The nation’s leading payment system is set to block transactions under Rs 50. The reform is an attempt to help participating banks overcome a series of technical difficulties and overloads. In the short run, this will create serious problems for some economic sectors. In the long run, it may stimulate Bharat’s fintech market to offer better solutions.

e-Banking Overloads Leave Unfortunate Collaterals

When the National Payments Corporation of India (NPCI) launched its UPI system in 2016, achieving adoption levels too high to sustain was never the plan. The RBI-backed banking association was challenging established global payment providers in a country relying largely on cash for its daily operations.

Several years down the line, the Unified Payments Interface is clogged by billions of petty amount transactions, causing bank outages and technical problems across the system. So much so that the NCPI is reportedly about to ban all transactions below Rs 50.

The move would directly affect a number of business sectors, both online and offline. Desi retail structure is still structured around small family stores, while a whole range of internet services are based on top-up and token amounts paid for one at a time. The latter is true for the cash cows of Indian casino games – all-time favourites like Andar Bahar and Teen Patti can be played on sites like PureWin – as much as for IPL-related fantasy leagues and other casual gaming apps and platforms.

Indian entertainment industry research reveals that the casino games market is mobile-first and quite well-developed. Local gaming studios and offshore companies compete for the demanding desi player. Nevertheless, it has solid bases in traditional card games and they still remain among the preferred outlets to pass the time and relieve stress.

A Big Bite to Swallow

UPI’s secret to success is its interoperability. Besides links to over 220 Indian banks, it is compatible with all major digital wallets (Google Pay, PhonePe, PayTM, Amazon Pay, etc.) and handles more than 2.6 billion monthly payments worth around Rs 5 lakh crore. What is more, the payment system still experiences stable growth in volumes and adoption rates. The nation’s increased digitisation as a result of Covid lockdowns has given UPI a final push to reportedly unmanageable levels.

People’s culture and local daily habits dictate consumption patterns. It is hard to imagine that household spending and casual entertainment choices will change (e.g. through monthly subscriptions and personal transfers), at least not in the short term. Some of these industries will simply experience a slowdown before alternative payment channels manage to fill the micro-transactions’ niche.

New Business Opportunities and Payment Models

Experts predict that a definitive ban on small-value transactions will stimulate both desi and foreign fintech to offer a competitive solution. Micro-retailers will still need to exploit their business model, while bank fees remain impossible to sustain.

Should the NPCI abandon its monopoly in the segment, an alternative approach has already been floated by the RBI. The so-called New Umbrella Entities (NUE) are applying for retail payment licences, bringing together IT and fintech companies alongside banking institutions. Despite initial difficulties to find answers to current technical issues and RBI guidelines, important Bharat business groups like Reliance and Tata have already declared their interest, as have digital giants like Google, Facebook, Amazon and Flipkart.

Until these new ventures find the key to a more stable interoperability of the nation’s real-time payment system, small businesses will have to cross their fingers and hope their customers can simply aim for higher amounts when making digital payments.