UPI: The climax for Paper Money

From seashells to rare metals, coins to paper notes, and more, money has taken various forms throughout its history as a medium of exchange. Among these, paper money has been a popular choice due to its portability, adaptability, ease of production, maintenance and reliability. However, the rise of UPI has caused many experts to predict the demise of paper money. As UPI gains popularity for its convenience and security, many are considering UPI: The Climax for Paper Money

A wise man once said that The world is a slave to money, and it’s true – money is a must for fulfilling even our basic needs like food, clothing, and shelter. But in today’s digital age, do you really need to have cash in hand? It seems like everyone, from vegetable sellers to the biggest spends you can imagine, accepts digital payments via Google Pay, PhonePe, Paytm and so on. Thanks to the convenience and security of digital payments, India has witnessed a massive surge in these digital transactions. In fact, UPI based payments have seen a rise of around 427 percent in recent years. With more and more people opting for cashless transactions, it’s clear that the future of payments is going to be digital

A few years ago, Imagine a scenario where a close friend of yours requires urgent financial assistance to pay for his hospital bills. The preferred way to help him than would either be to send money directly to his bank account which would take a few hours to reach him or someone in person will have to go to the hospital to hand over the cash. The preferred ways to rely on then would be, over-the-counter transfers, Net Banking, ATM cash withdrawals which are time-consuming and tedious

But, if it is the case now, a phone in your hand with an UPI application in it could solve the issue in minutes. These transfers being easy, safe, and fast, no matter a literate / an illiterate, young / old, men / women, all are behind these digital modes. It is this utmost simplicity and adaptability that is endangering the currency notes

History of Money

As many cultures and civilizations continuously tried to simplify the process of trade with some medium of exchange. It is so far not been possible to trace out as when money was invented. It is believed that it all started with Barter System where people exchanged goods and services with each other in exchange of their requirements. With this system of trade, a fair, justifiable quantification of trade was difficult to attain among the parties. This paved the way for invention of a monetary system with money as a medium of exchange that has a recognized value

From here, money took various forms like seashells, animal skins, precious metals, coins, papers and so on over the period. A detailed history of money is available here https://en.wikipedia.org/wiki/History_of_money#Non-monetary_exchange. No matter in whichever form money is in, may be coins, notes, a string of code electronically mined by a computer. It does not possess a value by itself. It is just the faith that people have on it as a medium of exchange, a unit of measurement, and as a storehouse for wealth

This evolution of currency, by 20th century took the shape of Plastic money poplularly known to us as Credit and Debit Cards. These cards were initially introduced in a few developed countries of Europe and America. These cards later made their way to India but could not gain much ground in public. Key reasons that hindered the popularity of these cards are believed to be

Stringent rules followed by Banks while issuing these Cards
Financial discipline, rules and regulations involved in maintaining these Cards

By 2016, India had a well-established banking network and various systems namely IMPS, NEFT and RTGS to transfer money between banks were in use. With too many payment systems, rules, and growing paper burden there was a need for a unified system that could automate, accelerate, and standardise payment platforms

UPI: Unified Payments Interface -The introduction

Demonetization and an urge for simplified payment system brought various Indian banks together to promote digital transactions in India. To achieve this, Reserve Bank of India has set up unified Payments Interface (UPI) and established National Payments Corporation of India in 2016. The main aim of UPI was to change the face of payments and to provide single interface across all NPCI systems thereby creating interoperability and a superior customer experience

During the first year of its introduction, UPI gained only 6 percent of market share whereas card transactions accounted for 36 percent during this period. But by 2021, UPI had become a massive success by occupying 63 percent of market share in digital transactions while share of card transactions dropped to 9 percent. Below graph gives a fair idea of UPI’s penetration into the life of people

UPI; The success story

UPI Is a simple, real-time, user-friendly mechanism which do not involve too many parties

in the transaction taking place between the purchaser and the merchants. It is this simplicity which brought in ten crores of users into the platform, propelled more than 100 crores of transactions within the first 3 years of its introduction. Now the scenario is, of all the digital transactions taking place in the country, 96 percent are being done through UPI only

