In the previous blog, we unveiled BBPS, an infrastructure provided by NPCI (National Payments Corporation of India) — its application, benefits & functioning. In this 2nd part we will dig deeper to understand the technical and regulatory aspects behind BBPS.
Recap
BBPS brings together various billers and consumers under one umbrella, enabling payments for electricity, gas, water, telecom, DTH, insurance, credit card bills, loan repayments, and other services. The system ensures that all transactions are safe, secure, and processed in real-time.
Let’s break this down.
The above list contains majorly utilities, but that is not where BBPS stops. The idea behind BBPS is to move away Business Billers from direct UPI mode and onboard them on BBPS infrastructure. This initiative by the Government is undertaken to ensure accountability and traceability of payments received by businesses against the invoice no. and to maintain a robust infrastructure conducive to the growth of digital adoption.
How???
- In the current scenarios businesses receive payments using UPI but the same are not reconciled to any bill. For accounting purposes this can be difficult for the businesses to manage reconciliations and record transactions accurately. From the perspective of government authorities direct UPI can lead to defects in calculating tax liabilities.
2. UPI as a mode of payment is free. Govt. through NPCI subsidizes the cost of transactions to banks and infrastructure enablers. As the usage of UPI increases the subsidy burden on govt is expected to further increase. Thus, the need to segregate P2P payments from Business payments on UPI emerged. One of the expected motivations behind this move would be to continue subsidizing UPI payments for P2P purposes. The government would levy fee on billers through BBPS to access the payment infrastructure (including UPI).
BBPS application is expected to expand to avenues including –
- Property/Municipal Tax payments
- Fines, Challans and Penalties
- School, College Fees
- Rent & Society Maintenance
- Medical Bills
- and any other Business Payment including B2B payments
Let’s understand how the B2B payments ties up in the entire BBPS journey.
It all began in 2020 with the advent of e-invoicing. The government initially launched e-invoicing with a mandate threshold for businesses having more than INR. 5 Billion as turnover. This threshold since 2020 has been gradually reduced year after year to a threshold of INR. 100 Million.
What’s next??
It is envisaged that e-invoicing will be coupled with BBPS to drive payment of such invoices through the BBPS mechanism. This move will drastically change the entire payments landscape in India ($4 Trillion GDP estimated in 2024) and provide significant tailwind to the businesses engaged in ‘Digital Payments and Infrastructure’.
Moving on to the Technical Aspects of BBPS
BBPS is a technology infrastructure layer which is connected with the existing payment modes of UPI, NEFT, RTGS and Cards. This layer does not restrict the mode of payment but just segregates the business payments from the regular P2P payments.
BBPS infrastructure has billers on one side and consumer facing interface (Online Payment Platforms such as Paytm, Cred, PhonePe; Retail Touchpoints/Agents; ERP systems) on the other side.
Unlike the traditional method where the payor was responsible to provide the payment amount, BBPS is connected to the Billers’ system using an API which auto fetches the amount due by just entering an identification no. which can include Mobile No., Customer ID or other such unique identification parameters. This reduces chances of wrong payment, wrong account credit and other such possible human errors.
Scalability???
With the plans to include the universe of billers and consumer facing interface, the infrastructure layer of BBPS was expected to be robust and secure thus allowing any and all of the above incumbents to communicate directly with BBPS.
But this would also increase the chances of technology failure, breach of privacy, data theft and expose the system to such other cyber security threats.
To mitigate this vulnerability, BBPS infrastructure was designed as depicted below:
While the Billers and Customer ends of BBPS have been understood, we identify 2 more nodes here COU and BOU.
● COU: Customer Operating Unit
● BOU: Biller operating Unit
BOUs and COUs are licenced incumbents (such as banks, payment apps and other service providers) which integrate with the BBPS system on one side. These players follow strict cyber security guidelines and undergo rigorous diligence before they are integrated into BBPS.
On the other side, these BOUs and COUs integrate with Billers and Customers facing interfaces respectively to enable the core offering of BBPS — interoperability and real time settlements at scale while maintaining the security standards.
The BOUs & COUs act as a checkpoint for the billers and customer facing interfaces willing to utilize BBPS for payments.
Currently there are 67 COUs and 35 BOUs catering to 21,600 billers and 1 Million+ customer facing interfaces.
Lastly, to ensure ease of onboarding for billers and customer facing interfaces over the BOU & COU network respectively, NPCI also licensed TSPs (Third party service providers) at both the ends to enable seamless and secured onboarding.
With this 3 tier system, NPCI was able to put together a robust, scalable and decentralized payments infrastructure for business enabling real time payments, reconciliations and transparency through a secured network.
(One such beneficiary of this emerging mega trend has been identified by Auxano as an investment prospect. For more updates on this follow us on LinkedIn and Twitter)
Author:
Karan Gupta
