Hacker News Reader

Comment by sandGorgon | Hacker News Reader

For those who are interested in these kind of things, you should check out UPI API built by the government of India. With a singular goal - to kill Visa and MasterCard and make digital payments free in India.

The ultimate goal is to tax on consumption - tax payer base in the world's fastest growing economy is abysmally small. So the economists kind of gave up there and leapfrogged into building a digital economy : make all transactions free and charge GST on consumption.

The API is brilliant - recurring charges, refunds, text message payments, etc - basically all the venture funded startups in the US are all free in India.

View on HN

While you're right in pointing out that UPI was built against VISA and MasterCard and it is an innovative solution, I would not brand it as a brilliant API.

Recurring charges are currently not supported, we've seen frauds to the tune of 40cr happen already, "text message payments" is not part of the specification. It is a bank transfer method, that happens to run on mobile phones. It uses AES-256 with a static IV, and then calls it a hmac (common library spec).

Also, this is not the Government, but NPCI (which is a private entity held by all major banks in India).

Disclaimer: I work for a payments company in India.

That looks really interesting. But, the government will hold a lot of information about their citizen, how they will use that? I do not know if something like this could be replicated in every country.

the government will hold a lot of information about their citizen, how they will use that?

Exactly the way they've already announced that they'll use it: To collect tax.

The government already holds a lot of information about their citizen. I think this worry is particularly American and not shared by most people.

You ask, how they will use that? They don't much use what they already have, so the best guess is that there will be no use. Which is pity, since it can be used for a lot of good. But I guess you would say it is lucky, since it can be used for a lot of bad.

> But I guess you would say it is lucky, since it can be used for a lot of bad.

"whatever can be used for bad will be used for bad" - murphy's law

Isn't that better than a couple of private companies, Visa and Madtercard, holding the information (and taxing you meanwhile)?

Definitely not. The corporations can't put me in prison or kill me, can't force me to use their services, can't use the data together with other data sources available to governments, don't have incentive to limit my spending and can't flat out take my money, and so on.

Governments can ask companies to comply to get information.

But the companies can then come forward to the public and/or not provide requested data, like it already happened many times.

To clarify, this was not built by the Government of India. This is a common misconception because the entity responsible - the National Payments Corporation of India, sounds like an arm of the government. However, it's actually a private corporation whose shareholders are the main banks. [1] Some of those banks happen to be state owned, however.

Also, the government has not and will never give up on Income Tax. Although only an estimated 1.5% of the population pays Income Tax [2], that's still the lion's share of govt revenue. By encouraging digital payments, the govt thinks it will be able to track money better and make people less likely to dodge any tax, whether consumption or income tax.

Next, transactions on UPI are free for the time being, as mandated by the govt. But if it becomes successful, the plan is to introduce small fees ($0.01-0.06). It's likely that the customer will pay that fee, rather than the merchant, which is the opposite of what we're used to with card networks. It's possible that this will hurt UPIs popularity for small transactions. But the banks that funded the development and upkeep of this API need to see a return on investment, so they're unlikely to keep it free in perpetuity. One compromise is that the fee will only apply to P2P transactions, rather than point-of-sale transactions [3].

Why did the banks fund this then? Don't banks everywhere jealously guard their APIs and minimise interoperability? It's different in India for a couple of reasons. Firstly, India is heavily regulated. The govt issues many declarations, especially in the banking industry, that are meekly listened to. The govt encouraged the creation of a common API, and it was built. Secondly, the banks themselves want to do it. In India, payment apps are very popular because of the great UX. Most restaurants and many small vendors accept mobile payments through "wallet" apps like PayTM (partly owned by Alibaba). These apps increasingly account for most digital transactions. They're nimble because it's easy to sign up with them - unlike banks they don't need to perform KYC until the user has $200 in his wallet. The banks can see the writing on the wall - either they provide a compelling payment experience or they will be replaced. The next generation of customers might end up opening bank accounts with PayTM instead.

Here's the really interesting nugget in all of this though. We have a payment API exposed by all major banks. We're not stuck with only the substandard apps developed by banks, anyone can build one, pending approval by the banking authority (RBI). It's reported in the press that Facebook and Google have both applied for this approval [4], so we could see it integrated with WhatsApp, Messenger and Android in the near (3-9 months) future. If you can pay through WhatsApp, why take out your credit card?

[1] - http://www.thehindubusinessline.com/money-and-banking/npci-b...

[2] - http://economictimes.indiatimes.com/news/economy/policy/why-...

[3] - http://gadgets.ndtv.com/internet/news/upi-payments-tax-charg...

[4] - http://timesofindia.indiatimes.com/business/india-business/w...

actually its not completely true. The banks were MADE to do it by Raghuram Rajan (the ex-director of the Reserve Bank of India) The day of UPI launch was the last day Raghuram Rajan was in office. Even today, you see news of banks trying to sidestep the UPI. For example HDFC tried to start charging UPI transactions, but was soon made to shut it down.

GST tax is also a private agency - the GSTN Pvt Ltd. - but that is the structure the govt created for autonomy.

The RBI in India is heavily progressive - for example the business models of Yodlee is at risk for bank data scraping, because the RBI is creating a new kind of a regulatory structure (called "Aggregator NBFC") whose only job is to hold personal financial information.

The plan to start charging for UPI has been a debate inside the RBI that I have been privy to - everyone has bets on different sides of the table. My personal bet is that the govt is going to keep digital payments free for the next decade atleast. The revenue share is too less - the long term strategic gains are too high to not do otherwise. Plus, the govt is promoting digital payments in villages which were predominantly cash - this cannot happen unless digital and cash are made equally free.

Anyone can integrate with UPI - you can too. Its not very hard. Facebook, Google have had licenses for a long time. Its the demand side that they are figuring out.

> The banks were MADE to do it

That's what I said too, read my comment once more. I only pointed out that the banks didn't resist it, because they could see that a compelling payment experience could help them fight PayTM.

> Anyone can integrate with UPI - you can too

That's what makes me sceptical of your expertise. My experience working in a payments startup tells me that the only way to integrate with UPI is to partner up with an existing bank. For example, Flipkart's PhonePe couldn't simply start calling UPI APIs. They use software provided by Yes Bank Limited and all payment requests were routed through Yes Bank. This is why all PhonePe users have @ybl addresses, not @phonepe.

> Its the demand side that they are figuring out.

I don't see what "demand-side" needs to be figured out. Everyone agrees that giving the 200M users of Android/Whatsapp the power to make payments would be desirable. What Google and Facebook must actually figure out is how to integrate with YBL or whichever bank they're partnering with and to make sure their UX is good.

UPI addresses are linked to banks. When a merchant integrates with UPI, they are using it to transfer money and accept payments. For example if you use UPI via Razorpay - it does not ask you to create a new UPI id. What Flipkart/Phonepe did was a play to own the customer - and bring more people to their fold. So that was a strategic partnership between YBL and Phonepe via which users could implicitly get a bank account as well! However you can link your existing UPI id with it as well.

YBL does not provide software - they have certain API that you can use. You can integrate with other banks as well...Or use Razorpay. The difference between both is that it's harder to talk to banks.

The banks are still resisting it. The banks are not hugely threatened by Paytm in general but UPI is causing a drop in revenue. Check out HDFC trying to introduce UPI charges and the hullabaloo. It would have done it, if it hadn't gotten a rap from the regulators.

Payments is a two sided game - I think that Google and Facebook are figuring out how to create walled gardens around payments in India, when UPI basically makes it easy to switch apps. This is purely my conjecture at this point.

So yes, my expertise is definitely doubtful ;)

Reply on news.ycombinator.com