Going cashless after demonetisation? Compare eWallets and UPI apps for what suits you best

The government wants India to go cashless, but doing so is not easy. Cashless transactions have their downsides for consumers. But, for those with access to digital payments, rejecting cashless options or hesitating to embrace technology is also not the answer, especially in the wake of the cash crunch brought on by the government’s demonetisation move.

Questions of access aside, a cashless world has its benefits. Embracing cashless options and being an informed consumer who is aware of the available systems and their designs increases the chances of a convenient and consumer-friendly experience.

Traditionally, online transactions were done either by providing debit and credit card details or through netbanking interfaces. While there were issues of security, which kept improving, the payment experience was not very user-friendly. These options were also largely restricted to computers with access to internet.

But after the smartphone revolution, things have changed entirely. India has seen an explosion in digital payment options, from eWallets to the Unified Payment Interface to a combination of the two.

Here is a quick explainer about the various options on offer.

eWallets

• Players: PayTM, Freecharge, Mobikwik, Ola Money, Airtel Money, HDFC PayZapp, SBI Buddy among others.
• Background: eWallets are applications that seek to simplify the cashless payment experience. Earlier, transacting online was access-restricted (not everyone had credit/debit cards), complicated (entering netbanking/card details every time) and often had high failure rates because of complicated processes.
  
  Apps like PayTM, Freecharge and Mobikwik emerged from start-ups that began by simplifying the mobile phone recharge process. They have since expanded to become full-fledged eWallets that allow you to make a wide range of online/offline payments, with the aim of supplanting cash as much as possible.
  
  There are also companies, such as Airtel and Ola, whose core businesses involve other products but who needed to build payment gateways to improve their user experience. They have since turned these gateways into digital wallets that are accepted by other merchants. Similarly, banks have tried to build products in this segment that cater specifically to retail payment transactions such as recharges, train tickets, bill payments and so on. The connection is becoming even more explicit with the introduction of the payment banks licence, which allows these products to be used for some regular banking services.
• How do you load money? This can be done by using internet banking or credit/debit cards through apps or a website. Some digital payment systems even offer cash pick-ups or other offline methods, and many allow money to be transferred from one account to another. There is usually a transaction charge involved in moving money from an eWallet to a bank account.
  
• How is it used? eWallets are predominantly used online, in e-commerce and mobilecommerce. But they are increasingly going offline. For example, people are now being encouraged to use their eWallets to pay for groceries at their local shop or autorickshaw fares.
  
• Limits and rules: eWallets in India are governed by Prepaid Payment Instrument licences. Each entity has to set up its own grievance redressal mechanism. There is a limit of Rs 20,000 (doubled from Rs 10,000 after demonetisation) for users who have not submitted their KYC (know your customer) documents, which include valid proof of address and identity. On submission of these documents, one can upgrade the limit to Rs 1 lakh.
  
• What makes them popular? Convenience is the main selling point. Cashback offers, where a portion of the money is returned to the user after a transaction, is also an incentive. But informed users must be aware that the companies often make you believe there is a cashback when it is simply an inflated price being offered as a discount.
  

Unified Payment Interface

• Players: UPI apps. Some of these apps are also wallets (covered below).
  
• Background: The banking industry had an array of payment products – cheques, demand drafts, national electronic funds transfer, real-time gross settlement system, immediate payment service, netbanking and mobile banking – but found that people needed an easier, simpler way to make payments. The failure to address this need has taken people away from the banking system and pushed them towards eWallets, which are increasingly becoming dominant.
  
  The Unified Payment Interface is a new payment platform developed by a coalition of banks that enables digital payments over mobile phone, right from the customer’s bank account. It is built on top of the immediate payment service offered by National Payment Corporation of India member banks.
  
• How do you load money? Customers use their bank accounts, which are linked to the UPI app, to transact. So, they just need to ensure their accounts have money.
  
• How is it used? Mobile first. The service is predominantly used for peer-to-peer transactions, such as transferring funds to friends and family. The merchant ecosystem is yet to take off in a big way.
  
• Limits and rules: The Unified Payment Interface inherits the limits of the immediate payment service – a transaction ceiling of Rs 1 lakh per day, and it works only inside Indian territory. It is governed by the UPI Procedural Guidelines based on the Reserve Bank of India’s Payment and Settlement Systems Act, 2007. Every UPI app must have its own grievance redressal mechanism. The system supports only debit-based accounts, which means credit cards cannot operate on the Unified Payment Interface, and customers can only spend what they have in their bank accounts.
  
• What makes them popular? Instead of having to load money on to a wallet and then spend it, the Unified Payment Interface app allows customers to directly mobilise money from their bank accounts. This means that if the money is in a savings account, it continues to accrue interest until it is spent.
  

UPI wallets

• Players: PhonePe, Pockets, more expected soon.
• Background: This is an eWallet with features from the Unified Payment Interface infrastructure. It allows customers to use banking-based debit with wallet features such as cashbacks and “offers”.
  
• How do you load money? While loading money is not required as customers use the funds in their bank accounts, cashbacks can be obtained in the wallet, according to the terms of offers.
  
• How is it used? In the same way as the Unified Payment Interface, although the use of cashbacks is limited by the provider’s terms and conditions.
  
• Limits and rules: The wallet portion of the app is bound by terms and conditions based on Prepaid Payment Instrument licence terms.
  
• What makes them popular? They offer both Unified Payment Interface and wallet features in a single app.
  

This post first appeared as part of the #CashlessConsumer series, covering the various options, advantages and drawbacks for cashless users, here. Lakshmanan is a software professional with interests in opensource, opendata, localisation, Internet and volunteers on various online movements.