NPCI moving to give netbanking a UPI-like makeover

Summary

• The initiative, called ‘Netbanking 2.0’, is currently being piloted with 10 banks, including most large private and public sector banks, two mid-sized private banks and one small finance bank, according to these people.

• Mumbai: You’re about to pay for a purchase on a popular e-commerce website from your mobile, but your bank doesn’t show up in the netbanking list. This stumbling block faced by many consumers may be fixed if a pilot rolled out by the National Payments Corporation of India (NPCI) last month works out.

  Why such problems occur is that merchant platforms such as Amazon and Flipkart typically tie up with payment aggregators or gateways such as CC Avenue and PayU, which in turn individually partner with multiple banks to enable netbanking. This involves individual reconciliation with each bank and then settlement with the merchants.

  This mechanism may become a thing of the past. NPCI’s subsidiary NPCI Bharat BillPay Limited (NBBL) has rolled out a pilot to make netbanking interoperable with mobile payments, according to five people aware of the development. Banks can join a centralised platform set up by NBBL and directly enable netbanking transactions by leveraging the IMPS (immediate payment service) technology.

  The initiative, called ‘Netbanking 2.0’, is currently being piloted with 10 banks, including most large private and public sector banks, two mid-sized private banks and one small finance bank, according to these people.

  NBBL has also started working with five to six payment aggregators under the pilot that will be integrated onto the platform by the end of this month, the people cited above said.

  “While IMPS, RTGS and NEFT are channel agnostic, UPI (unified payments interface) payments only work on mobile channels. NPCI now wants to popularise its IMPS product as well, which is why BBPL has been allowed to provide an interoperable platform for internet banking where users won’t need UPI or card transactions,” a senior industry official told Mint on the condition of anonymity.

  “The pilot has already started and the experience on IMPS has been good. The objective is to popularise more avenues of payments so that not all eggs are in the one UPI basket from a systemic safety point of view,” the official added.

  Explaining how it will work for the consumer, Rahul Jain, CFO of payment aggregator NTT Data Payment Services India, which is part of the pilot, said that Netbanking 2.0 will bring the flavour of UPI to netbanking by redirecting customers to the mobile app of their bank on the phone for executing payments. He added that NBBL is also planning to use QR codes to increase ease of transaction.

  “That is something which will be very unique to the Indian payments ecosystem. It will also help increase netbanking transactions as it will improve ease of use for users given they won’t have to login to netbanking for every transaction,” Jain said.

  Currently, netbanking transactions are estimated to account for about 10-15% of total transaction volumes for payment aggregators, whereas UPI payments account for about 50% and credit card transactions for 20-25% of the payments, according to industry experts.

  Queries sent to NPCI remained unanswered till press time.

   

  How the backend will work

  An official at a large financial services portal explained: “NPCI is building a centralised platform where any merchant can integrate with all the banks via NPCI. Currently, different PAs have tie ups with different banks, and merchants have to then align with several PAs to reach all the major banks. This will solve that problem.”

  This official added that the move will also be beneficial for payment platforms as it will allow them to tie up with all the banks at one place and focus simply on working with merchants. Merchants or commerce platforms can’t directly work with NPCI and need to go through a PA or a sponsor bank for payment settlements.

  Vishwas Patel, joint managing director of Infibeam Avenues, which runs the popular payment gateway CC Avenue, pointed out that NPCI’s settlement process with banks is already in place owing to UPI and RuPay.

  “So, they have now started working with banks on a front-end interface for netbanking, wherein a common page will be hosted by NBBL where all the banks will be integrated at the back-end and the customers just need to enter their details to make the payment or transfer,” said Patel, who is also chairman of industry body Payments Council of India.

  To be sure, other major payment gateways include PayU, Bill Desk, Razorpay, Cashfree Payments and PayPal, among others.

  “NPCI is now trying to build the infrastructure for the entire ecosystem that payment aggregators were doing individually on their own earlier,” he added.

  NTT’s Jain said, “Typically, the settlement procedures are dependent on individual banks whereas under NBBL the settlement time will also get reduced because of centralised processing.”

  In addition to increasing use cases for netbanking, the initiative is also seen aimed at reducing the volume burden on the UPI infrastructure, especially for large value transactions, according to industry experts.

   

  Not all smooth sailing

  Discussions on making netbanking popular for mobile payments have been happening since the Reserve Bank of India (RBI) released its Payments Vision Document for 2025 in June 2022. In this paper, RBI had said that netbanking is not working to its full strength and that NPCI should look to optimise it.

  While some believe that NPCI’s move will benefit both banks and payment aggregators (PAs), allowing for standardised tie-ups across the board, others believe that this could hurt some payment platforms if it leads to lower or UPI-like costing for netbanking payments.

  Some others are of the view that the initiative will, to an extent, cut down the role of payment aggregators by partially eliminating the need for a middleman, at least on the banking side. This could hurt business for such platforms that have over the years built their business by individually tying up with each bank and merchant.

  “PAs will still have a role to play in terms of sourcing the merchants, integrating them and settling payments with them, but some part of their advantage that PAs enjoy today will go away, also in terms of fees from working with banks,” Infibeam’s Patel said.

  “The move is a positive one for the ecosystem, but the only issue is that once NPCI comes in, the pricing and fees should not go the UPI way. Because then money is sucked out of the system and no one is making money because there is a lot of cost involved in servicing last-mile merchants, which is already a problem being faced in UPI transactions,” he added.

  NTT’s Jain said, “There could be some consolidation in terms of pricing as some PAs may have a pricing advantage due to deals with multiple banks for integration. This will bring in common pricing as far as netbanking is concerned for both PAs and at the customer end.”

   

  Making money from UPI

  Economic viability of UPI transactions has been a long-standing discussion point for ecosystem players given lack of third-party application providers’ (TPAPs’) ability to make money from UPI transactions and limited interest from smaller players to increase their share due to limited monetisation avenues.

  In September 2022, Axis Bank MD and CEO Amitabh Chaudhry had noted that government mandates on the payments space ensure that no one can make money in the segment by taking away any profitability opportunity.

  In August 2022, RBI had floated a consultation paper proposing a tiered fee structure for UPI payments to make payment services reasonable and competitive for users while also providing optimal revenue for intermediaries.

  Since then, several industry players have batted for MDR (merchant discount rate) charge on UPI transactions to make the segment profitable. However, the government has maintained that UPI is “digital public infrastructure” for public good and it will continue to remain free of charge.

  Currently, netbanking transactions are estimated to account for about 10-15% of total transaction volumes for payment aggregators, whereas UPI payments account for about 50% and credit card transactions for 20-25% of the payments, according to industry experts.

  The NPCI’s move to transform netbanking to an experience akin to UPI is a visionary step that could redefine the digital banking landscape in India. By addressing current challenges and introducing innovative features, this makeover promises to make netbanking more efficient, secure, and user-friendly. As NPCI continues to pave the way for digital financial solutions, users and banks alike can look forward to a more connected and seamless future in netbanking.

  Keep an eye on this space, as we anticipate more details and updates on this exciting development from NPCI.

  With these insights, users can better understand the upcoming changes and prepare to leverage the enhanced capabilities of a UPI-like netbanking system that promises to revolutionize the digital financial ecosystem.

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