Ravi, a resident of Dhoj, a small village in Haryana has to pay his utility bills — gas, electricity, water every month. He has the option of:
- Visiting the nearest office in Faridabad (15 Kms away) to pay for the utilities where he has to stand in the queue for maybe up to an hour and has to visit twice a month as the bill date and due date of all the bills don’t coincide. This costs him Rs. 150 and up to 2 hrs. twice a month.
- Visiting nearby agents and pays these bills. The agent charges ~ Rs. 50 for each bill payment i.e. Rs. 200 each month over and above the bill amount. But there have been instances wherein the biller received the payment late as the agent could not visit the branch in time for payment and Ravi had to pay late fee and also situations where the amount was credited to a wrong customer id and Ravi had to share the cost of this human error.
This is where fintech comes in play — wherein all these bills could be paid through Ravi’s bank/payments app directly. Moreover, Ravi is timely notified of –
- the bill generation,
- amount and due date, and
- also gets regular reminders for payment thus avoiding late payments.
What changed???
Bharat Bill Payment System (BBPS) is a revolutionary initiative launched by the National Payments Corporation of India (NPCI) to streamline the payment of bills across India. It serves as a one-stop solution for all bill payment needs, integrating multiple utility services under one roof.
Here we deep-dive into the-
- functioning of BBPS,
- its benefits, and
- how it impacts the everyday lives of Indian consumers
What is BBPS?
The Bharat Bill Payment System is an interoperable platform that allows consumers to pay their utility bills through a network of Agent Institutions.
Launched in August 2017, BBPS was developed to address the need for a unified and secure bill payment system. Prior to BBPS, consumers had to deal with multiple service providers, each with their own payment systems, which were often inconvenient and fragmented.
BBPS brings together various billers and consumers under one umbrella, enabling payments for electricity, gas, water, telecom, DTH, insurance, loan repayments, and other services. The system ensures that all transactions are safe, secure, and processed in real-time.
How Does BBPS Work?
BBPS operates through a network of authorized entities known as Bharat Bill Payment Operating Units (BBPOUs). These units, which can be banks or non-bank entities (Airtel, PhonePe, Cred and other) serve as gateways for consumers and billers to access the BBPS platform.
To further categorize the BBPOUs, they can be classified under 2 categories:
1. BOU — Biller Operating Units
2. COU — Customer Operating Units
BOUs connect billers to the BBPS system and COUs connect Agent Institutions
Consumers can pay their bills through Agent Institutions which can includes the following:
- Online Portals: Websites and mobile apps of banks and non-bank BBPOUs.
- Physical Agents: Retail outlets, bank branches, and other authorized centers.
- Self-service Channels: ATMs, kiosks, and digital payment apps.
Once a consumer initiates a payment, the Agent Institutions process the transaction through COU and forward it to BBPS which then forwards it to the biller through its respective BOU. Similarly, the receipt of the payment is communicated back to the consumer using the same value chain in real-time.
The Changing Landscape
India has witnessed phenomenal growth in digital payments in the past decade. Digital payments have grown at a CAGR of 44% from FY 2017–18 to FY 2021–22 by volume.
As per an industry report, digital payments can potentially rise to more than USD 10 trillion by 2026. Digital bill payments and collections are expected to form a major component of this growth.
Transactional Efficiencies
Need Gap: BBPS emerged out of the need gap existing in the bill payment infrastructure which affected both — the Billers and the Customers.
Customer Perspective: The entire process is completed in a few seconds as against the earlier process which would take weeks and be cost extensive as the biller would generate the bill, send it to the consumer via post, the consumer would visit the office or an agent make payment which would be then deposited by the agent to the billers account and finally the consumer would receive an acknowledgement and biller would receive the payment post a few days to consumer having made the payment.
This process would also be prone to frauds given the agents many a times may not update the biller or miss depositing the money or provide wrong details of the consumer.
Biller Perspective: Cost effective i.e. no longer required to send the bill to the customer’s doorstep, no longer commission to be paid to an agent, reduced late or missed payments and lower settlement cycles (instantly money credited to the current account).
Applicability of BBPS
BBPS is applicable across a wide range of sectors, making it a versatile platform for bill payments. Below are some key areas where BBPS is particularly impactful:
1. Utility Bill Payments
BBPS covers essential services like electricity, water, and gas, making it easier for consumers to manage their utility bills. With a single platform, users can avoid the hassle of dealing with multiple service providers. Utility bill payments, particularly electricity bills, form the largest share of BBPS transactions. As of recent years, the total transaction value for utility bills processed through BBPS could be in the range of $2500–3500 Million annually.
2. Telecom and DTH Services
Mobile, landline, and DTH (Direct-to-Home) recharges can be easily handled through BBPS. This integration simplifies the process for consumers who often have to manage multiple telecom services. The transaction value for telecom and DTH services processed via BBPS is estimated to be around $600–850 Million annually.
3. Insurance Premiums
Paying insurance premiums on time is crucial to maintaining coverage. BBPS supports the payment of insurance premiums, ensuring that consumers don’t miss their deadlines. Insurance premium payments through BBPS are growing as more insurance companies integrate with the platform. The transaction value in this sector could be approximately $350–600 Million annually.
4. Loan Repayments
Loan repayments for various financial products can also be managed through BBPS, providing a seamless experience for borrowers. This feature is particularly beneficial for those with multiple loans from different institutions. With increasing adoption, loan repayment transactions are becoming a notable part of BBPS. The transaction value here could be in the range of $475–725 Million annually.
5. Educational Fees
Off late, educational institutions are also looking to integrate with BBPS, allowing parents to pay school fees conveniently through the platform. This sector is relatively new on the BBPS platform, but it is expected to grow. The current transaction value is likely smaller, estimated at $60–120 Million annually.
This expansion into the education sector highlights BBPS’s growing applicability. BBPS is expected to increase penetration across industries such Financial Services, Retailer-to-Distributor Payments (B2B), Corporate Vendor Payments, Membership Payments, Mobility related Payments, Taxes & Challan Payments and various other day to day payments.
BBPS V/S UPI
While one may compare the benefits such as convenience, interoperability, security and real-time settlement of BBPS with UPI and believe that it’s one and the same, but there exists a gap in understanding.
From an analogy perspective, BBPS is the road and UPI is the vehicle.
Let’s understand!!
In the 1st wave of digitization, the customers were expected to login to the biller’s own website, enter their identification no. and make the payment, thus generating a unique identification between the payment and payee.
In the second wave of aggregators such as Paytm, PhonePe this identification was impossible as the systems of user facing apps were not communicating with the system of the billers.
Thus, the BBPS originated, wherein using a centralized control unit the billers and agent institutions (front-end apps) could communicate seamlessly. This integration made possible the identification of payee and seamless reconciliations (up to thrice a day by BBPS) of the payments received. This has been amongst the critical factors over the prevailing methods as billers usually have to deploy multiple resources just for the payment reconciliation.
This helps us understand, while BBPS is the base infrastructure (enabler), payments on this can be processed using UPI, Net Banking, Credit & Debit Card.
The Future of BBPS
At the current scale, BBPS processes $4750–6000 Million annually and is growing by the day with respect to width (coverage of services — more billers and payment categories) and depth (more people opting to pay through BBPS).
The ongoing push towards a cashless economy, supported by government initiatives, including making BBPS led payments compulsory for many services will further bolster the adoption of BBPS.
The next part — will cover the technical and regulatory aspects driving BBPS
Author:
Karan Gupta
