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Discussion (104 Comments)Read Original on HackerNews
For context: it's basically a recurring payment but you open the Autopay section in Google pay or whichever app and it shows you all your subscriptions right there (which is a major +), the transaction history, and cancellation happens in the UPI app itself I don't have to faff around in the SaaS and deal with potentially some dark patterns.
Giving your credit card to your child / friend / spouse / subordinate, so that they can buy something with your money, is a lot more risky than giving them an OTP, valid for a single transaction, which you have to approve in your app anyway.
Poland's Blik is based on 6-digit codes, which makes this feature even more useful, as you can E.G. dictate that code over the phone to a trusted acquaintance at the ATM.
I think every country goes through this and then goes back to cash, but at different rates.
However, the Government is in a fix. Almost the complete stack is subsidized by the Government. This led to an explosive adoption growth for merchants as there is no MDR and payers for ease of transaction as they don't need to carry hard currency anymore. This has enabled the Government gaining complete insights into spending and earning patterns. Withdrawing this massive subsidy will again lead to people using cash. So in order to prevent "terrorism" they will subsidize for the foreseeable future.
As GP says, you could _never_ get the older generation to use a credit card even when they had the means to do so. But they took to UPI just fine, and many now prefer it over cash.
Also, credit card issuance and acceptance in India is growing quite a bit right now, despite (because?) of UPI.
Visa and Mastercard payment rails are somewhat disjoint, even for large Indian companies. As a foreigner, there's always been a huge acceptance gap vs many other countries when you want to use a card.
Yes India got credit cards but it was not widespread and people did not use it as a daily thing since most stores/outlets did not have the card swiping system. UPI solved this problem very well since you just need a QR code and a valid bank account and no transaction charges making it perfect for day to day spending.
We got digital payments and smartphones together. But in the US for example, credit cards came much earlier and were able to capitalize very well since there wasn't a lot of the technology at that time which we take for granted today.
I worked on scaling UPI a few years ago. Real-time Payments is vastly more complex as it is much more distributed - each transaction involves the two banks holding funds, two end-user apps (and their banks), and the network (npci) – for the payment to complete end to end, multiple message exchanges need to happen between these parties while the user at both ends are waiting. So, if you measure the scale in messages/sec it would 10-25x higher.
Real-time payment rails that works 24/7 365 days a year from any bank to any bank (domestic, no exceptions) for free is truly a game-changer. Compare that to US payment rails which is slow and expensive. Apart from UPI, India has 3 more payment rails – NEFT (similar to ACH – batch settlement), IMPS (similar to UPI, instantaneous - but different user experience), RTGS (real-time, intermediated by the central bank RBI, but only for high-value transactions) – all are 24/7/365 and free. Then, there's credit card rails – apart from Visa and Mastercard, India also has RuPay which has much lower interchange rate.
Also RTGS is the only ISO 20022 complaint payment rail (back when it wasn't globally very common) - something that needs to be appreciated more.
People need to realise what NPCI offers is vastly different from what RBI offers. In my opinion what NPCI is offering will end up negatively impacting the general population in the long run.
NEFT and RTGS were introduced in the mid-2000s. IMPS in 2010, UPI in 2016. It's been > 10 years since the latest instrument launch. Enough time for "long term" impacts to show up.
If anything, the impact has been overwhelmingly positive.
The systems you named aren't alike. You are (understandably) mixing together several different networks and layers that are structurally different from one another.
In the United States, there's a mix of private and public institutions and networks. Anyone is free to start their own network – a necessary freedom. There are in fact several different networks such as the Fed's FedACH, and at the private level, the ACH Network (governed / semi run (???) by National Automated Clearing House Association (NACHA) in a confusing amalgamation of the Fed's FedACH network and The Clearing House's private Electronic Payments Network).
The Clearing House Payments Company™® also operates one of the world's largest private settlement systems, Clearing House Interbank Payments System, which includes American entities and non-American ones in the EU, China and other places as well.
From my somewhat limited knowledge of India, there is a lot of state interference and control over access to these systems and their creation; whereas in the US, while there are some regulations, any set of institutions are free to create their own private settlement systems and networks. Note – this is different from being free to transact with each other; this is the creation of private infrastructure that allows them to transact with one another at different levels of trust.
For example, from my limited reading just now - and to quote you – "IMPS (similar to UPI, instantaneous - but different user experience)" is kinda sorta a hybrid between institutional level agreements and consumer level agreements / networks. There's an important distinction here to draw.
