Credit and Finance for SMEs: According to the RBI, there are more than 40 crore feature phone users in the country. The multilingual service UPI 123Pay allows users to pay digitally without an internet connection.

Credit and Finance for MSMEs: Ghanshyam Ojha of Jodhpur, who has been in charge of manufacturing and supplying steel supplies to Shri Ram Metals since 2012, relies in part on cash or checks to receive payments from some of his customers who are still familiar with feature phones . Despite having other digital payment options such as internet banking, his retail customers prefer cash or check payments. They are also aware of UPI, but they want to stick to feature phones. In addition, they don’t want to keep a smartphone as their second device to pay digitally,” Ojha told Financial Express Online. UPI allows users to make or receive payments through their smartphone using a QR code or phone number.

Currently, Ojha has about 600 retail customers in Rajasthan and most of them are comfortable with UPI payments, thanks to the increased adoption of smartphones in the country. For those who still cling to feature phones, Ojha hopes that the recently launched payment instrument UPI 123PAY by the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) will succeed and also save him time in settling payments.

“There is a risk when managing cash and also the waiting time when settling check payments is up to 48 hours. We would try to explain this new solution to our customers who rely on feature phones,” said Ojha, who also plans to reward such customers who pay through the new feature throughout the year. “The reward could be, say, a discount on goods sold to them,” he added.

The decision to introduce a new payment option for feature phone users was taken by the RBI to pass on the benefit of UPI payments to those who continue to use these devices due to its ease of use or affordability. According to the RBI, there are more than 40 crore feature phone users in the country. The multilingual service UPI 123PAY allows users to integrate their feature phones with bank accounts to pay digitally without internet connection except through scanning and payment method.

Experts said the move will significantly improve the adoption of digital payments among small merchants, micro-enterprises and individual businesses. “This was the low-hanging fruit to expand the foundation of the digital economy. Many people and small businesses in small towns and also a few in urban areas use feature phones. UPI transactions are likely to reach Rs 100 trillion this year and we hope to double the pace to Rs 200 trillion next year with the new solution expected to bring more merchants into the digital world,” Vishwas Patel, Chairman, Payments Council of India told Financial Express Online.

The scalability of the new solution is apparently based on ease of use. According to NPCI, UPI 123PAY is a three-step process of calling, dialing and paying. Through the IVR service, users would have to call 080 4516 3666, select their preferred language, tap the ‘1’ key on the phone to transfer money, confirm the bank name via voice command, and press the ‘ 1’ key to transfer the amount, enter the recipient’s mobile number and the amount followed by the UPI PIN to authorize the transfer. The UPI PIN can be set during the call via bank card details before the amount is transferred.

“The idea is to provide more payment options to consumers who primarily use feature phones and then give the market the opportunity to further experiment and innovate to improve digital payments. If there is ease of use and security in using a solution that is relevant to the end user and if you also build trust in it then the solution speaks for itself and scales up with network effect,” Arif Khan, Chief Digital Officer, NPCI told Financial Express Online.

Importantly, UPI 123PAY is not the RBI’s first initiative to bring feature phone users onto the UPI bandwagon. NPCI had brought UPI to feature phones in 2016 through the *99# dial option over USSD-based services. USSD was unstructured additional service data that allowed users to use mobile banking such as wire transfers, checking account balances, generating bank statements and more without a smartphone and internet connection.

However, the USSD-based service has proved cumbersome and not all mobile operators allow such services, said RBI Deputy Governor T Rabi Shankar during the launch of the UPI 123PAY service. “*99# service facing challenges from telcos. It is not an interoperable solution. If I need to send money to someone and we are both on two different networks then both telcos have to enable the service to complete the transaction. The costs are also very high. You will be charged Rs 50 in advance after dialing *99# whether you use the service or not. Therefore, over time its usage has remained very low and no one is actively promoting it,” Vivek Singh, co-founder of sound-based payment service provider ToneTag, told Financial Express Online.

ToneTag had launched the voice-based UPI payment solution for feature phones last week after the RBI announced the UPI 123PAY solution. In partnership with NSDL Payments Bank, ToneTag launched its IVR 6366 200 200 for transferring money, paying utility bills, checking balance, recharging DTH, prepaid cellular connections, FASTag, etc. The technology uses sound waves to deliver contactless communication between devices or in other words, use high frequency ultrasonic waves to transfer data between devices.

The payment case with feature phones has further emphasized the importance of these low-cost, no-frills devices. While their adoption has certainly declined in recent years with the smartphone revolution, their long battery life, lasting even more than two to three days depending on usage, has been a major factor behind their existence.

“People think that feature phones will disappear, but that’s not the case. Their long battery life is why they are still in use today. If you’re a salesperson, feature phones are more convenient than smartphones,” said Singh. They are also cheaper and thus save costs for small businesses who buy them for their employees.

The new UPI 123PAY feature is also expected to digitally boost not only person-to-merchant (P2M) transfers, such as paying for groceries to an offline store, but also peer-to-peer (P2P) transfers between two people. through payment apps like Paytm, PhonePe, Google Pay etc. Therefore, the business and personal usage scenarios for transferring money through feature phones are significant. Nevertheless, experts said one of the biggest challenges in getting small businesses into digital payments is the tax grid.

“From the perspective of the commerce ecosystem, tax is one of the main issues preventing businesses from getting on the digital highway. Unlike in India, the governments in South Korea, Norway or Sweden give merchants tax incentives for accepting online payments. Today let’s say a kirana owner doesn’t want to fall under the tax or GST sphere and therefore prefers cash transactions Some fiscal incentives are needed from the government to get more micro-enterprises to use digital payments The current GST registration threshold limits are Rs 40 lakh in annual revenue for companies supplying goods, the limit has been increased from Rs 20 lakh in 2019.

UPI transactions in India have followed an upward trajectory thanks to affordable internet and smartphone penetration. Transaction volume increased by 97 percent in February 2022 to 452.7 crores from 229.2 crores in February 2021, along with value growth of 94 percent to Rs 8.26 lakh crore from Rs 4.25 lakh crore during the said period, according to data from NPCI. “In FY21, the total value of transactions made on UPI was approximately Rs 41 trillion. In FY22, the total value of transactions to date is Rs 76 trillion,” said RBI Governor Shaktikanta Das at the launch of UPI 123 Pay. RBI had also launched a 24×7 helpline called DigiSaathi for feature phone users to resolve their questions about using the digital payment service.

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