India’s central bank has proposed the integration of artificial intelligence (AI) technology into the country’s well-known instant payments system UPI to enable people to make ‘conversational payments’.
UPI (Unified Payment Interface), which is widely seen to have been a great success since being introduced more than seven years ago, enables people to use mobile-phones to send and receive money while eliminating the need to enter bank details or other sensitive information during a transaction. Operated by the National Payments Corporation of India (NPCI), it is frequently referenced as a model for public authorities round the world looking to modernise and digitise payments for reasons including the sheer scale of its reach – in April this year India overtook China as the world’s most populous country, according to UN population estimates.
‘UPI, with its ease of usage, safety and security, and real-time feature, has transformed the digital payment ecosystem in India,’ Reserve Bank of India (RBI) chief general manager Yogesh Dayal writes in a ‘statement on development and regulatory policies’ that contains updates from the central bank relating to financial markets, regulation and supervision, and fintech, as well as payment systems.
‘Addition of many new features over time have enabled UPI to facilitate diverse payment needs of the economy,’ writes Dayal. ‘As AI is becoming increasingly integrated into the digital economy, conversational instructions hold immense potential in enhancing ease of use, and consequently reach, of the UPI system. It is, therefore, proposed to launch an innovative payment mode viz. “Conversational Payments” on UPI, that will enable users to engage in a conversation with an AI-powered system to initiate and complete transactions in a safe and secure environment.’
The new service will be made available for both smartphones and feature (basic) phones-based UPI channels, ‘thereby helping in the deepening of digital penetration in the country’, he writes, adding that the facility will, initially, be available in Hindi and English and will subsequently be made available in more Indian languages.
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‘UPI Lite’ enhancements
One UPI product innovation last year was to launch of a feature allowing people to make real-time payments of up to 200 rupees (about £1.89 / $2.41) without using their UPI PIN. (Normally users need to enter their PIN via UPI-compatible apps, such as Google Pay and PhonPe).
‘UPI Lite’ was launched in September 2022 to increase the speed of small-value transactions and ‘to optimise processing resources for banks, thereby reducing transaction failures’. The product now processes more than ten million transactions per month, according to the RBI.
To promote UPI Lite, the Dayal-authored update proposes the facilitation of offline transactions using Near-Field Communication (NFC) technology. ‘This feature will not only enable retail digital payments in situations where internet / telecom connectivity is weak or not available, it will also ensure speed, with minimal transaction declines,’ the bulletin states.
The bulletin also contains a proposal to more than double the ‘per transaction limit’ to 500 rupees (about £4.72 / $6) in order to ‘encourage wider adoption of this mode of payments and bring in more use cases into this mode’.
A UPI Lite account can be loaded with up to 2,000 rupees (about £18.88 / $24.10) twice per day. The RBI states that this limit will be retained ‘to contain the risks associated with relaxation of two-factor authentication’.
Dayal, who joined the central bank more than 26 years ago, writes that ‘instructions to NPCI will be issued shortly’ in respect of implementation of both ‘conversational payments’ and changes to UPI-Lite.
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RBIH develops credit tech platform
In a separate development, the Reserve Bank Innovation Hub (RBIH) is developing a ‘public technology platform’ as it looks to improve the delivery of credit.
‘With rapid progress in digitalisation, India has embraced the concept of digital public infrastructure which encourages fintech companies and start-ups to create and provide innovative solutions in payments, credit and other financial activities,’ the ‘fintech’ section of the RBI’s update states. ‘For digital credit delivery, the data required for credit appraisal are available with different entities [such as] central and state governments, account aggregators, banks, credit information companies, digital identity authorities, etc. However, they are in separate systems, creating hindrance in frictionless and timely delivery of rule-based lending.’
The update explains that pilot projects have been underway ‘to address this situation’, for example for the digitalisation of Kisan Credit Card (KCC) loans – the KCC was a scheme introduced 25 years ago by Indian public-sector banks to help farmers.
The RBIH-developed platform is being designed to ‘enable delivery of frictionless credit by facilitating seamless flow of required digital information to lenders’.
It will have an open architecture, open application programming interfaces (APIs) and standards, ‘to which all financial sector players can connect seamlessly in a “plug and play” model’, the RBI states. (APIs are software intermediaries that allow two machines to interact; ‘open APIs’ are APIs made publicly available to software developers).
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Indian authorities’ fintech enthusiasm
The RBI’s encouragement of – and investment in – the use of fintech within the public sector also manifests itself in its senior team’s communications with the private sector.
RBI deputy governor Mahesh Kumar Jain, for example, used a speech in May to encourage banks to increase the attention they give to areas including AI and blockchain.
‘The future of banking is expected to be shaped by advancements in technology leading to greater business and process automation, changing customer expectations and evolving regulatory landscapes,’ he said.
‘To prepare for the future, Indian banks will need to focus on digital transformation, enhance customer experience, adopt innovative technologies such as AI and blockchain, invest in cybersecurity measures, look for opportunities to derive synergistic benefits through collaboration with other players as well as upskilling their workforce to meet the demands of the digital era.’
India’s government last year made its payments and digital ID technology available to all countries worldwide via open APIs under the country’s ‘India Stack’ initiative. Indiastack.global, described as a ‘global repository of key projects’, includes UPI, as well as digital ID system Aadhaar.
