India is a digital payments case study, with few to match its success. Volumes have risen by an annual rate of 50% over the past five years, and India’s unique real-time system – Unified Payments Interface (UPI) – has seen explosive growth in that time.
Person-to-person transactions using UPI accounted for 49% of all digital transactions in Q2 2022, with debit cards at just 5% and credit cards at a smaller 3%. UPI represented over 17.4 billion transactions in volume and US$370 billion in the same period.
Unified Payments Interface (UPI) has brought significant benefits to businesses and consumers in India since its launch in 2016. It has revolutionised the payment industry in India by bringing in quick, secure, and convenient digital transactions, and it has been a game-changer for businesses and consumers alike.
Digital wallet successes
“The key benefit of UPI architecture is the ability of banks and non-banks/fintechs to take UPI to end customers,” says Sartish Kashyap, CEO and Co-Founder at Pismo partner, Drona Pay. “While the initial journey was made with banks, third-party apps (like wallets) helped the penetration of UPI. Today, private apps by players like PhonePe, GPay and Paytm have the largest share of volume on UPI.”
“Digital wallets have successfully leveraged the UPI infrastructure, making digital payments more seamless and accessible to a larger population,” adds Varun Dudeja, Pismo Head of Business Development for Asia. “The ease of use, convenience, and widespread acceptance of digital wallets have made them popular for digital payments in India.”
Key strategies employed by digital wallets to power adoption include:
- Ease of Use: Digital wallets offer a simple and user-friendly interface that enables consumers to make payments with just a few taps on their smartphones.
- Customer-centric: Digital wallets have used partnerships, cashback, rewards and other exciting ways to drive adoption.
- Innovation: Digital wallet companies have been at the forefront of developing new features, partnerships, integrations and functionalities that make digital payments more attractive to consumers.
- Partnerships: Digital wallet companies have partnered with merchants, e-commerce companies, and other service providers to make digital payments more ubiquitous and convenient.
Adapting to evolved risk patterns
While the growth of digital payments in India has been impressive, the threat landscape has changed. Traditional approaches to mitigating risks based on rules and transaction data are necessary but no longer sufficient to address new-age frauds.
India’s regulator RBI has mandated the use of two-factor authentication for all online transactions. Over and above the two-factor authentication, UPI has implemented a device binding to ensure that the device re-registration has to happen if a user device changes.
Drona Pay CEO Kashyap says social engineering, scams, and phishing drive the most significant proportion of fraud on UPI. On top of that, Non-UPI channels do not have device binding; hence, other frauds like account takeover still need to be addressed.
The broader ecosystem needs tools that cover:
- Behavioural biometrics: Leveraging digital footprints and alternate datasets, including geolocation, device, IP, and keystroke dynamics, has become critical. Indian FIs are starting to adopt measures to protect apps and transactions.
- Transaction monitoring: FIs have implemented systems to monitor transactions in real-time and identify any suspicious activity, such as large transactions, transactions to new or unusual beneficiaries, and transactions outside standard activity patterns.
- Scam models: FIs need to implement ML models that help identify the likelihood of a payment being a scam / authorised push payment. Rules are ineffective in this space and must be supported with ML models trained based on past scam data.
Rest of the world: time to take notes
India’s impressive uptake in the digital sphere offers several valuable lessons for other regions of the world.
“India’s digital payments ecosystem was built through collaboration between banks and non-bank players such as digital wallets and payment providers,” says Kashyap. “This partnership model has been crucial to innovation, as fintechs/non-banks have played a much more significant role in driving adoption than banks.
“The ability to use account numbers, mobile numbers, aadhar, QR codes and VPA as form factors has helped increase the adoption of payments in India. UPI supports both requests to pay and transactions, enabling easier initiation by merchants. The single system supports both P2P and P2M payments enabling rapid adoption.”
Kashyap adds that India’s digital payments revolution was partly driven by a focus on financial inclusion, with efforts to bring millions of unbanked or underbanked individuals into the formal financial system.
Pismo’s Dudeja agrees: “India’s digital payment systems have been designed to be inclusive and accessible to a broad range of users, including those without bank accounts or smartphones. This approach has helped drive the adoption of digital payments in the country, and other regions can learn from this and focus on designing digital payment systems that are inclusive and accessible to all.”
Discover more about meeting and superseding the risk and fraud challenges of instant payment adoption by visiting Pismo partner Drona Pay today!
