With Flipkart's PhonePe and ICICI Bank, fintech's disruptive tension comes out in the open

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Try adding money to your Paytm mobile wallet using your UPI handle and chances are you won’t be able to. I couldn’t, using my @ICICI handle. UPI refers to the Unified Payments Interface that India has launched via the National Payments Corporation (NPCI). It is a way to make payments or send money online without knowing any bank account details.

People can just give each other their UPI handles, which are called Virtual Payment Addresses, and it works — India has already built the backend and continues to expand it. The convenience is obvious and one doesn’t have to hand over any account number or the IFSC code and so on. The UPI handles are linked to one’s account or card, but the details don’t have to be given out at all.

Instances like my experience with my @ICICI handle and Paytm – an existing issue which is likely to be resolved – however, don’t just represent the growth pangs of a new technology or business model. In India’s nascent, but rapidly evolving, digital finance scene, they also represent the growing tension between the country’s new-age fintech startups and established banks.

In recent days, that tension has come out in the open, brought to focus by an ongoing spat involving ICICI Bank, NPCI and Flipkart, India’s largest ecommerce company. Flipkart operates the PhonePe mobile wallet and UPI-friendly payments app that is growing in popularity. On January 13 — a Friday, if you want to joke about it — ICICI Bank blocked its customers from transacting with PhonePe.

“On Friday the 13th, ICICI Bank blocked all its customers' UPI transactions to/from '@ybl' handle users. This happens to be the UPI VPA Handle, assigned to us by YES Bank,” PhonePe’s co-founders Sameer Nigam and Rahul Chari said in a blog post on Sunday. Therefore, “ICICI in effect has also blocked all its customers from using all PhonePe products too,” they said.

“Some banks, including us, have raised security-related concerns at appropriate forums about the access to UPI data to a non-banking application,” the finance news portal Moneycontrol reported ICICI Bank as stating on January 17.

NPCI jumped in with a statement on January 19 with a statement, saying it had asked ICICI Bank to open UPI transactions “immediately”, but followed it up with a second statement the next day that “PhonePe and Flipkart Apps are in contravention of the UPI guidelines of interoperability”. NPCI added that it has asked ICICI Bank to open up the UPI transactions as soon as PhonePe and Flipkart make their apps compliant with the guidelines.

PhonePe’s founders say there is no problem with their app, in their blog post.

Payments won’t be the only bone of contention either, between established financial institutions and up-and-coming startups. On the lending front too, India is seeing a surge of internet-based companies using complex algorithms to churn out creditworthiness of people and make loans that are processed as quickly as in a matter of hours in some cases, and in only a few days in most cases.

Capital Float for example, a Bengaluru-based new-age lender, backed by marquee venture capital firms such as SAIF Partners and Sequoia Capital, recently said it saw a 400 percent jump in the amount of money it had lent in the Delhi-NCR region in 2016 over the previous year, in a January 10 press release.

For now, the sum total of all the business that such digital lenders are doing is miniscule, compared to an ICICI Bank or even a large regional bank. However, with tens of billions of dollars in unmet demand for loans by honest small-business owners across the country, the new lenders will continue to grow rapidly. They have technology on their side and none of the lumbering bureaucracy that can shackle large organisations.

And India has had, thus far, the benefit of a largely independent central bank in Reserve Bank of India, which has many forward-looking initiatives to its credit — such as giving out payments bank licences, for instance. So let’s assume RBI will regulate the new-age lenders in such a way as to not throttle their growth, but to check fraud and defaults at acceptable levels. Then it’s game on, between the fintech startups and the established finance companies. And a billion consumers will decide who wins.

The thoughts and opinions shared here are of the author.