ETtech Morning Dispatch on Feb 18, 2021: India’s digital payments overhaul

Good morning,

India’s digital payment platforms, which have seen huge growth since the start of the pandemic, are in the midst of a massive system update. After upgrading the National Automated Clearing House and Unified Payments Interface late last month, the National Payments Corporation of India is planning an overhaul of the Immediate Payment Service and the Aadhaar Enabled Payment System this month and the next.

NPCI officials have already told banks and other financial institutions in private forums that some of these upgrades may face teething issues — and with good reason.

The NACH upgrade caused thousands of investors to miss out on the stock market rally at the start of February. Let’s hope the upcoming upgrades won’t be quite as disastrous.

1. Incoming: More failed payments


Last week we reported
how a technical glitch in the National Automated Clearing House (NACH), which processes SIP payments for mutual funds, meant that thousands of investors may have missed out on the stock market rally at the start of the month. The National Payments Corporation of India (NPCI), which created and runs NACH,
said the glitch was due to a system update that ended on January 31. NPCI later apologised to investors for the glitch, which caused at least seven lakh transactions to fail.

IMPS, AePS next: Now, after an increase in the failure rate of online transactions in general, NPCI
is planning to overhaul the Immediate Payment Service (IMPS), Aadhar Enabled Payment System (AePS) as well.

  • Last month, it upgraded the Unified Payments Interface (UPI), India’s newest and by far most popular digital payments platform.

Expect more outages: “NPCI leaders have reached out to payment participants in private forums requesting patience while these migrations are carried out, as some of these upgrades may face teething issues,” a source told The Economic Times.

Pandemic boost: There has been a huge increase in digital payments since the start of the coronavirus pandemic and the consequent lockdowns.

  • UPI, which has a Rs 1 lakh payment limit, saw a 105% jump in the value of total transactions between December 2019 and December 2020. from Rs 2.02 lakh crore to Rs 4.16 lakh crore.
  • IMPS, which is used for larger inter-bank transactions, also witnessed a surge as more businesses used it to pay their employees during lockdown.
  • NACH processed a record 325 million transactions in December 2020 thanks to a surge in recurring online investments, and credit card and insurance payments.
  • AePS, the platform that processes most of the government’s direct subsidy and relief delivery schemes, also saw a massive uptick in volumes.

Mo money mo problems: But the rise in digital payments, while rapid, hasn’t exactly been smooth. There have been major outages, most notably at
HDFC Bank and
SBI Yono.

Before the pandemic, just a few banks that process UPI transactions reported failure rates of over 1%. But in October, November and December 2020, at least 10 banks reported failure rates of more than 3%.

Digital payment platforms explained

  • UPI: Launched in April 2016, the Unified Payments Interface is an instant, mobile-based payment system for inter-bank transactions. It has a transaction limit of Rs 1 lakh. Upgrades concluded on January 25.
  • IMPS: The Immediate Payment Service is used for larger inter-bank transactions. It forms the underlying payment rail on which most of India’s digital transactions, including UPI payments, are processed. It is typically used by businesses to pay salaries. It will be upgraded in March.
  • AePS: The Aadhaar Enabled Payment System allows Aadhaar card holders to make financial transactions through biometric authentication. It is also used for all of the government’s key direct-benefit and subsidy delivery schemes. Upgrades are planned in February and March.
  • NACH: The National Automated Clearing House is a centralised payment service that clears high-volume, low-value, recurring interbank transactions. It is used predominantly by financial institutions to auto-debit monthly payments such as EMIs, SIPs, insurance premiums and mutual fund payments. Upgrades concluded on January 31.
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2. Tapping tech to be future-ready

“When the chips were down, your code kept everything running,” Prime Minister Narendra Modi
said at the first virtual Nasscom India Leadership Forum, exhorting Indian Tech.

And quite rightly so, for India’s tech industry rose to the challenges posed by a global pandemic: When all but essential services shut down to reduce the risk of contagion, IT firms scaled their digital enterprise to ensure that governments and industries continued to function across the world—albeit remotely.

Now, India Inc. must work towards building startups that last a century, Modi said. “People are waiting for new tech solutions, and they want to try new things, there is immense excitement, especially for Indian applications.”

Tech leaders seemed to agree…

  • “We are at a unique moment on the planet. The alignment of global ecosystems is happening right now. This is the moment where you can step that up by an order of magnitude.” — IBM CEO Arvind Krishna
  • “We need to anticipate new jobs of the future and create a model where we become a supplier to the world.” — Tech Mahindra CEO CP Gurnani
  • “We set up a crisis cell for all countries to connect to share best practices and improve on every step on every process… The question among leaders was whether people will WFH. But it continued to work week after week.” — Capgemini CEO Aiman Ezzat

Tweet of the Day

3. ETtech Done Deals

■ Delhi-based logistics aggregator
has raised $27 million in a mix of primary and secondary capital as part of its Series C3 funding round led by US-based venture capitalists Tribe Capital and March Capital. The round gives an exit to some early investors in the company with returns ranging between six-seven times, the company said.

Shiprocket said it will use the funds for development of its product roadmap, including hiring talent across product and engineering roles, and expansion globally.

Avataar Venture Partners
raised a top-up fund of $100 million to invest in its star portfolio companies and to make new investments. This is in addition to the $300 million it had raised in 2019 to invest in B2B and SaaS companies.

The fund has made three new investments in companies, including Rate Gain and SenseHQ, and has set up a Saas platform called Heal.

■ Global impact investor
Creation Investments Capital Management
is setting up a debt fund in India and will raise $100 million to invest in the country. The Chicago-based alternative asset manager has appointed Remika Agarwal as its vice-president and country head for India.

