The currency crunch following the demonetisation of `500 and `1,000 notes is still playing out, with banks struggling to dispense cash in valid currency. However, the space, at least in the urban and tech-savvy demographic is being rapidly filled by e-Wallets like Paytm. However, where is the much touted solution launched by the government a few months ago? Where is the United Payments Interface? Here, we compare the two cashless ecosystems and examine why wallets have pipped UPI in the race.
What are they?
e-Wallet
Mobile wallets are digital instruments where you can store money for instant payments. You load money from your bank account via credit/debit cards or net banking. Most wallets are semi-closed wallets, i.e. you can transfer money to people who have the same wallet, or make payments at merchants who are authorised to accept from that particular instrument.
UPI
Unified Payment Interface, is an electronic funds transfer instrument that enables all bank account holders to send and receive money from their smartphones without the need to enter bank account information or net banking user id/password. This requires only the recipient’s mobile number or Virtual Payment Address (VPA).
What are the differences?
e-Wallets require you to transfer money through their applications.In UPI, the money remains with the banks, increasing security
For small transactions, like those in Kirana shops, the payer first needs to recharge the wallet and then transfer the money to a shopkeeper who has the same e-wallet
All UPI users need is to know the VPA of the receiver, enter it and the amount and hit transfer. The payment is made between the banks instantaneously.
e-Wallet rise post Demonetisation
People with smartphones have switched to e-Wallets for daily usage in droves. Currently, an estimated 100 million Indian use e-Wallets
Paytm says it saw a 200 per cent increase in app downloads on the first day, with a 250 per cent spike in overall transactions.
Freecharge said that the average wallet balance increased 12 times on the first day after the announcement.
Oxigen saw daily average users increase by 167%
UPI vs e-Wallets: Pro and Cons
e-Wallets
Advantages
There are many e-Wallets that are established players with wide ecosystems.
The post-demonetisation crunch has seen many shopkeepers adopts a variety of e-wallets to stay relevant.
Disadvantages
No inter-operatibility. Each wallet is its own walled garden and funds in each sits separate from the others.
Transferring money from wallets to banks attracts significant charges, as much as 4%.
Wallet transactions are limited up to `20,000.
UPI
Advantages
UPI allows you to transfer money instantly from bank to bank.
The money isn’t going to a wallet—it’s going directly into your account.
You don’t have to keep topping up the wallet, and you don’t have to worry about what the vendor prefers.
Money is in your bank, and you can write a cheque, withdraw cash at an ATM, or spend it using debit card.
Disadvantages
Too new. The UPI rollout started only in the end of August and some companies are still running “alpha” tests.
Most users are not aware of who else uses UPI and it has suffered from a lack of direction.