Just because your bank knows my bank doesn't mean that my bank trusts you to honor your obligations to your bank and then (by extension) its obligation to itself and then to me. That's the lowest level of counter-party risk present in the system. And it's where the famous consumer networks like Visa, Mastercard etc. come in.
There is an important distinction to be made here, and it sort of highlights what someone I know stated as a systemic risk inherent to one network systems like India's — within these networks, the risk of fraud / failure of settlement from the end user to the institution is taken on by the entities running the networks... which in fact brings us neatly to something I realized while studying these systems, but haven't seen it written up elsewhere — (note, this is from an older comment, https://news.ycombinator.com/item?id=25951783 )
The question at the heart of the banking system is quite simple, if banks take capital from customers and use it to provide debt to others, then how much money should they keep on hand for their customers' withdrawals and transfers?
This question is hard to answer. As there is a conflict between what the bank does (i.e. provide debt), and how it is supposed to provide it (by taking savings etc.). Everything else, from central banks "offering cheap liquidity" is an add on. They are mechanisms that allow - for example, a bank to easily borrow this money so that they can cancel it out/repay it from transactions coming into their banks.
What makes it all borked is that you can't trust bankers with their grandmas. If there is a flaw, they will exploit it. Every major change has led to an exploit. E.g. In 1918, the American Government introduced the Leased Wire System that used the telegraphs and a network of 12 Reserves to allow banks to transact with each other across CONUS. It reduced the average time for cheques to be cashed in at banks across the country from 5.4 days in 1912 to just 2.4 days. Theoretically, this reduced the risk taken by banks when they transacted with unknown banks across the country, with the Government acting as the escrow. It catalysed innovation and led to an explosion of financial services across the young country.
The system was supposed to be foolproof by reducing the time "credit" was needed to make transactions. Essentially, until one bank sent the money and the other got it, they were operating on a system of credit. And they would "net" the books at the end of the day/week to physically transfer assets. FedWire (Leased Wire System) made everyone feel safe by sending notes of the transactions across great distances. But the netting still took time. All it took was one bank to misprice risk and fall behind on current obligations to other banks to cause the chain of dominos that led to hundreds shutting down in weeks and then thousands... which then led to the Great Depression.
Note - this is a highly simplified / subjective / one system view of a complicated sequence. more here https://www.stlouisfed.org/on-the-economy/2019/november/fina... / https://en.wikipedia.org/wiki/Panic_of_1930#Bank_failures
Important people got together and made rule changes to fix the problem. But then they innovated again. The Federal Reserve started making Automatic Clearing Houses (ACHs) and Remote Check Processing Centres (RCPCs) to make settlement faster, starting in the 60s and precipitating in 1972. This made settlement faster therefore safer. And it led to great financial innovation. The magic of computers and innovation meant that people could use these same systems to transact across the world!
Until 1974, when the German lender Herstatt collapsed due to foreign exchange investments based in the Dollar, which caused the bank to fail to meet its settlement obligations...
https://en.wikipedia.org/wiki/Settlement_risk#Herstatt_riskThis is a simplified history. But the history of banking is the history of doing settlement while managing liquidity and counter-party risk.
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"Free" is a poor metric on which to judge a financial system. I would argue that it is an undesirable one. There is no such thing as free lunch. The more you understand these systems, the more you realize just how dangerous that "free" line is.Cost in these systems is only partially about the "cost" of moving the digits. All of those dollars are there to mitigate / price in the risks inherent to the system. Hence, credit card transactions have a higher percentage per transaction than debit ones and so on up and down the chain.
Real-Time Gross Settlement systems, ACHs, consumer payment systems etc. change who, where and how that risk is managed. At the end, it might fundamentally be the same "money" going from one layer to another to another (kind of like a packet) but who takes the risk at every layer changes.
And that's also why they're paid through extensive testing over literally a century; people realized that a system that has capital shored up within it / paid up by its users is a system that can handle systemic risk. A system without that...
And that's a problem with purely state-based "free" systems like the Indian network that I haven't seen highlighted elsewhere is that counter-party risk isn't balanced between entities — it's taken on by the state. Sooner or later, there is going to be a cascade failure within this system unless something fundamental is changed.
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whew - edited tone + grammar + spelling errors after posting!
