Government tests UPI Lite to allow payments without internet

The solution, called UPI Lite, will likely be used first to enable digital payments under 200 in rural areas, the people said, including three government officials and a senior executive at a bank that was testing the solution, asking for anonymity.

The Reserve Bank of India (RBI) allowed offline digital payments worth 200 without an internet connection.

UPI Lite allows feature phone users to make digital payments from their bank accounts. The aforementioned bank official said two major solutions are being tested. The first is a SIM overlay and the other is a software-provided solution that uses over-the-air (OTA) updates.

SIM Overlay is a technology that extends the functionality of a phone’s SIM card, allowing payments and other services to be performed even without data availability. OTA, on the other hand, ensures that the solution is delivered directly in the firmware of the device.

The bank official explained that the OTA solution would be akin to the snake game on former Nokia feature phones, which would receive updates over the networks without 3G or 4G networks. However, it will be different from how it is done conventionally and the technology used here is patent pending.

“The transaction on the SIM overlay uses a telecom network. The overlay is built into the phone by the telecom provider. The user will have to implement it (on their phone) by visiting a store,” said one of the government officials. “A virtual payment address (VPA), usually called the UPI ID, will be created via SMS. ID is created, the payer must select the contact person to whom payment is to be made. If the contact also has a UPI ID, the payer simply needs to click on the name, enter the amount and send the money,” he added.

He went on to say that users must set a four-digit or six-digit PIN, depending on the protocols their banks have put in place. Payments made using the SIM overlay method go to servers managed by the NPCI under the UPI system, and transactions take place from there through the regular UPI network. “This whole process will take place on SMS networks rather than the Internet,” the official explained.

India has seen a proliferation of digital payments since the demonetization of banknotes in 2016. A July 21 report by fintech firm RazorPay said that tier II and III cities in India contributed more than 50% of all online transactions in the quarter ended March 2021. However, cash still dominates towns and cities.

“Small value offline mode for digital payments will provide an alternative, secure, low-cost payment method with a near-cash feature, increasing consumer confidence as a preferred mode for small retail payments,” said Monish Shah, partner, Deloitte India: “ It can boost several innovative retail payment use cases such as ticketing, product bundling and non-standardized pricing,” he added.

Shah added that such systems could ultimately provide businesses with “data and analytical tools to understand small payment patterns and provide innovative, tailor-made solutions.”

Of course, it is not the first time that the government has tried to stimulate digital payments in rural areas. The NPCI has been offering UPI payments through Unstructured Supplementary Service Data (USSD) networks since 2012, but it has not been picked up mainly because it incurs SMS costs, which are too high for rural users.

According to data from the NPCI, 83 banks were live on the USSD system in December and transactions were only worth In all of 2021, 1.21 lakh has been registered.

There are also other solutions such as Near Field Communication (NFC) technology that is also being tested. “We have partnered with Maharashtra State Road Transport Corp. to enable NFC-based ‘tap and go’ payments with prepaid bus ticket cards. We have issued more than three million prepaid cards to rural masses in Maharashtra,” said Ashish Ahuja, chief operating officer of Fino Payments Bank.

“Given that feature phones still make up 50% of the market, this will boost payments where internet penetration is low,” Ahuja added.

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