusing more on the direct
benefit transfer (DBT) customers. That is, people receiving government subsidies directly in
their bank accounts—a user base that was not impacted by the Supreme Court verdict last
year and for which e-KYC has always been open for starting accounts.
▪ IPPB also offered “doorstep banking”—but not for free. “Like Uber, users could call postmen
for doorstep banking by paying a fee
Other Efforts (India)
▪ Private sector IndusInd Bank and RBL Bank are engaging microfinance companies as their
business correspondents to mobilise low cost deposits from rural catchments
▪ Corner shops, tailors, pharmacies, even doctor’s offices are making money transfers,
deposits, and withdrawals on behalf of customers at all hours of the day and even late into
night
▪ Paytm has targeted relatively affluent Indians. Another group of online financial service
provider is reaching the vast majority of the population that’s largely sticking with cash but

31. still needs ways to make small savings deposits, pay bills, send money to family in faraway
states, or pickup cash sent by relatives abroad
▪ These companies, including EbixCash, Fino Paytech and Oxigen enrol merchants who can use
their software to access their networks. Customers pay fees for remittances and deposits
that range from 0.6% to 1.5%. The systems also help customers purchase train and air
tickets, insurance, gift cards, and even gold
▪ Lack of easy access to the bank outlets, poor service standards, and financial illiteracy
remain major hurdles for transactions at a bank branch or through digital channels. In-store
cash points stand a better chance at bringing the people used to cash transactions into the
folds of formal banking and digital channels
▪ In 2007, a company called Eko India Financial Services was set up in India. Loosely based on
Africa’s M-PESA system, the company set out to provide financial services to the
underbanked. The company developed a customised core banking system (CBS) for phone
based transactions which connected directly with SBI’s CBS, to create a real-time domestic
payment system.
▪ Govt. payments in India would historically go from state to state governments to regional
governments, then to towns, and finally to individuals. In many cases, each of the agents
would take their cut of the transaction, leaving the recipient with much less than they would
have expected. Andhra Pradesh was one of the states in India to introduce electronic
payments as early as 2006 via smart card system.
▪ The estimated total reduction in NREGA leakage across the studied districts was $38.7m per
year. This was about 9 times the cost of implementing a digital payment scheme. The 2012
World Bank Development Report also estimated that by digitizing subsidy flows, the Indian
govt. could save 1% of GDP annually, an amount equivalent to $20bn
11. Miscellaneous
▪ India: 1-1.5% of GDP goes into managing cash
▪ The adoption of NFC payments has been slow in India due to the lack of devices which can
accept the corresponding cards
▪ Debit cards account for 96% of the cards in use in India but it’s credit cards that account for
51% of card payments in terms of value. But with only 37m credit cards in use in the country
as against 861m debit cards, their usage does not translate to mass adoption of digital
payments
o Effective July 1, Visa’s charges applicable to card issuing banks will drop to 15 paise
per transactions for under Rs 2,000 and to Rs 1.5 for higher value payments, from a
uniform rate of Rs 2.99 per transaction
o For merchant acquiring banks, the payments network has reduced charges to 15
paise per transaction of up to Rs 2,000 from 45 paise. Issuing and merchant
acquiring banks typically deduct these charges from merchants
o NPCI run Rupay charges 90 paise per debit transaction
▪ The mobile payment industry in India was valued at about $1.1bn in 2016, growing from
$86m in 2011, clocking at CAGR of 68%
Loyalty Rewardz
▪ It handles the loyalty programmes of almost every national bank, taking on the liability of
loyalty points and helping customers redeem them at the end of the cycle

32. ▪ Every time you use your debit or credit card at a store or on a website, the bank gives you
points. These points are redeemable within three years. You can purchase air miles, buy a
phone, or even an AC if you have collected enough points. Loyalty Rewardz keeps track of
these points and helps you redeem them. If you want to buy a phone with the points you’ve
accumulated, Loyalty Rewardz will find you a merchant. You spend those points and start
back at zero.
▪ Behind the scenes, for every point that you earn, the bank pays Loyalty Rewardz. The more
you spend (because you know at the end of it, you can burn it all to get something for free),
the more the company makes. And if you, like a lot of people in India, don’t redeem your
points, well, it means Loyalty Rewardz didn’t have to spend money buying you that phone
India Stack
▪ India Stack refers to a collection of APIs – software algorithms and frameworks – that are
built on top of a common foundation - Aadhaar
▪ The India stack includes four main layers
o Presence Less Layer: in which a universal biometric digital identity allows people to
participate in any service from anywhere in the country
o Paperless Layer: Where digital records move with an individual’s digital identity,
eliminating the need for massive amount of paper collection and storage
o Cashless Layer: A single interface for all of the country’s bank account wallets to
democratise the market for data
o Consent Layer: Which allows data to move freely and securely to democratise the
market for data
▪ Together, the four layers provide a standard set of APIs to enable other products and
services. This has the potential to solve many of India’s challenges around safety,
transparency, corruption and financial inclusion
▪ One of the elements that has been built on the India Stack is the Unified Payments Interface
or UPI. The 24/7 UPI payment platform is managed by the NPCI and enables companies and
individuals to more easily map and connect into India’s payment infrastructure and process
real-time inter-bank transactions
▪ HSBC India was very quick to roll out a UPI solution. In late 2016, it launched a UPI product
for corporate customers in the bank’s India business. India’ Shriram Transport Finance
Company (STFC) was one of the first customers
▪ Both eKYC and UPI were powered by India Stack (Jio, owed its fast growth to its ability to
authenticate new customers via Aadhaar’s eKYC, an online authentication mechanism linked
to people’s unique Aadhaar IDs)
▪ Aadhaar, India’s unique ID project, was the foundation of India Stack’s ambitions in more
ways than one. First, by acting as a unique key that would identify all digital transactions
made by Indians. And second, by creating a critical mass of data on each user by virtue of
both the government and hundreds of private companies demanding it for pretty much
anything a user wanted to do. Like opening a bank account, getting a credit card, charging
your mobile operator, buying stocks or mutual funds or even hiring a cab or sharing a bicycle
▪ At its core, India Stack is nothing but a set of APIs whose architecture is designed by iSpirit
and other private companies and then given to different government entities to run
o It starts with a “presence-less layer” that lets government agencies and companies
use Aadhaar as an authentication mechanism, so users can prove their identities any
time and any place with consent

33. o Then there is the “paperless layer” involving Aadhaar eKYC, e-signatures and a
Digilocker, a cloud storage facility where official documents can be saved
o Then comes a “payments layer” involving Aadhaar Bridge Payments and Aadhaar-
Enabled Payments Systems, methods to make or receive payments using Aadhaar
authentication
o And the final layer is one of electronic consent, which was still in the works as the
Supreme Court judgement came out
▪ India Stack is not owned and controlled by the government, not operating under the
supervision of a government nominated organization or public sector unit, but is owned by
iSpirt