Walmart-Owned PhonePe Becomes 1st Non-Bank To Have UPI-Based IPO Bidding: How Will Work?

As per the reports, NCPI has approved PhonePe to enable IPO bidding for its users through UPI platforms, considering the huge popularity of UPI channels in the current user base.

With the application of these services, PhonePe will become the first non-banking payment system to facilitate these kinds of transactions.

Why PhonePe?

Capital market regulator SEBI (Securities and Exchange Board of India) and NPCI (National Payments Corporation of India) have given their approval for retail investors to do their bidding through Flipkart-owned PhonePe UPI platform. Though only banks were given permission to perform these transactions.

While giving more information about the process, Hemant Gala, the head of payments, banking and financial services, PhonePe said that “Earlier, the customers had to provide their account details and IFS code to make their bids. The introduction of UPI based payments will make the process much simpler as now they only have to provide their UPI IDs to block their funds,”.

According to reports, 400 million users are using UPI channels for doing their day-to-day payments. Out of that, around 918 million transactions were performed in August 2019 and 90% of them were performed using Paytm, Google Pay and PhonePe platforms. 

With the provision of this option, the IPO process will become simpler and it can be easily accessible by UPI users.

Gala said that “Our USP has always been opening up new use cases and this is another such use case. NPCI can harness our distribution network of 150 million users,”.(reference ET) 

How Does It Work?

With this implementation, retail investors can invest in IPO using UPI based Applications Supported by Blocked Amount (ASBA). ASBA is an escrow like mechanism where the user enables the bank to restrict payment till allotment happens. (reference)

The amount will only be deducted when securities will be allocated to the account. Currently, six days are given for allotment of securities, after that amount will be refunded to the investor.

The process is simplified in six steps. 

1. First investors have to fill bid details in IPO application form as per the existing process.
2. They will have to provide their Virtual Payment Address (VPA) or UPI ID which is linked to their bank account.
3. Upon validation of block request by the investors, the information would be electronically received by the investor’s bank.
4. After that, the funds equivalent to the application amount will be blocked for that particular user.
5. On allotment, the money will automatically deduct from this blocked amount.
6. Get the IPO application process completed in the next three days after allotment. 

This plan is applicable to retail investors investing through syndicate member, registrar, registered stockbrokers, transfer agents or depository participants.     

On July 1, 2019, the second phase started with mandating IPO payment through UPI for retail investors applying through brokers, DPs and RTAs.  The timeline of T+6 days post-issue closure will continue till the final phase is implemented.

With the implementation of these services, PhonePe will have an upper hand in this competition as this will help them to acquire a larger market share in UPI transactions segment till other payers enables the same kind of services.

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