Should you pick UPI app over e-wallets?

As cash crunch caused by demonetisation completes a month, we are seeing a rise in the adoption of mobile payments in India. The adoption rates still have a long way to go. However, the prevailing cash crunch has turned out to be a great opportunity — albeit painful — to introduce citizens to the conveniences of mobile payments.

There are multiple ways with which you can use your phone to send and receive money. The oldest, most time-tested methods are, of course, using your netbanking apps. These are extensions of the internet banking.

Two other methods have become popular recently are e-wallets and UPI app. The more visible of the two are the e-wallets which have gained tremendously from the effects of demonetisation. The other one is the Unified Payment Interface (UPI), an RBI-backed innovation, which has not got the kind of publicity that e-wallets have been receiving of late. Let’s take a deeper look at these two options.

E-Wallets
E-wallets are applications that you download and install on your devices. They let you generate a unique account based on your phone number and email address. The account is immediately authenticated by OTP. Once you have created the account, you can use the e-wallet to transact with anyone using the same e-wallet.

There are various constraints in using e-wallets. Let’s start with the most obvious one: the monthly limits. E-wallets have monthly spending limit of Rs 20,000. This limit was raised from Rs 10,000 to ease money movement after demonetisation. After completing your KYC process with the e-wallet company, this limit can be raised to Rs 1,00,000.

You’re allowed to transfer your e-wallet balance back to your bank account. For example, an e-wallet firm allows you to transfer up to Rs 25,000 a month (in transactions up to Rs 5,000) if you are an individual and Rs 50,000 a month if you are a merchant. After KYC, these limits can also be raised to Rs 100,000. While these limits may be adequate for most individuals to carry out day-to-day shopping, they would be inadequate for many merchants who deal in high volumes.

Second is the matter of interoperability of e-wallets. Currently, you can’t transact with anyone who is not using the same e-wallet provider as you. If you use the most popular e-wallets, you will cover a large number of merchants. However, those merchants who are not on the same platform cannot transact with you. To increase access to all kinds of merchants, you need to install multiple e-wallets and maintain balances in them.

Third is the matter of safety of your money and data. E-wallets act as pre-paid balances that you spend from. While there is two-factor authentication for loading your e-wallet, no such checks and balances appear while unloading it.

There is no OTP, passwords, confirmation to check any part of your transaction. For example, money once sent to an incorrectly typed account number can't be retrieved.

UPI
Launched by the National Paym-ents Corporation of India, the UPI has the potential to revolutionise everyday transacting in India. Let’s understand why this is.

Like e-wallets, the UPI is not an int-ermediary between bank accounts. The UPI gives an e-wallet like functionality to your bank account. With it, you can spend from your bank instantly, 24x7, free of cost, and up to Rs 1,00,000 per transaction.

One of the simplest ways to sign up for UPI is to download and install your bank's netbanking app, and head to its UPI section. Then, you need to create your  virtual payment address (VPA) which could be something like ram@bankXYZ. The only condition for this is that your bank must have enabled the UPI on their platform. The VPA makes sending and recei-ving money as simple as writing an email: ram@bankXYZ can send money in real time to shyam@bankABC by typing out his VPA, keying in the amo-unt to be transfer-red, and proceeding with the payment after checking the payee name on the confirmation screen. This transaction does not need the receiver’s bank account number, IFSC, branch details etc. and the money sent to shyam@BankABC will be directly credited to the account.

Let’s understand the significant benefits of using UPI. The UPI can help move a lot more money than an e-wallet. With a per  transaction cap of Rs 1,00,000, it is enough to take care of most of your transaction needs in a month. You do not need to perform a separate KYC for it. Also, there are no transaction charges yet. You don’t have to worry about moving your money from e-wallet to bank which, while currently free on e-wallets, usually attracts a charge.

Second, UPI being another way to spend directly from your bank account, there is interoperability between various banking platforms on UPI. For example, you can transact from your ICICI account with your merchant’s SBI account.

Lastly, it is safer. Since you are using your bank account in the UPI, you’ll have to log in with your user ID and password to carry out transfers. There will be a transaction confirmation page where you confirm the details before proceeding. Even if your unlocked phone were to fall in the wrong hands, that person would need to know your bank login details to carry out a transaction. On some UPI apps, transactions may even need a PIN.

It makes immense sense to transact directly with your bank account, just as you would with your debit card or cash.