India Tests Internet-Free Digital UPI Payments

UPI, UPI Lite, India, payments

The National Payments Corp. of India is testing a solution to allow Unified Payments Interface (UPI) based digital pay without an internet connection, Mint reported Sunday (Jan. 23).

The solution, called UPI Lite, will likely be used initially in rural areas to allow for small digital payments under 200 rupees.

It will also allow phone users to make digital payments from their bank accounts. A bank official told the media outlet that two solutions are being tested, including a SIM overlay and a software-provisioned solution that leverages over-the-air (OTA) updates.

SIM Overlay consists of expanding the functions of a phone’s SIM card, letting payments and other services happen even without the data availability. Meanwhile, OTA will let the solution be delivered straight to the device’s firmware.

Per the bank official, the OTA solution would be comparable to the snake game on Nokia phones getting updates over the network, without 3G or 4G capabilities. However, the technology is patent pending, and will likely look different in practice compared to how it is conventionally done.

These developments come as India has seen more digital payments, following the 2016 demonetization of bank notes.

“Small value offline mode for digital payments will provide an alternative, secure, low-cost mode of payments with a near-cash-type characteristic, thereby increasing consumer confidence as a preferred mode for small retail payments,” said Monish Shah, partner at Deloitte India.

Shah added that this could add an impetus to more use cases with retail payments, like ticketing, bundling of products and non-standard pricing. The Indian government has been working toward more digital transactions — though this could end up hurting Visa and Mastercard.

Related: India’s Digital Payments Incentive Push May Come at Visa, Mastercard’s Expense

In December, the cabinet said it had approved an incentivization scheme, which would see 1,300 crores, or $170 million, toward reimbursements to merchants as part of the Merchant Discount Rate, the charge for electronic payments merchants are hit with by banks.

Acquiring banks will now be “encouraged” to pay part of the transactions tied to the RuPay cards and lower-value BHIM-UPI digital payments.