On 30 December, 2019, the Central Board of Direct Taxes (CBDT) issued a notification which ordered companies whose turnover exceeded ₹50 crore to include the Unified Payments Interface (UPI) and RuPay debit cards as payment methods. It was a welcome step to expand digital payments in India. Along with the Reserve Bank of India’s (RBI) decision to allow recurring payments through these instruments, this notification is expected to help expand India’s user base for digital transactions. More importantly, the CBDT’s notification was prescient because virtual payments have turned out to be lifesavers for consumers during the country’s 50-plus day covid-19 lockdown.
Amenities like pay-television, telecommunications, insurance, e-commerce and utilities form the bulk of cash and digital payments in India. The Boston Consulting Group estimates that only 20% of people in India pay their utility bills online, and the rest prefer to settle them through cash. The recent RBI circulars that allow recurring payments on cards, wallets and UPI are a sign that the central bank sees subscription payments as a vehicle to increase digital transactions.
However, a close examination of the CBDT guidelines suggests that they might make e-payment methods unviable. A primary concern is the absence of a recurring payments option. Imagine, for instance, the plight of a utility or subscription service customer who has to enter a one-time password (OTP) at each billing cycle. There’s a risk that he might pay the bill after the due date has passed. As a result, the customer will have to cough up a penalty fee or face service disruption, both of which are undesirable. Service disruption, particularly in subscription industries such as streaming, cloud services, insurance and food delivery, can lead to high customer churn. Even under normal circumstances, consumers should not have to encounter hurdles while using these services. To expect them to do so during a lockdown would be unfair. On the contrary, a smooth consumer experience at this time becomes paramount to preserve loyalty and boost spending.
People are relying on digital services to help them cope with this unprecedented lockdown. During this period, streaming platforms reported a 20% increase in viewership. Television viewership has also increased by 37%, reaching 1.2 trillion minutes in the first week of the lockdown, according to the Broadcast Audience Research Council. There is stress, uncertainty and a sense that the current situation will be prolonged. Such scenarios only reinforce the belief that consumers should not have to jump through unnecessary hoops to pay for utilities or subscription services. The hurdle of entering an OTP, or scanning a Quick Response (QR) code after each billing cycle, makes the UPI and RuPay payments experiences cumbersome.
Another cause of concern is that procedural delays prevent stakeholders in the ecosystem from adopting the UPI and RuPay recurring infrastructure. A high failure rate of digital transactions only exacerbates the situation. In its report on deepening digital payments, RBI acknowledged that there is scope to reduce failure rates and recommended that payment system operators bring the rate of declined transactions down by 25% every year.
Historical evidence shows that it can take close to a year for ecosystem stakeholders to implement new technical specifications. Given the current covid-19 situation, subscription services may need an additional six months to a year to integrate these payment services so that they work efficiently for consumers.
The execution of UPI 2.0 is a case in point. In 2018, the National Payments Corporation of India announced an updated payments interface that allowed consumers to pre-authorize money to be paid later. But it wasn’t until mid-2019 that specifications were released to payment service providers (PSPs). Nine months later, UPI 2.0’s certification is still underway and PSPs are yet to implement it. As a result, the interface is still not ready to go live.
For merchants and payment service providers, such a scenario is far from ideal. Every hurdle—particularly the prolonged rollout of technical specifications—can affect their daily operations. Technology tends to outpace policy mandates consistently, and it is rare for governments to keep up with them. Since the convenience and importance of recurring payments is well established, it’s unclear why there is a delay in this particular instance.
In this context, the government would be well advised to direct a faster rollout of technical specifications. Stakeholders such as the regulator, National Payments Corporation of India , banks and payment service providers should work towards speeding up the development of UPI and RuPay recurring payment functionality.
This acceleration will aid new payment systems to go live faster and drive higher rates of adoption by consumers. Consequently, the volume of digital transactions by Indians, which stood at 1.45 billion in January 2020, will increase, which was also the intention of the notification issued by the Central Board of Direct Taxes.