NPCI recently issued a circular on 16 March titled “Guidelines on Interoperability features for all BHIM UPI Apps” (Link here). This circular contains the design as per which UPI payments in India will be accepted and processed in the future.

Here at Razorpay, we are excited by the developments and wanted to break down the circular, so you don’t have to! We have also analyzed the immediate and long-term impact of these new guidelines.

What is the scope of the NPCI circular? Who needs to follow it?

The circular calls out all UPI apps with specific mention to apps introduced by banks and third-party apps like PhonePe, Paytm and Google Tez.

NPCI circular

The BHIM UPI App developed by NPCI definitely falls under the purview of this circular. In addition, “bank apps” refers to apps developed by any bank specifically for UPI transactions, For example, BHIM SBI Pay, BHIM Axis Pay, BHIM Baroda Pay etc.

Also, apps such as HDFC Bank MobileBanking and Pockets by ICICI Bank which have BHIM UPI embedded as a module also come under the purview.

“Merchant / third party” apps basically covers three categories here –

  1. All P2P apps which are built on top of SDKs provided by either banks or NPCI itself. PhonePe, Paytm, Google Tez etc come under the category.
  2. All payment service providers who allow generation of VPA IDs via their SDKs. The relevant mobile SDK thus provided by Razorpay will have to comply with these guidelines from now on.
  3. Apps such as Ola or Uber which provide you an option to onboard / register a customer on BHIM UPI also fall under compliance.

.At Razorpay, we follow a methodology of trying to reduce the integration efforts of our merchants to the minimum. As a Razorpay merchant using checkout, you can rest easy knowing that you won’t have to carry out any integration by yourself.

What are the new changes under the NPCI guidelines?

The circular proposes interoperability features which will be mandatory from 16 April onwards, which are listed below –

1. Send and receive money using any BHIM UPI ID (VPA)

BHIM UPI ID (VPA) - NPCI Circular

Though this functionality has generally existed, there have been outliers like Whatsapp (beta stage) where this was lacking previously. One could only pay to Whatsapp users and UPI IDs but not collect money via Whatsapp generated VPAs. On the last update, the functionality is still not available on iOS via Whatsapp.

Our view is that this will provide a level playing field in the market. There are a lot of incentives for any private organization in keeping the P2P payment ecosystem within their own ecosystem. But this feature will make it compulsory to provide the functionality to complete P2M transfers as well as P2P transfers outside of an app’s ecosystem.

2. Generate and respond to collect request from any BHIM UPI ID (VPA)

Collect request BHIM UPI ID

This is an extension of the above feature in the sense that a collect request for payment can now be created from any UPI app. So we have both the aspects, sending someone money and asking for a payment covered well with this.

One theory is also that this feature helps limit the ability of banks / apps / PSPs to reject transactions on a business logic, say transaction starting out of another UPI app instead of their own. There haven’t been any reported malpractices in this regard, but this is a welcome feature for security nevertheless.

If this holds up to potential, this makes UPI a truly interoperable system architecture in which all UPI apps can collect payments from all other apps.

3. Generate BHIM UPI QR and Scan & Pay BharatQR and BHIM UPI QR

Generate BHIM UPI QR and BHARAT QR

This is the feature we believe will have the most significant impact. QR codes have always been a simple, infrastructure light solution for accepting digital payments. BharatQR has been designed by the NPCI as a universal QR payments system that can be leveraged across retail stores, petrol pumps, restaurants, schools, etc

The BHIM App from day one has provided features to –

  1. Showcase your own BHIM UPI QR code to collect payments (Generate)
  2. Scan a QR code with a merchant or a peer from inside the app and pay (Scan & Pay)

Other apps had just provided an option to collect payments from offline merchants who had their specific QR codes for the app. The merchants/retail stores also had to display different QR codes for each app and BharatQR will definitely provide relief here.

As now mandated by NPCI, each app will have to support generating a Scan & Pay QR code for payments via BharatQR which means any retail store owner with a smartphone is now empowered completely. The additional functionality of BharatQR being able to collect the money from Debit & Credit cards issued by Mastercard, Visa, Amex and Rupay make this even more significant.

4. Respond to Intent call on the same phone by any BHIM UPI app or merchant

Intent call

The intent call is a feature by which apps on the same phone communicate with each other. An action is started in one app and a connection is made to the apps within the device that can support the particular intent on phone.

Currently, the UPI payment flow on mobile goes like this –

  1. Merchant app in which UPI payments is made asks for VPA and generates a collect request over internet.
  2. An SMS is received notifying the user that the collect request has been made from the installed UPI app of choice (optional)
  3. User opens up the UPI app on the phone and approves of the request by inputting their UPI PIN
  4. User sees the payment successful notification on his UPI app and then switches back to Merchant App.
  5. Merchant app shows the transaction as successful.

With UPI intent coming in, the crucial step in which abandonment can happen, which is switching from one app to another goes away. From the merchant app itself, you would get an option to see which UPI apps you want to transact from, click on the option and straight away jump to your choice UPI app.

This is a great improvement in terms of customer experience and also will have a positive impact on success rates. Also, with UPI intent, cases of payment abandonment will reduce. It hurts the most once you have acquired a user, converted them and the only step left is collecting payments. And the user does not complete the payment because of a trivial issue like this.

However, if you are using Razorpay’s mobile SDKs, you would have the functionality within your mobile app already.

UPI-Intent-Low

 

Specifications for merchant apps

All of these features do not make sense for everyone. Like for example, a cab service aggregator does not have a requirement of users sending money anywhere except for their own current accounts.

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Provisions have therefore been made that the merchant apps do not have to build all the features. Universal response to payment collect requests and ability to scan and pay via BharatQR or BHIM UPI QR is the only mandate that they have to follow.

What this means for the industry?

This NPCI circular will bring about much-needed parity in terms of what features need to be built and cannot be escaped from. This has been a long standing discussion in the industry and hopefully, the concerns will now be addressed by the circulars.

The move to make BharatQR mandatory is a great step to increase the user base. Everyone in the physical world with a smartphone can now easily use a universal QR code i.e. BharatQR for collecting payments via any and every UPI app.

This could mean a significant impact on mobile wallets that have thrived on this market for a while now but with the government push behind UPI, BHIM and BharatQR, one can only see a net positive effect on the ecosystem.

The interoperability between UPI and cards offered by BharatQR is one of the biggest wins. Rather than different organizations trying to encourage digital payments in the physical world in silos, all major card networks including Visa and Mastercard now have incentive as well to get behind BharatQR and promote one solution.

Customer Experience also gets a major uplift once these features are universally available. Customers will have a bare minimum set of features provided by all apps and so users will have realistic expectations while shifting over. Also, features like intent will allow for a seamless experience of transacting via UPI on mobile phones and improve performance.

NPCI has called out a deadline of 16 April 2018 for the implementation of these features, with a warning that non-complying apps can have their transactions declined by PSP banks or NPCI beyond that. We believe that though workable, the deadline could have been a bit longer considering these are core infrastructure changes.

Also with payments, one eye is always focused on security and that will have to be kept in mind by all apps while making the changes.

At Razorpay, we have always believed in UPI and BharatQR as the initiative that will bring the next stage of massive adoption in digital payments. In September 2016, Razorpay was the first payments platform to provide UPI transactions to its entire merchant base.

We intend to continue on with the tradition and bring the very best of what BharatQR and UPI Intent has to offer to you. Keep checking this space for more updates.