Unlocking the essential components of a thriving RTP ecosystem (Case UPI, PIX & CoDi)

A comparative analysis of India's UPI (Unified Payments Interface) and Brazil's PIX (Pagamentos Instantâneos) provides an insightful look at two of the world's most successful and innovative real-time payment systems. Both systems are notable public success stories; however, they have significant differences in their design, adoption, and overall impact. 

Below is a detailed comparison across various dimensions. 

Briefly: UPI vs. PIX

Feature                                                 India's UPI                                         Brazil's PIX

Launched                                               2016                                                        2020 

Governing Body                                     NPCI                                               Central Bank of Brazil

    

Core Technology                 Immediate Payment Service layer                 Instant Payment Ecosystem

Key Identifier                                 Virtual Payment Address                     PIX Key (CPF/CNPJ, Email,                                                                                                                                 Phone, Random Key)

Primary Use Case                (P2P), Merchant Payments (Online & QR) Peer-to-Peer (P2P), Bill                                                                                                                                     Payments, Gov't Benefits

Operational Hours                                     24/7/365                                                 24/7/365

Transaction Limit                             by bank; typically,₹1-2 lakh per TXN

                                                            1 Lakh=100,000 INR (US$1,130.00)     Default limit: 8,000 BRL                                                                                                                               (US$1,600 USD) per TXN

Adoption Driver                             Demonetization (2016), 

                                                            Zero Merchant Fees, QR Codes                 Mandated Participation,                                                                                                                                   Skepticism of Cards/Banks

Unique Strength                             Deepest Merchant Penetration                                                                                                                         (QR codes everywhere)                 Integrated Bill Pay & Gov't                                                                                                                                          Disbursement

 

Detailed Breakdown of Similarities and Differences

1. Philosophy and Governance

Similarity: UPI and PIX were both established as vital public infrastructure to democratize digital payments, lessen reliance on cash, and enhance financial inclusion. These systems prioritize the public good, operating as not-for-profit entities dedicated to empowering users.

• Difference:

  - UPI is overseen by the National Payments Corporation of India (NPCI), a consortium of banks that operates as a private entity with a mandate to serve the public interest. This structure fosters collaboration among financial institutions.

  - In contrast, PIX is wholly designed, owned, and managed by the Central Bank of Brazil (BCB). This direct control provides the BCB with substantial authority, enabling it to ensure broad participation and uphold the integrity of the payment system.

2. Technology and User Experience

Similarity: Both systems are cutting-edge, real-time platforms that operate 24/7, allowing for transaction settlements within seconds. They provide an added layer of security by using simple identifiers rather than sharing sensitive bank details.

• Difference:

- UPI Identifier: This innovative system employs a Virtual Payment Address (VPA), such as rolando@me.com, allowing users to create multiple VPAs for easy management of transactions.  

- PIX Identifier: This advanced platform utilizes PIX Keys, which can include your tax ID (CPF/CNPJ), phone number, email, or even a randomly generated key. The option to use a universal national ID (CPF) significantly enhances the user experience, making money transfers seamless and accessible to everyone.

3. Adoption Strategy and Growth

• UPI's Path:  Its growth was initially turbocharged by the 2016 demonetization event, which created a massive, urgent need for cash alternatives. The strategy was market-driven:

1. Zero Merchant Discount Rate (MDR): The government made it free for merchants to accept UPI, leading to a surge in QR code adoption from street vendors to malls.
2. App-Based Ecosystem: Private apps like Google Pay, PhonePe, and Paytm built fantastic user interfaces on top of the UPI infrastructure, driving viral adoption through cashbacks and rewards.

• PIX's Path: The Central Bank of Brazil used a more top-down, regulatory approach:

1. Mandated Participation: The BCB mandated that all financial institutions (banks and payment providers) above a certain size participate. This created a fully integrated network from day one.
2. Skepticism of Cards: Brazilians were historically skeptical of the high costs and fraud associated with credit cards. PIX offered a cheaper, safer, and faster alternative, which resonated strongly.
3. Government as a First User: The Brazilian government used PIX to distribute emergency aid during the COVID-19 pandemic, instantly onboarding millions of unbanked citizens.

4. Impact and Unique Characteristics

• UPI's Unique Impact:

1. QR Code: UPI's most visible success is the ubiquitous QR code at merchants of all sizes, from a street tea seller to a large retailer. It truly digitized the Indian economy at the grassroots level.
2. Interoperable Ecosystem: The competition between third-party apps (PhonePe, Google Pay) and bank apps has driven incredible innovation in user experience.

