
Trust & Innovation
Though we live in a time of breakthrough innovations which promise to make the life of an average human being better on several parameters but are often restricted by their failure to scale. For if an idea, product, or, innovation fails to scale it remains restricted to a tiny fraction of the population, either with those who are early adapters, or of socially, and wealthy backgrounds.
There are many such examples in the world of innovation. The focus of this piece is to look at it from the perspective of government policies aimed at welfare. Government policies have to act pro-socially if they are to find success within the strata they operate in. Pro-social behaviour is not optimal for individuals until there are additional mechanisms at play. The additional mechanism at play creates a lattice work of trust-worthiness which can help scaling up of a policy, intervention, or technology. The story of Unified Payment Interface is a case of behavioural economics in the real world.
In 2015 the cost of 1 GB (Gigabyte) of fast (4G) mobile data was INR 225, it was high for an average user. It was also the time the government was working hard at adding more and more people to the JAM (Jandhan, Aadhar, and Mobile) stack for meeting various welfare issues and a prototype for what would go on to become the Unified Payment Interface was being tried.
With an introduction of a new internet and telephony provider in 2016, the cost of 1 GB data started coming down, and more, and more people started being added to the Indian internet. Today the cost of internet in India is one of the lowest in the world.

The sharp decline in data prices meant more and more people started coming online. The presence of government in the fintech meant that there was a widespread trust in online transactions. Pro-social behaviour requires that there is an enabling mechanism for ensuring cooperation within a network, and altruistic-punishment for wrong doers. Say if you were to do a transaction online and it fails there has to be a guarantee that the money will be returned to you. This requires the presence of institutions that can solve the free-rider problem.

The story of UPI: Agency, Adoption, and Scale
While we have mentioned the move from access to agency several times, the latter refers to a shift from adoption to engagement. With respect to access, there has been a visible proliferation of this technology in our daily lives. But what about Agency? Defined as “the ability to take action or to choose what action to take”, it implies a far greater degree of knowledge and adroitness in the hands of users, than we currently observe. In this piece, we delve into the factors that have facilitated the first of the above mentioned stages, and some questions and concerns that may impede the smooth execution of the second stage.
Access & Adoption - A success story.
By most accounts, the story of UPI - United Payments Interface - has been one of transformational change, since its inception and use in 2016. “UPI is a transformative public infrastructure designed for robust private innovation.” Under the aegis of the National Payments Corporation of India (NPCI), the UPI has a been developed as a digital public good - characterised by free access open architecture available for further innovation - one among others that is contributing to India’s reputation as a leading builder of reliable, scale ready platforms that are readily available for collaboration with, and customisation by, other countries.
On the technology front, interoperability and a transparent collaborative platform provided by initiatives such as IndiaStack, and aided by strong Government support, have assisted in making it a viable tool to serve large and diverse populations. With a single-interface payment system, whose ownership and regulation by the NPCI has ensured uptake by major banks, UPI is facilitating seamless merchant & ‘peer-to-peer’ transactions. The technology has thus made it incrementally easy to link any (and multiple) bank account through a single, easy to use smart phone app - leveraging India’s ~150 Mn (2020) smartphone users.
At the individual level, several factors can be seen as the reasons for its success, with many of these factors addressing the aforementioned demand and supply challenges - free usage and distribution along with easy availability of simple to stick/portable tags to small vendors and owners/operators of local transport who make up a significant portion of India’s daily transaction value/volume across socio-economic classes, Voice intimation of transaction confirmation, ease of transaction with respect to no touch interactions (a boon during the pandemic!), elimination of language barriers through simple techniques such as QR Code scanning, etc. All of these factors have led to a shift of the Indian economy from being one that is traditionally cash rich to more easily adopting digital payment methods, as evidenced by a higher than global average FinTech adoption rate of 87% and is expected to last long term. Besides digital payments, there is a marked increase in the personal investment landscape in India, with 142 Lakh new individual investors entering the market in 2021. “Retail investors, most of them in the 18-35 age demographic and a majority of the first-time investors, started transacting in the markets as online stock trading apps like Zerodha and Upstox piloted the retail investor surge in India.” The role of UPI in this upward trend is also visible in the information provided here by Zerodha.
For the Government, it has been a significant step in the direction of technology driven financial inclusion in a country that has been previously identified as having several demand as well as supply side challenges. The much acclaimedJAM Trinity - the integration of Jan Than Yojana, Aadhaar and Mobile Technology, has been a harbinger of cheap payments, fund transfer and credit, catalysed by cheap data and mobile/internet penetration among all socio-economic classes and geographic regions in the country. “Since 2014, India has embarked on one of the most ambitious financial inclusion initiatives ever seen anywhere in the world, bringing over 330 million people into the formal financial sector.” In conjunction with the efforts made to link bank accounts and Aadhaar cards, it has supported the capture of a previously underserved population under the purview of formal credit mechanisms, facilitating their access to benefits and schemes that they may have otherwise been left bereft of. It has been a critical accelerator for Direct Benefit Transfer to ~900 Mn beneficiaries of 450 Government schemes, as of 2020. Besides its popularity among beneficiaries, the technology has also provided India with a solid tool for the strengthening of its diplomatic ties through its export as a viable digital public good to the rest of the world (Nepal, Bhutan and Singapore are leading other South Asian countries in the adoption of UPI technology for strengthening of digital transactions and cross border payments). An additional spillover effect of widespread uptake is seen as the reduction of remittance rates, a crucial factor for India - the world’s largest receiver of remittances (USD 87 Bn in 2021).
UPI transactions meanwhile continue to climb, and how. There are issues of adaptation, and scale that are now going to confront the juggernaut of UPI, and they are going to come from early access.

The Challenges
Though UPI has been a game changer and an enabler, it has a lot of issues it still has to deal with. For trust in a policy or a technology is constantly evaluated, and the benchmark keeps on changing.
In 2019, UPI went global, launching in Singapore, and is ready to expand across Asia and Africa. At the same time, UPI poses policy challenges given its mandate. Issues such as the government’s Zero-Merchant Discount Rate Policy, lack of public accountability of its key governing body (the NPCI), and fintech companies’ access to financial data in the absence of a legal framework for data protection in India are causes for concern. https://medium.com/digital-asia-ii/building-public-digital-infrastructure-for-the-next-century-the-case-of-indias-unified-payments-8acc84be6008
According to Arundhati Ramanathan of The Ken, “Depending on the time and context, NPCI is a competitor. It is a platform. It is a regulator. It is an industry association. It is a profitable non-profit. It is a rule maker. It is a judge. It is a bystander.”[34] Ideally, once a payment network is established, the payment network provider should not compete with the app providers. Arundhati Ramanathan, “NPCI, The God of Many Things”, The Ken, 26 February 2018, accessed 17 June 2020.
The question of fairness, readiness, and privacy will be the next big challenge for the world of fintech, and UPI will have to also provide solutions to the problems of individual customers, and merchants.
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