UPI FOR FEATURE PHONES: INCREASED FINANCIAL INCLUSION TO PROMOTE EASE OF

DOING BUSINESS

In just over a decade, India has witnessed demonetization, Aadhaar proliferation, surge in
smartphone usage, plummeting of data prices, as well as a global pandemic. All of these
factors have induced in India, a generational shift towards digitisation and use of digital
payments. Unified Payment Interface (“UPI”) is one of the most sophisticated digital
payment systems in the World. While even developed countries are currently stuck on
traditional methods such as cards and cheques, India’s UPI has enabled both high-value as
well as low-value real-time transactions with a simple QR code scan. Owing to its ease and
convenience, UPI’s adoption has largely been speedy and inclusive. However, a major chunk
of the demographic that still does not have access to smartphones has been left out. In order
to bring these people into the fold, the Reserve Bank of India (“RBI”) recently launched
UPI123Pay (“Payment Facility”) that extends UPI services to feature phones. The present
post analyses the said initiative and offers some suggestions to further enhance its services.

1. UPI123Pay
Feature phones are phones that provide basic features such as voice calls and text messages.
Statistics reveal that India has a mobile phone consumer base of about 118 crores, of which
only 74 crore have smartphones. In order to further proliferate the adoption of digital
payments, it becomes necessary for UPI to be made available to the remaining 400 million
users of feature phones. In pursuance of this, the RBI had announced in December 2021 its
proposal to launch UPI for feature phones, and it launched UPI123Pay on March 08, 2022.

The Payment Facility enables the users of all phones with phone connectivity to make UPI
payments, including feature phones. Though such phones already have NUUP (National
Unified USSD Platform) as an option for availing basic payment services using the short
code of *99, the difficult process has done little to contribute to its popularity. Now,
UPI123Pay has simplified the process by employing four different technologies namely,
App-based Functionality, Missed Call, Interactive Voice Response and Proximity Sound-
based Payments (for more information, see here). These methods have been drawn from the
technology of the three service providers namely ToneTag’s Voicese, MissCallPay, and
Gupshup. The success of the App-based Functionality in particular may be dependent on the
OEM agreeing to install the app in the feature phone. It also does not enable the option of

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“scan and pay” in a feature phone. However, the four technologies overall seem to be safe,
reliable, and consumer friendly to a great extent.

2. Sister-initiatives to Promote Financial Inclusion

Each time that technology advances with the purport of making services seamless, it also
inadvertently makes things complex for a particular generation, class, or section of
society. Therefore, it becomes necessary to take up measures that make fin-tech more
inclusive and consumer-centric. Notably, the regulatory direction has also been towards
promoting inclusivity, as can be gauged from the various initiatives recently taken up by the
RBI and the NPCI, in addition to the launching of the Payment Facility.

In a sister-initiative, the RBI had proposed an ‘on-device’ wallet for low-value UPI
transactions in its Statement dated December, 2021. On January 03, 2022, the RBI introduced
the Framework for Facilitating Small Value Digital Payments in Offline Mode which allows
offline digital payments up to Rs. 200 per transaction, subject to an overall limit of Rs. 2,000
for all transactions, until the balance in the account is replenished by the customer. The
offline facility is expected to popularise digital payments in remote areas as well as converse
the banks’ system resources. In accordance with this, the NPCI recently released a circular
dated March 16, 2022 introducing “UPI Lite – On Device Wallet”. However, the facility
requires smartphone-ownership unlike UPI123Pay.

In another initiative, the NPCI proposed Aadhaar OTP-based UPI on-boarding for consumers
that do not have access to an active debit card. Currently, a debit card is mandatory to set up
the UPI PIN which makes customers who have bank accounts but not debit cards disabled
from availing UPI services. Given the mass adoption of Aadhar, introducing Aadhaar OTP as
an alternative for authentication will further increase the UPI user base. The deadline for
compliance with this initiative was March 15, 2022, but has now been extended to June 30,
2022.

3. Testing the Viability of UPI123Pay

As UPI already accounts for approximately 60 percent of the total payments by volume,
extending one of the fastest-growing payment platforms to feature phone users should
further boost its user base. Feature phone users are most likely to be individuals who are
either financially disadvantaged, or hail from remote areas with electricity issues or poor

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internet connectivity. They are also likely to cover a significant number of small merchants
and vendors from semi-urban and rural areas. Currently, if a vendor is to accept UPI
payments, they are required to either get a Point of Sale (POS) machine, or print and display
a QR code. As both the facilities require smartphone-ownership, vendors without
smartphones are unable to adopt them. With this initiative, such users will also get enabled to
go digital. In fact, as the Payment Facility is available to all phones with a SIM, even
smartphone users will have the option to execute payments in areas with little to no internet
connectivity.