They put out a lot of useful stats here https://www.rbi.org.in/Scripts/Statistics.aspx
Daily payment settlement stats here: https://rbidocs.rbi.org.in/rdocs/content/docs/PSDDP04062020....
Merchants need to receive the money and being able to transact with it. Imagine the merchant receiving the payment is something like Amazon or Ebay (sorry, I don't know what similar large online retailers are in India).
With the above, the problem becomes harder. Imagine receiving 2-3k TPS just on one account during a black Friday or similar day.
Now your system has to perform fine for accounts that do 30 transactions an hour for a retail customer and 3k a second for a merchant.
If you look at very large scale IT infrastructure engineering, a lot of times those technologies are developed and sold to governments by US or west EU government controled or influenced companies that does impose to some degree to the sovereignty aspect of a government.
So, with decentralization discussion most government lost a ton of money to consultants. They could wait for to buy off the shelf software that comes control risk. Or they could accept the risk and limitations and build a software that works now.
I think india made the right choice to build a system on framework that is proven and predicatable.
worse than a system thats convenient and decentralized and anonymous at the same time, but we dont have one yet. maybe in 5 years when ethereum figures out native account abstraction, seamless scaling and monero level privacy.
If you are looking for RMS style freedom etc then look elsewhere. This is not Iceland or Nordic.
One another overlooked issue is India was the largest printer of currency. Until UPI etc modernisation - lots of torn currency - usually caused arguments/inconveniences among population. Also often shopkeepers or transport agencies did not return proper money change upon payment.
Irrespective of privacy, now it take few seconds to pay. Just works. Even without NFC. No worry about return change.
The government does not track all the transactions. You need a police FIR, to review these transactions.
In short, Indian government does not track or they don't have the scaling to track. But they can do it, if there is any criminal complaint.
This is completely wrong.
Not only can the Indian govt track each these transactions, it's actually written into law via the 'anti money laundering' bill (PMLA) and the income tax act. For a very high level overview, see https://www.bankbazaar.com/tax/tax-on-upi-transactions.html
From the article
'Can the Income Tax Department Track Your UPI Transactions?
Yes. With the integration of PAN, Aadhaar, and Know Your Customer (KYC) via all banking and fintech channels, all your UPI transactions can be tracked. If you think your small-value digital transfers won't be traced, you are mistaken. UPI payments are directly linked to your bank account, and bank records can be obtained by tax officers through scrutiny or reassessment.'
Specifically, no complaint or warrants are needed to enable access to UPI transaction records.
In India, if you even have a small power you can easily review any transactions...
All good for a central bank digital currency (CBDC) and for creating the digital rupee.
Horrible for your bank account.
Why? Are you saying that people spend much more because upi has made spending so easy?
Also, great website and layout, very respectful of the reader. Clean and with zero distractions.
I am not very familiar with the PromptPay architecture, but a quick search reveals that the user-facing app for QR scanning is bank-owned, rather than a Third-Party Application Provider (TPAP) like Google Pay is for UPI. In the case of UPI, you can link multiple accounts from the same or different banks to a single TPAP.
Another potential difference is the interbank protocol implementation. For UPI, the messages involved in a transaction are asynchronous. When NPCI calls the remitter bank for a debit request (ReqPay message), the bank is only supposed to send back an acknowledgement message (Ack) in the same HTTP request. Once the processing is done, the bank's switch sends a response (RespPay message) to a callback endpoint at NPCI (which, in turn, returns an Ack to the remitter bank). A similar flow happens when NPCI sends a request to the beneficiary bank for credit.
Some similar systems have transaction fees and run as for-profit organisations, but the fees are tiny compared to card transactions. For instance Nigeria's NIP has a maximum fee of ₦53.75 (roughly four cents), with most banks allowing you to transfer up to ₦5 million in a single transaction.
I just wish it had a tooltip because its purpose was not immediately clear (CR/BN is a bit cryptic).
UPI is a real inter-organization payment system more akin to credit card processing, where fund requests flow from the payer, through a payer processor, through a merchant processor, and finally to their end destination, and the actual reconciliation happens through a bank transfer system. It’s a much less centralized system.
I also thought it was from Times of India initially
from their footer:
> Time Series of India is an open-source project charting India's public data. All data belongs to the publishing agencies; charts and text may be cited with attribution.
Excellent engineering.
I only wish more countries would implement something like UPI in other countries and get rid of inferior and broken solutions like crypto.
https://en.wikipedia.org/wiki/Instant_payment#Notable_instan...