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India is Creation’s single largest destination for impact investments in companies providing access to capital to unbanked and underbanked families and businesses.

Click here to read more start funding and deals news.

4. Extracurriculars will move online in 2021


Startups that offer extracurricular activities online
will be a key part of the edtech sector in 2021, venture capitalists and other investors told ET.

Pandemic boost: The Covid-19 pandemic has led to a boom in edtech startups, with investors and founders calling this the ‘white space’ of the Indian edtech market. After the first phase, startups that offer extracurricular activities online began to mushroom, and this trend is expected to continue in 2021.

  • “Just as 2020 changed how we think about online education, 2021 will change how our perception of extracurricular activities,” said Varun Gupta, director-digital and technology at Avendus Capital. “Before [the current boom], I don’t think people believed that extracurricular activities, with a few exceptions, could be taught online.”

Consolidation phase: Edtech giants such as
Byju’s and
Unacademy have been on a buying spree of late, and no doubt will be keeping an eye on startups offering extracurriculars.

In one quote: “There is a lot of capital with the top players such as Byju’s, Unacademy and Eruditus. Our sense is that consolidation will be very actively pursued. These companies are looking to become mainstream options for students. Therefore, they need to deepen their capabilities and widen their portfolios since they can’t do everything organically,” said Varun Gupta, director-digital and technology at Avendus Capital.

Infographic Insight


5. KKR’s India NBFC, InCred to merge

KKR & Co.
has agreed to an all-stock merger of its India lending unit KKR India Financial Services (KIFS) with InCred, a shadow bank promoted by former Deutsche Bank officials, ending nearly 10 months of negotiations, said people aware of the matter.

Why it matters: The union will help the private equity group save the struggling arm once touted as an alternative model that would be expanded across Asia but got mired in bad loans, personnel exits and rating downgrades. The move will help InCred scale up its loan book, especially in the wholesale segment, and get access to KKR’s deep financial resources.

Shareholding pattern: KKR, along with its two limited partners Teacher Retirement System of Texas and Abu Dhabi Investment Authority (ADIA), will end up owning 33-35% of the merged entity, while InCred and its promoters will own the rest, said the people cited above. For every two KIFS shares, investors will get one of InCred.

The merger will value KIFS at about Rs 6,000 crore, a fourth of its valuation in 2018.

Co-WIN 2.0 in the works

The government plans to soon launch
version 2.0 of the Co-WIN mobile application that will allow people to register themselves for a Covid-19 vaccination.

The principal secretary to the prime minister was briefed on the upgrade and other matters at a high-level meeting on Wednesday to review the progress of the Covid-19 vaccination drive in the country. The involvement of private healthcare facilities in a significant way was also discussed as part of the steps to accelerate the pace of vaccination.

“This will enable registration of the population in the 50yrs+ category for Covid vaccination, which is the third population priority group after the healthcare workers and frontline workers that are presently taking the vaccine,” the government said in a statement.

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It did not set a timeline.

Top Stories We Are Covering

Big Tech firms’ behaviour a concern, says Piyush Goyal: Commerce and Industries Minister Piyush Goyal said
there were concerns about behaviour of some big tech companies including some from the US that were not willing to adhere to the law of the land here.

“There are a lot of concerns about the behaviour of big tech companies—including American companies—and India would like to protect its policy space”.

His statement assumes significance in the wake of the ongoing tiff between the government and Twitter over tweets and accounts linked to the continuing farmers’ protests against certain agriculture reform laws.

Amazon writes to NCLT against Future’s petition: Amazon has written to the National Company Law Tribunal (NCLT), objecting to Future Group’s petition that sought the latter’s nod to hold a shareholders’ meeting that would approve its Rs 24,713-crore deal with Reliance Retail Ventures Ltd.

Last week, NCLT Mumbai directed both Future Retail and Reliance Retail to submit their petition as a composite scheme rather than two separate scheme matters as transferee company and transferor company.

Inside Amazon’s secret strategy to dodge India e-commerce regulations: Amazon
favoured big sellers on its India platform—and used them to manoeuvre around rules meant to protect the country’s small retailers from getting crushed by e-commerce giants, internal documents show. As one presentation urged: “Test the Boundaries of what is allowed by law.”

Global Picks We Are Reading

Google, News Corp ink three-year deal for content: News Corp. and Alphabet Inc.’s Google reached a three-year agreement in which the search giant will pay for news, a long-sought truce in a pitched battle over the value of journalism on online platforms.

The two will partner to develop a subscription platform and cultivate audio and video journalism, as well as share ad revenue, News Corp. said in a statement Wednesday.

Also Read:
Facebook blocks news content in Australia as it blasts proposed law

The internet is splintering: Each country has its own car safety regulations and tax codes. But should every country also decide its own bounds for appropriate online expression? If you have a quick answer, let me ask you to think again. We probably don’t want internet companies deciding on the freedoms of billions of people, but we may not want governments to have unquestioned authority, either.

Regulating online expression in any single country—let alone in the world—is a messy set of trade-offs with no easy solutions.
(The New York Times)

Amazon’s bench — who’s who as Jeff Bezos exits? Get ready to hear more from a new cast of Amazon executives.

That includes people in the most senior leadership positions at the internet giant, including Andy Jassy, the longtime head of its cloud unit, who will replace Jeff Bezos as CEO later this year, and Dave Clark, its logistics head, who will become the new chief of its worldwide consumer business.

But the changing of the guard—unprecedented in the company’s nearly 27-year history—could also raise the profile of a much broader list of leaders who have received far less exposure outside the company.
(The Information)


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