Further, a prerequisite of generating a QR code is linking bank accounts to UPI. As per the
Global Findex Report 2017, up to 80% of Indians now have a bank account, the same
proportion that have a mobile phone. However, most of these are no-frills savings accounts
that were opened for poorer sections of the society under the various schemes of the present
government. The 2017 report also countenances that around 48% of the total bank accounts
are inactive in India. In such a scenario, the reluctance of the Indian population to utilize their
bank accounts, which is most likely to be a major chunk of feature phone users, could hold
back the Payment Facility from gaining popularity.

Further, while an upside of the initiative is that the steps are fairly basic and do not require
high-level digital literacy, enabling easy, three-stepped execution of digital payments,
especially for digitally-unaware users, also makes them more susceptible to accidental
payments, negligence, and fraud. Though RBI has also launched DigiSaathi which is a 24x7
helpline to address the queries of digital payment users across products, it only offers
automated responses as of yet, available only in Hindi and English.

In case of failed transactions, the RBI’s Harmonisation of turnaround time circular can come
in handy which levies a penalty of Rs. 100 per day on banks for failing to reverse the money
back to the debited account within the specified period.

Further, under the RBI’s Limited Liability Circular dated July 06, 2017, a customer attracts
zero liability when the unauthorised transaction occurs either due to contributory fraud/
negligence/deficiency on the part of the bank, or third-party breach. For the latter, the
customer needs to notify the bank within three working days of receiving the communication
from the bank regarding the unauthorised transaction. In case the customer has been
negligent, they have to bear the entire loss. However, once they report the unauthorised
transaction to the bank, any subsequent losses are borne by the bank. The circular also limits

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the liability of customers in case the responsibility for the unauthorised transaction lies
elsewhere in the system and the bank is notified within four to seven working days. After the
bank is notified by the customer, it credits the amount involved in the transaction to the
customer’s account within 10 working days. Further, the time to resolve such complaints
cannot exceed 90 days but in practice, delays do occur in timelines.

Therefore, the Circular stipulates some very strict timelines for both, the banks and the
customers. In the past, the RBI has also imposed monetary penalties on banks such as the
Central Bank of India as well as Standard Chartered Bank for flouting them. However, from
the perspective of feature phone users, it is likely that they will not be aware of these strict
limitations on the reporting period. Further, such users are more likely to be negligent with
their transactions, in which case they will have to bear the entire loss. While banks can waive
off user liability, it is only discretional. This highlights the risk faced by such users.
Therefore, the RBI needs to step up its awareness drive to educate all users.

4. Suggestions
To give perspective, it is emphasized that the target audience of the initiative are house helps,
vendors, bus conductors, labourers, and mom and pop users hailing from tier-2 and tier-3
cities in India who are not just daunted by technology but even need assistance with basic
bank work such as checking account balance and depositing cash. A stand-alone facility like
UPI123Pay will do little to lure them into trying it on the pretext of convenience and digital
advancement. It will need to be coupled with more reinforcing measures such as conducting
digital awareness drives, offering tutorials in localities, giving step-by-step walkthroughs, etc.

The users will have to be safeguarded against the risks of digital payments as well. UPI Lite
puts an overall limit of Rs. 2,000 for all transactions until replenished. For the Payment
Facility too, the RBI can consider introducing a cap for the total transaction amount in a day,
and also per transaction, in order to limit the total loss that can be caused due to negligent or
fraudulent payments. However, the said limits must also allow for high-value transactions so
that the Payment Facility can also be used for say, sending money home, or making bill
payments. Further, the NPCI’s recent initiative of enabling Aadhaar OTP-based onboarding
can also be extended to the Payment Facility, which currently requires the user to use their
debit card to set a UPI PIN. Finally, with an effective and secure implementation, the said
initiative can be a significant leg-up in actualizing the vision of “Digital India” which may
entail bus conductors in rural areas accepting petty payments digitally, and beggars accepting

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digital alms. The aim may not be to go completely cashless, but to at least diversify payment
options.