In The Dog-Eat-Dog World Of Payments, It’s Techies Versus Banks

While the rest of the country has a good night’s sleep (or watches horror reports about the impact of demonetisation), techies in India’s wannabe Silicon Valley lie awake thinking of the possibilities in their code that could turn demonetisation into an opportunity.

They largely escape the media eye focused on power and business centres in Delhi and Mumbai and quietly (not all the time) code their way to glory. From ending poverty to providing everyone with a basic income, all big answers lie in code – waiting to be uncovered (at least that’s what the thinking is).

When a bunch of them were brought together to discuss the future of digital payments, the love for technology and the possibilities it offers were there for everyone to see.

No punches were pulled. Demonetisation was praised in unequivocal terms for providing a windfall, the government was criticised for cutting transaction fee that stole their revenues (if only for a while) and banks – conspicuous by their absence in the lineup – emerged as the bad guys. Most of those in attendance were on the same page: banks are only making life harder for everyone.

The venue was the 50p conference put together by HasGeek to understand key issues regarding digital payments in the country and provide that much needed perspective on where we are headed amid the seemingly never-ending pomp and show.

This is why almost no one expected journalists to be in attendance (even though they were invited) and things could be said out loud (instead of being hidden as cliff notes under dense code on github). A few of us, including this writer, however, decided to check it out.

Some of those who took to digital payments post demonetisation are going back to using cash as the cash situation eases. That's something which made a certain founder of a payments startup very angry.

“The cash crunch should have lasted at least a year to force people to go digital. Nothing works in this country,” he tells me while sipping coffee he brought through plastic tokens provided by the organisers as the sole acceptable currency inside the venue.

I try to process this. Meanwhile, another technology consultant, who works with banks, jumps in with this prescient piece of advice:

“Banks are better off giving loans to customers. They are attempting to enter payments on the back of demonetisation which will end up breaking their own spinal cords. Imagine a private wallet helping a bank gather customers, that day is not far.”

It is hard not to be skeptical of the collective optimism (cynicism?) of the industry when the anger is focused on the very sector (banking) which gave birth to the payments business that is now being claimed by every second entrepreneur who wants to ride the fin-tech bull (no Jallikattu jokes, please).

I had had enough. The journalist in me was looking for clear answers as to where this collective anger against banks is coming from.

Some answers came from the founder of a prominent payment app which is now trying to reinvent itself after the launch of UPI (Unified Payments Interface) took away its USP. Addressing a session, he said that those trying to work with banks should not “build castles in the air” and try to “work within constraints” because it is going to take “a very long time” to get banks on board with new ideas. While he added a caveat that it’s not (as) difficult to work with banks as it seems, the message was loud and clear. Build something which doesn’t need active participation from banks and live happily ever after.

Things became even clearer in an open house session around the concerns and opportunities hidden under the shiny new unified payments interface. Supposed to be a bank monopoly, UPI is witnessing a sharp rise in volumes. It has the ability to swallow most other payment modes due to the immediate settlement it offers.

But banks which have exclusive rights (for now) to ride the UPI infrastructure have been slow to push the product because they seem to be losing out.

This is how: New payment firms like PhonePe are tying up with banks to facilitate UPI payments for their clients. In this process, the acquirer (PhonePe and its bank) gets the commission as well as the transaction data while the customer’s bank sits and does a simple double entry of debit and credit. Enter e-KYC and the payments bank. With high interest rates and tie-ups with existing banks, the likes of Bharti Airtel Ltd. and Paytm will not even need to go out to acquire customers. They can simply cannibalise banks’ existing customer base and shift transactions to their platforms.

“Banks are the perfect keepers of the funds but they don’t necessarily need to be the gatekeeper of the funds,” said Rahul Chari, founder of PhonePe.

Anoop Shankar of Chillr also indicted banks fell behind while the world around them changed – he just used different words.

“Net banking was one of the first serious use cases of internet in India but banking soon faced problems of scale. Other industries have leapt off banking by becoming better adopters of technology,” he said while nobody batted an eyelid.

Another deeply embedded ‘techie’ who interacts with almost all facets of payments on a daily basis declared that it’s the first time banks and their inefficiencies have been exposed to the public. They were simply caught sleeping.

“They didn’t see this coming at all. Nobody in the banks gave a shit about UPI until demonetisation happened. They were treating UPI as a poor cousin of IMPS,” he said. “Now, however, 39 banks have separate UPI apps live.”

So many UPI apps, according to the tech world gathered at the MLR Convention Centre in Bengaluru, is not a great idea.

“General expectation was that UPI would be a feature in existing bank apps because that’s where it makes more sense and other private players would build value-adds on top of it,” the person quoted above said. “The banks got this wrong and ended up building their own apps. Now they are just caught doing things which they shouldn’t be doing. This is what happens when vendors are contracted to create solutions instead of engineers.”

With the BHIM (beautifully named so by our Prime Minister, no less) app, however, things are set to change. The platform is giving banks a sense of schadenfreude and allowing them to compete with very successful mobile wallets.

“Those who couldn’t compete with mobile wallets are happy that BHIM could kill some of their business,” said the person quoted above. He went on to explain the arrival of account information service providers – a new set of entities which are envisioned to consolidate all your bank account information onto one dashboard and help you do basic bank transactions without involving your bank at all.

“I don’t know what else remains with the banks. This is why they are blocking wallets and trying to gain turf – because they have none left,” summed up the tea-sipping founder as he sat tallying his plastic tokens.

Disclaimer: This blog is intended to be a fly-on-the-wall account of the 50p payments conference held in Bengaluru this week. It is based on a series of conversations and names of people have not been disclosed due to the informal nature of the conversations.