Quo Vadis, UPI?
Unified payment interface (UPI) continues to expand in three dimensions – volume, geography and consequences.
August 2023 recorded over 10bn (billion) UPI transactions, totalling over Rs15 lakh crore.
UPI now works in 20 countries, the latest being Sri Lanka. 
Volumes and footprints are easy to grasp. Yes, volumes will grow and UPI will go to more countries.
But, the consequences of UPI’s proliferation – interesting and intriguing. What new developments are in the offing?
Here are some ideas which have been appearing in various places. 
UPI started with a simple concept – use a phone to move money from your ‘credit balance’ bank account to someone else’s ‘credit balance’ account.
Recently, Reserve Bank of India (RBI) allowed UPI payments from overdrafts or credit cards, not only savings accounts. 
This can lead to many interesting and possibly unintended consequences.
The first relates to savings accounts (SA) and current accounts (CA).
In the past, we needed SAs because they provided chequebooks, which we used for paying house rent, school fees and so on. CAs provided chequebooks, too, but they didn’t pay interest and, hence people preferred SAs.
For many decades, RBI has allowed overdrafts on SAs against a pledge on an FD (fixed deposit), so that SAs could charge interest as well as pay interest. But, CAs still don’t pay interest (not attractive for individuals), and companies cannot use SAs.
Time to eliminate both SA and CA.
Enter the transaction account (TA) – a ‘hybrid’ (everyone uses this term nowadays, so why not me?) account which will:
- Pay interest on credit balances, perhaps in slabs, such as 4.5% on smaller balances, and 6% on higher ones. Some banks already offer such two-tier interest rates on SAs.
- Provide an overdraft facility, secured or unsecured, as per the bank’s discretion, at an appropriate interest rate.
- Provide online transfers and payments, eliminating the need for cheques.
- Link to a UPI account for making sundry payments.
- Freebies – no minimum balance, no ATM charges.
Anyone – individual, society, Hindu undivided family (HUF), partnership, or company – will be able to have a TA or multiple TAs. In fact, they will have to because CAs and SAs would be gone.
The next thing to go – the debit card. It has become redundant.
A debit card requires a point of sale (POS) machine (expensive, needs a phone connection) for payments and an ATM for getting cash. A UPI card can make payments, big or small, to a vendor with just a picture of a QR code. Cash is not really needed anymore, but if you do want cash, UPI is already able to get it from an ATM, too.
Next – credit card.
What does a credit card do?
It enables you to pay money and get ‘free’ credit for about 15-45 days until the monthly settlement day. The seller pays for this by accepting a slightly lower amount than the actual sale price. The difference is shared between the two banks and VISA or MasterCard (MC). All this can easily be structured within UPI itself – a physical card (which needs a POS machine and connectivity) is redundant.
Credit cards also let you borrow at very high interest rates. But, this type of credit can be set up quite easily within the bank’s systems and be linked to a UPI account. There is no need for a card or VISA/MC.
Next for the chop - personal loan.
For a relatively small expense, such as a short vacation, which cannot be paid for immediately but can be covered within nine to 12 months, a salaried person can take a personal loan.  
The problem with a personal loan is – it has a fixed repayment plan. On a given day, the equated monthly instalment (EMI) goes out of the savings account and, hence, money must be kept in the SA to meet this payment. This money is an ‘almost’ idle balance earning just 4.5%, while interest is being charged at 12% on the personal loan.
Very inefficient!
A personal overdraft, set up on a TA, will eliminate this inefficiency. This is how it will work for a salaried person.
(S)he will take out money from the TA to invest it somewhere or pay for some expenses. Thereby, the TA becomes overdrawn. 
All through the month, various debits will hit the account – EMIs, systematic investment plan (SIPs), utility payments, school fees, various purchases and all that – and the overdraft will build up again to a maximum level just before the next salary comes in.  
Yes, the TA will be debited with interest, but there will be very little, or zero, ‘idle’ credit balance. 
A final thought.
Do you remember the old practice of a housewife saving a fistful of rice every Thursday as an offering to Goddess Laxmi? The idea was to regularly set aside a little bit, which would go unnoticed but would build up to a sizeable amount over time.
India has over 700,000 street vendors who use UPI. I doubt whether any of them put money in the stock market.
Suppose each such person sets up a standing instruction to debit a small amount, even Rs25, every day from his UPI account and put it in a separate account. At month-end, the money collected in this account would be placed in the stock market – like an SIP.
To eliminate decision-making on which share or mutual fund (MF) to choose, we could go by the principle that over a length of time, the stock market always gives a good return irrespective of the start and end date of an investment. Hence, the money could go into an index fund, one that tracks the Sensex.
I leave you to do the little bit of math to work out how much these ‘fistfuls of rice’, from countless tiny investors would add up to, over time. More importantly, it would bring millions of people into the ‘investor’ category which the government is so keen to do.
Yes, UPI is going places and thereby being the catalyst for a process of change that we had never thought of.  
Food for thought, I feel.
(Deserting engineering after a year in a factory, Amitabha Banerjee did an MBA in the US and returned to India. Choosing work-to-live over live-to-work, he joined banking and worked for various banks in India and the Middle East. Post-retirement, he returned to his hometown Kolkata and is now spending his golden years travelling the world, playing bridge, befriending Netflix & Prime Video and writing in his wife’s travel blog.)
2 months ago
Doesn't sound right to me. Overdraft in Savings account is already in vogue. But pushing personal savings in large amounts over long periods into the stock market could become a disaster. The maxim that stock markets always rise overlooks the fact that at many points in the interim the market could hit rock bottom. If we work out the emergencies in a poor vendor's life almost all of them will coincide with rock bottoms. Risky investment must never be offered especially to the financially unstable as it will kill more than it can save.
Amitabha Banerjee
Replied to hari.krv comment 2 months ago
Hello Mr Hari. I am not suggesting "pushing" anything, but simply "offering" a choice to a person who would otherwise not have this option. Also, I am not suggesting "large" amounts. Surely, Rs 25 a day is a modest amount by today's standards? The point is - a new way to save can be placed in front of ordinary people. Whether they take it or not, and how much they will place in this option, is entirely up to them. Street vendors are not idiots. They are probably more business-savvy than most people.
2 months ago
Excellent article. Hope all the predictions become a reality
2 months ago
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