“How is it that a system of transactions between two bank accounts has developed in such a way where most of the businesses are owned by non-banks.” It was T Rabi Shankar, deputy governor of the RBI, who used to say that banks have given away the UPI space to non-banks.

One reason this happened was that banks did not see much business value in the new technology at the time of its release. Banks charge money on card transactions through the Merchant Discount Rate (MDR). But the government zeroed out the MDR on UPI, meaning banks had no incentive to scale up to the new technology.

“When a revolutionary technology comes out, it may initially affect a small part of the business. Scaling it up, improving and innovating on it is just a small step away from affecting the rest of the business. You miss the first step; you miss the train,” Shankar said while addressing a conference organized by the Indian Banks’ Association, the country’s apex banking industry body.

All this while, third-party application providers (TPAPs) like Google Pay and PhonePe were spending tons on marketing their UPI solutions to increase user adoption, which should yield multiple benefits in the long run. Today, he is the face of India’s most popular choice of digital payments, has vast amounts of data on consumer spending, and leads the development of the UPI tech stack.

Who Will Own the Future of Fintech Innovation?

The RBI, along with the National Payments Council of India, TPAPs and banks, is working to improve UPI and broaden its use cases on a regular basis. Earlier this year, credit card transactions, cross-border bill payments and ATM cash withdrawal functionalities were bundled with UPI Lite – an internet-free payment method.

“These initiatives build on the phenomenal success of UPI and cover almost all customer segments simultaneously, from low-value debit transactions to high-value credit and cross-border transactions,” co-founder Sumit Gwalani said
Wealth Management Platform Fi Money,

Taking this forward, the RBI recently introduced Single-Block-and-Multiple-Debit (SBMD) functionality, expanding the scope of cross-border bill payments through UPI.
“SBMD will significantly enhance the convenience of making UPI payments for users while enhancing the efficiency and security of transactions from e-commerce to secondary market transactions.” Gwalani said.

Add to this the Account Aggregator Framework, which democratizes consent-based access to consumer financial data, and the Open Credit Enablement Network, which automates the lending process for financial institutions. What you get is a heady mix of digital infrastructure ready to power the next fintech revolution.

Fintechs such as Fi Money, Paytm, Google Pay and PhonePe have the perfect vantage point to envision how these developments can come together for the benefit of consumers. His deep understanding of India’s tech stack, combined with a cooperative government and regulator, will allow him to ensure that India maintains its top position when it comes to FinTech innovation.

While they will have to partner with banks to provide financial services in the absence of a regulatory framework such as a digital banking license, fintechs are well positioned to script the next chapter of India’s fintech revolution.