The launch of the Unified Payment Interface (UPI) is a 'WhatsApp' moment for payments in India, says Shikha Sharma, MD & CEO of Axis Bank. The industry is excited about the opportunities that the UPI will open up, she adds.



The Reserve Bank of India Monday launched the UPI, which makes transferring money as simple as sending a text message.

Sharma points out there are few hurdles to the currently available digital payment avenues for retail customers like local store-level accessibility issues in case of card payments and delays in receiving one-time-passwords leading to failed transaction in case of net banking. With UPI, these issues will get sorted, she says.

It might take 12-18 months for the new interface to be ubiquitous, she says, adding, the only real challenge is a good dispute resolution mechanism, which the National Payments Corporation of India (NPCI) is working on.

On the recently announced monetary policy, Sharma says it will take time to move to a neutral policy environment as we are still running on a deficit. However, as the industry moves towards a neutral policy regime, that will dramatically change the liquidity environment.

Tight liquidity has been a key barrier in banks transmitting rate cuts but government intiiatives at containing fiscal deficit, small savings rate cut and now the new liquidity framework will all help transmission, she says.



Below is the transcript of Shikha Sharma’s interview with Ritu Singh on CNBC-TV18.



A: You heard Mr AP Hota say that 19 banks have come on, but he is expecting many more to come on soon. We are actually very excited about this because as I mentioned, there are a couple of barriers to digital payments really taking off for retail customers and it is fundamentally around convenience, safety and availability.



So, the point is that when you go to a small merchant or you are paying for your cab or something, if an electronic payment cannot be accepted, then you are forced to take cash and pay through cash. Or if you are going to buy vegetables or you are going to the grocer next door, then you are forced to pay with cash. And when you are doing an electronic payment, e-commerce payment and trying to do it through net banking, you still have to get one time password (OTP) and sometimes, that transaction fails, if you do not enter your OTP quickly enough.



So, there is friction in digital payments and Unified Payment Interface (UPI) actually takes away a lot of the friction because you do not anymore have to move money from a bank account to a wallet, you do not have OTP because there is a mobile authentication that is happening and because it is low cost acquiring, it can be made available to many more merchants very quickly so that the used cases for paying digitally can dramatically expand. This is going to happen overnight, it is going to take some time for acceptance to happen, but as I said, this is a Whatsapp moment for payments.



We will find over the next 12-18 months that digital payments will become a lot more ubiquitous and what needs to be done from a challenge perspective in this mean time is that if a transaction does not go through, does the reversal happen quickly from the customers perspective, because if that happens quickly, then you reinforce trust. But if that broken transaction does not get resolved or reversed quickly, then people will stop to use that. So, that is the challenge that National Payments Corporation of India (NPCI), together with all the partners who are working on this have to make sure it gets handled well.



Q: Is the reversal of failed transactions the only challenge you foresee right now or are there any other regulatory changes that you will also like to see to make this a better enabler?



A: The regulations are pretty much in place. It is just how do you deal with dispute, dispute resolution that needs to be worked through.



Q: I also wanted a comment on the recent liquidity framework that the RBI has tweaked in the last policy. Do you think enough and more has been done to take care of the tight liquidity in the system? Will banks be able to pass on rates quicker now?



A: The policy announcement saying that we are going to move from a deficit to a neutral policy environment is a big step forward. It will still take time for us to move there, because despite the policy environment, we are still running in a deficit situation, but as we do move towards a neutral situation, that will dramatically change the liquidity environment. And that has been one of the remaining barriers to rate transmission because we have seen government controlled fiscal deficit. We have seen a decline in small savings rates which has all helped rate transmission. And as the new liquidity framework comes through, it will definitely be an enabler.