UPI for Cash Transactions

Recently two news items hit the round, one with PhonePe launching ATM services through their merchant partners and another with NPCI releasing guidelines for cash withdrawal at local retailers on the lines of Cash at POS model. How this transaction works will be easy to understand once we know that the accounting for Cash Withdrawal transaction at merchant outlet is same as purchase transaction i.e.

Dr Customer Account

Cr Merchant Account

This gave me an idea, why not extend this to business correspondents to offer Cash Deposit and Cash Withdrawal both to customers through UPI. The accounting entry for Cash Deposit is as follows:

Dr BC Account

Cr Customer Account

Business correspondent will process the transaction as a push credit to customer’s VPA through the UPI app offered by his/her Bank. Most of the big banks are already having their own UPI apps and it will not be of any difficulty to integrate these APIs with their BC app or app provided by their agent service provider. This will not only ensure an easy way to offer cash services to a wider network, while also ensuring interoperability. The guidelines to cover transactions across Business Correspondents network are already in place.

Cash Remittance: This service can also be extended to offer third party cash deposits, under the already existing Domestic Money Transfer (DMT) guidelines.

This transaction set can even be extended to offer innovative Cash Management services by tracking the cash needs at local retailers and moving cash among nearby retailers depending on their cash needs and the Cash Management company can even register as a third party provider under the UPI framework supported by one or multiple Banks as PSP. A Google Pay for B2B, if you must. If this service becomes successful, one can petition NPCI to increase the limits for such types of transactions to allow for larger sums. I am certain with UPI at the back-end it will be much cheaper than Bank fees.

Feel free to reach out to me, if any of you want to brainstorm further on this.

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