• PIX's Unique Impact:

1. Integrated Bill Payment (PIX Cobrança): This is a killer feature. A company or individual can generate a PIX payment request (like an invoice with a QR code) and send it to the payer. This is widely used for paying bills, taxes, and e-commerce, replacing the cumbersome boleto system.
2. Superior Government Disbursement: The use of a national ID (CPF) as a key makes it seamless for the government to send money directly to citizens, reducing leakage and corruption.

Now, Which One is "Better"?

It's not about which is better, but rather which serves as a more interesting case study for a given goal.

For Grassroots Merchant Adoption: UPI is the undisputed global leader. The sheer volume of low-value transactions and the penetration of QR codes is unmatched anywhere in the world.

For a Holistic Financial Tool: PIX has a slight edge due to its built-in, sophisticated bill payment and invoicing features (PIX Cobrança). Its integration with a national ID system is also a powerful model for other countries.

 

Other countries that are looking to build their own instant payment systems are now studying these two models intensely. 

UPI and PIX provide invaluable insights into successful Real-Time Payment (RTP) systems. However, for your RTP initiative to thrive, it's crucial to tailor your approach to the unique characteristics of your local market. Merely mimicking these successful examples or merging elements from them won't ensure that you generate a robust network effect in your country.

Now, let’s delve into a less successful RTP case and analyze the underlying reasons for its limited impact. 

Understanding these factors can guide us in avoiding similar pitfalls and securing a successful implementation.

Mexico: The issue with CoDi (Cobros Digitales), Mexican RTP Initiative, is a fascinating and classic case study in the challenges of adopting a new financial technology, especially when compared to the roaring successes of India's UPI and Brazil's PIX.

While CoDi was a visionary initiative by the Bank of Mexico (Banxico), its adoption has been sluggish and limited. The core issue isn't the technology itself, but a combination of economic, social, and structural factors that hinder its widespread use.

Here are the key issues behind CoDi's slow adoption:

1. Launched in 2019, CoDi did not benefit from a significant catalyst for adoption. The shift to digital payments was meant to be gradual and organic, but this proved challenging due to the strong preference for cash. Additionally, even during the peak of the COVID-19 pandemic, which accelerated the use of digital payments globally, CoDi struggled to gain traction.
2. Digital payment platforms are classic examples of two-sided markets; they need both payers and merchants to adopt simultaneously to be valuable.
3. CoDi didn't enter a vacuum. It had to compete with well-established systems that already had massive user bases, like:

• Cash is King in Mexico. A vast portion of the economy is informal, and cash is anonymous, universal, and simple.

• Card Payments: These are already widely accepted by established merchants. Although they can be expensive, they represent a reliable option.

• Proprietary Wallets & Apps: Solutions such as Oxxo's Saldazo card, BBVA's Wallet, and Mercado Pago cater to specific use cases for various segments of the population. These services are often promoted more vigorously by private companies with marketing budgets.

4) Limited Perceived Value Proposition for Key Groups

• For Consumers: "Why switch?" For small, everyday purchases, cash was sufficient. CoDi did not provide significant immediate benefits to motivate a change in established habits.

• For Merchants: Although CoDi promised lower transaction fees compared to card terminals, the costs associated with card fees were already an accepted part of doing business. The informal sector, which makes up a significant portion of Mexico's economy, saw no necessity to digitize and enter the formal economy.

5) Structural and Infrastructure Hurdles

While smartphone use is high in Mexico (+ 80%), CoDi required users to have a bank account and a smartphone with reliable internet. A significant unbanked and underbanked population (+51%) was automatically excluded.

User Experience (UX): Initially, the user journey in some banking apps to find and use CoDi was clunky and not as seamless as dedicated apps like those built on UPI.

Banxico's heart was in the right place, but CoDi ultimately couldn't overcome Mexico's deep-rooted preference for cash without a stronger, more compelling reason for people to switch.

Conclusion:

Both UPI and PIX are significant successes that have transformed their respective economies. UPI is a champion of market-led, grassroots adoption, leveraging a unique historical moment for its rise. In contrast, PIX serves as an example of a top-down, regulator-driven approach in which mandates and deliberate planning were employed to establish a comprehensive payment solution from inception.

Another successful example is Zelle, a U.S.-based service. Zelle’s success can be attributed to its robust distribution strategy, which integrates with nearly all major U.S. banks and credit unions, making it the default digital payment option for over 90% of the population. The network effect was driven by the customer base of these banks, and it’s worth noting that the unbanked population in the USA is under 4%.

To launch a successful Real-Time Payment (RTP) ecosystem, it's crucial to have a clear strategy that considers the unique characteristics of each country.