[Exclusive] UPI 2.0 will allow linking to overdraft accounts, 'Pay to Aadhaar' feature to be removed as it adopts 'merchants-first' strategy

[Exclusive] UPI 2.0 will allow linking to overdraft accounts, 'Pay to Aadhaar' feature to be removed as it adopts 'merchants-first' strategy

Tuesday July 10, 2018,

6 min Read

With UPI 2.0 set to launch soon, features including linking of overdraft accounts and sending invoices shift focus to merchants.

After much delay, the latest version of United Payments Interface (UPI 2.0) is getting ready for its launch at the end of this week or early next week.

The new feature, with this upgrade, seems to be primarily focused on increasing Person-to-Merchant (P2M) transactions, which continues to be an obstacle for UPI 1.0.

“Most of the features are designed for P2M. I guess the requirement is that P2M players need to scale up with the UPI infrastructure,” says a source, requesting anonymity.

The upgrade will contain the following features aimed at adding convenience and boosting the adoption of the payments infrastructure across merchants:

Dropping the 'Pay to Aadhaar' functionality 

A source close to the discussions of the Steering Committee said that the committee felt that Aadhaar is sensitive information. Therefore, a proposal has been passed to disable the 'Pay to Aadhaar' feature on UPI apps.

The expected time for UPI apps to pull the plug on this functionality is the end of September.

Ability to now add overdraft accounts 

Earlier, while UPI 1.0 allowed users to link only saving accounts, the upgrade would allow the users (i.e., the merchants) to link their overdraft (OD) accounts to UPI, enabling them to continue withdrawing money even if the account doesn't have sufficient funds.

"The idea here is to allow merchants to take credit (through OD accounts) and, in the process, increase merchant transactions on the network," added the source.

For OD accounts backed by collateral the existing pricing for the transaction will be applicable, along with both P2P and P2M transactions permitted on UPI. However, the source added that for OD accounts without collateral there is a separate transaction pricing, with only P2M transactions being applicable.

Refunds and reconciliation

UPI 1.0 did not focus much on refunds, which made reconciliation a difficult task for businesses. According to sources that YourStory spoke to, refunds have been made a core specification in the new upgrade.

A source with direct knowledge of the matter said,

“UPI 1.0 didn't have refund as a part of the core set. So, every time a refund was done, it had to be done as a new transaction, which made it difficult to map against the transaction the refund was made to. Even for banks, it is hard to reconcile with the volumes being processed.”

Usually, for card payments, merchants get an acquirer reference number (ARN) from the issuing bank. An ARN is a unique number that puts a tag on a credit card transaction when it is made from the merchants’ back (acquirer) through the card scheme to the cardholder's bank (the issuer).

But now, with the new upgrade, a reference number will be generated, which a merchant can share with the consumer for better transparency, adding trust to the transaction made through the payment infrastructure, the source said.

The online refund API specifications have been released to four banks.

Invoicing - ability to send attachment with a payment request

The new UPI mandate will allow individuals or merchants to send an invoice along with a payment request in the Inbox.

This will, in turn, make the payment process more seamless and increase transaction transparency.

New gifting feature - Blocking a payment

Another core feature of this upgrade allows users to block a certain amount in the customer’s account balance, with the transaction going through only after the delivery of the goods and services promised are made.

On how this will help, a payments player in the ecosystem commented,

“This feature will essentially increase the use cases for UPI. So, now, consumers can use UPI to make hotel bookings, get cars on rent, as well as for ecommerce deliveries etc., essentially acting more like a cash-on-delivery option, but on the network.”

This feature is already a part of credit card transactions.

For P2P, payers will have the option to create a mandate and set the start and end date for the same. After the creation of the mandate, the payer will share details of the mandate with the payee through messaging applications. With the payer's ID shared with the payee, they can click on the details sent to save the QR (in their gallery) and make a request for the payment to be made.

This process will work slightly differently while creating a mandate on the merchant's website, where users will have to create the mandate on a merchant's site. 

The interchange for transactions creating payment blocking and overdraft transactions are expected to be in the range of Rs 2 to Rs 8 per transaction.

Further, in the future, there is a proposal for even UPI and credit cards having an integration. The matter is with the RBI for approval.


Sources also say that there is a proposal sent for 'Send money to Contact' feature, which is also pending confirmation with the RBI.

YourStory also confirmed that the transaction limit with UPI 2.0 has been increased to Rs 2 lakh per transaction, according to multiple sources close to the Steering Committee.

'Standing Instructions' not completely out 

A big miss from this feature set is the ‘Standing Instructions’ feature, which was one of the major attractions to this update. The ‘Standing Instructions’ feature will allow users to set up automatic payment mandates for a transaction on UPI.

This news comes as a big disappointment for certain payment companies that were actively experimenting product updates based on the feature.

However, the source quoted above said that the ‘Standing Instructions’ feature is not completely out of the picture,

“There was a delay in releasing the entire upgrade because of this ‘Standing Instructions' feature. But my idea is that it is not completely written off. And they don’t want to push the launch of UPI 2.0 further. It is going to come out in the next three-to-six months, and is just a matter of time,” the source said.

However, all other sources stated that because of the disapproval from the RBI, the 'Standing Instructions' mandate will be removed from this upgrade.

Players dealing with insurance or mutual funds were eagerly looking forward to this feature, considering it would remind customers every month to keep investing.

There is no doubt that UPI is the fastest-growing payment infrastructure in the country, especially with adoption from global and Indian behemoths like Google (Tez) and Paytm.

According to the National Payments Corporation of India (NPCI), the total number of UPI transactions stood at 246.37 million in the month of June, with a total of Rs 40,834 crore transacted through the payment system.

This is a healthy 30-percent increase from May, where the total UPI transactions stood at 189.48 million. Since February, the total UPI transactions have been growing at less than seven percent.