To further accelerate the UPI usage, for transactions below Rs. 200/- and for places with poor Internet speeds and rural areas, UPI Lite is introduced

Indian government, by establishing NPCI international Limited is taking steps and signing agreements to make UPI available in our neighboring countries like Nepal, Bhutan along with countries like Singapore, Malaysia, Thailand, Vietnam, Philippines, Hong Kong, South Korea, and in few Arabian and Europe countries

Even though developed economies of the world have been using digital payment methods from a very long time. But many of them are limited to P2M only, meaning transactions can take place between individuals / persons and Merchants / Sellers whereas with UPI, transactions can take place between person to person – P2P (Peer to Peer) as well. Google Pay, a leading UPI service provider in India is so impressed that they even advised US government to incorporate an UPI like service in their country as well

Benefits of UPI

Till now, we have seen how UPI has deeply rooted itself into the lives of Indians. Following are the key reasons behind this extraordinary success of this digital payment platform

Any individual having a personal mobile as the primary device, a Bank Account lined to mobile number can opt for UPI transactions. Payments can be seamlessly made in Realtime between person to person, person to entity, and entity to person
Users can send up to ₹ 100000 per day, any time, round the clock and 365 days a year. No other payment platform is as fast and secure as UPI
Single UPI application can be used to access multiple bank accounts
Utility bill payments, over the counter (OTC) payments, QR code payments (Scan and Pay) can be conveniently done
Provides ability to pre-authorise multiple recurring payments for utilities, school fees, subscriptions, etc. with a secure OTP authentication and rule-based access similar to ECS mechanism
Merchant Discount Rate (MDR) is not applicable on UPI transactions as in case of Credit and Debit Cards
Using virtual ID for payments is more secure. No personal credentials like account number, card number sharing required
One of the main aims of UPI is to curb the Black Money in economy and bring more transactions under the surveillance of the tax department. Unlike traditional cash transactions, all UPI payments get recorded

UPI killed Chocolate sales

Ranked at No: 2, just next to China, India has a very huge population of around 1.4 billion. Despite witnessing a rapid growth in online sales, a major chunk of population is still concentrated at offline stores for day-to-day needs

Before the introduction of UPI: If I buy something for ₹ 98 at a local store and hand over ₹ 100 to the shopkeeper. Giving “No Change” as a reason, he would hand over me, a few chocolates. Any and / or many of us have had this kind of past experiences. Now Imagine if 100 customers like me visiting this shop a day, meaning ₹ 200 worth of chocolates will be sold. And if this happens to the whole of nation. Millions and Billions worth of chocolates sales revenue gets generated

But now: If my bill at a store is ₹ 98. I will simply pick my phone, navigate to an UPI app, and pay only ₹ 98. Meaning I can buy what I really want, and I am not bound to buy what I don’t want (chocolates in this case). Experts pointed out this as one of the reason for drop in revenues of chocolate manufacturing giants like Nestle India, Parle in the country

Offering several seamless real time comforts, we have seen how Unified payments interface (UPI) has popularised itself in the society. From hundreds of years, having cash in hand was a must for survival. But with UPI, people will have cash only if they have a reason. This ability of UPI is what compelling the experts to believe UPI: The climax for paper money

The only drawback UPI has as of now is its ability to transfer a maximum of ₹ 100000 per day. Because of it, higher valued transactions cannot be done with it. To overcome this and to further promote digital transactions, India had come up with a new mode of payment system which we shall cover in the coming days

Susmitha kommisetti

November 30, 2022 at 5:18 PM

Hello ram, hope you are doing good 😊.
The topic was really informative, and
When I am going through each and every line, i am wondering how much this UPI is helping us in day to day life and how much we are depending on it.
As you mentioned here, i didn’t even remember that when I went to ATM to with draw my salary last time….
Good to know the history of money and data you provided and UPI success story…i liked most about the 2rs choclate concept 🤭.
Looking forward to read much more interesting topics like this-Unified payments interface.
All the very best.