Interoperability guidelines for prepaid payment instruments with United Payments Interface (UPI) bolster the business case for digital wallets. For a loading fee on transactions through UPI, payments banks, for instance, can widen the adoption of wallets among customers and merchants. This increase use cases for UPI, which largely works on a model of free peer- to- peer- merchant transactions. The opportunity provided by the scorching growth of UPI transactions must, however, cross the hurdle of consumer behaviour that is shaped by zero fees for payments made from their bank accounts. For survival, payments banks which can accept deposits but are prohibited from lending need to be part of the UPI ecosystem. They also need to carve out a distinct business segment where they have an advantage over full-service banks.

Those use cases are expected to grow as UPI diversifies into cross-border remittances, introduces consumer lending through RuPay credit cards and offers currency exchange to foreign travelers, and bill payments using standing instructions gain traction. UPI will also have to integrate with the digital rupee that is undergoing tests for retail and wholesale transactions. The digital payments platform will continue to play a key role in the infrastructure that is being developed around contactless payments.

This involves building additional UPI context around digital transactions such as billing and credit- profiling. Initial adoption has surpassed the most optimistic expectations. But that is principally on account of the waiver of the merchant discount rate. In the next leg. UPI will grow by providing solutions for the conduct of business. It will have to incorporate lending at some point to become a comprehensive medium of commerce. The infrastructure must encourage fintechs to push innovation in finance. Payments banks have a strong correlation with the growth of digital transactions. They are vital piece of the machinery being built. The interoperability with UPI guidelines plugs them deeper.