Updated Apr 13, 2022

What is a Unified Payments Interface (UPI)?

What is a Unified Payments Interface (UPI)?

India has marched ahead towards achieving a cashless economy with the invention of the Unified Payment Interface (UPI).

A UPI is a smartphone application that allows transferring money between bank accounts in just one click. Developed by the National Payments Corporation of India (NPCI), it is a single-window payment system that eliminates the task of entering the bank and other details for transferring funds.

Understanding the UPI payment system

UPI is a real-time payment system that enables peer-to-peer bank transfers via a single two-click factor authentication process. The Reserve Bank of India (RBI) manages the interface. It is a safe and secure system of transferring money and eliminates the need to do physical transactions.

RBI launched UPI's pilot system on April 11, 2016. Banks started to upload their interface in August 2016. UPI empowers smartphones as virtual debit cards. Sending and receiving money is quick and easy. Real-time transfers can be made using a mobile number or virtual payment address (UPI ID). QR code has eliminated the use of digital wallets.

Who introduced UPI?

National Payments Corporation of India (NPCI), along with the Reserve Bank of India (RBI) and the Indian Banks Association (IBA), conceptualised the Unified Payments Interface (UPI). NPCI also handles RuPay payment infrastructure. NPCI also introduced an immediate Payment Service (IMPS). UPI is also known as the advanced version of IMPS.

UPI ID and PIN

A UPI ID corresponds to a unique identifier for a bank account that sends and receives funds. A UPI PIN is a personal identification number needed to authorise funds transfer. The customer selects UPI PIN.

A UPI ID generally begins with your mobile number followed by the '@' symbol and the app you are using. For example, if your mobile number is 79xxxxxx90 and you operate your UPI ID on the icici mobile app, your UPI ID will be '79xxxxxx90@okicici'.

UPI ID is set up by entering the bank account details in the app. The app then sends an OTP to the registered mobile number for authorisation. After providing OTP, you are redirected to create a PIN for the UPI ID.

After setting up the UPI ID, you can send and receive money to anyone from your mobile phone contact list.

Working of UPI

The money transfer process has become a lot easier through UPI. Entering the receiver's account details such as account number, type, IFSC code and bank name is not required for transfer.

Transferring money through UPI requires you to enter your Aadhaar number, mobile phone number registered with the bank account or UPI ID. A customer can set up a UPI ID in one of the apps offering UPI service.

Features & benefits of UPI

Following are some of the features and benefits of the Unified Payments Interface:

• Paying online has become faster and easier.
• UPI payments can be made for food delivery services, hailing services, shopping websites etc.
• Pay online to the grocery store, departmental stores, restaurants etc.
• You can make instant online payments of utility bills, rent, mobile recharge etc.

Sending money vs receiving money

Sending money on UPI is called 'push'. The user logs into the interface and selects the Send Money/Payments option. A user enters the recipient's virtual ID, payment amount, and bank account. The user then enters the PIN and receives a confirmation.

Receiving money on UPI is called 'pull'. After logging in to the system, the user selects the option of collecting money. They then need to enter the UPI ID of the remitter, the amount to be collected and the account in which the funds should be deposited. Finally, the payer receives a payment request which they can authorise by entering the UPI PIN.

After the transfer, both the sender and receiver receive text messages on their mobile phones.

UPI's secure network

UPI transactions are highly secure encryption formats that cannot be easily tampered with. Today, NPCI's IMPS network handles around Rs 8,000 crore transactions every day. It is expected to increase exponentially with the penetration of UPI technology in the Indian market. UPI transaction uses a two-factor authentication method for every transaction. UPI PIN is used instead of OTP for validation.

Conclusion

UPI is an emerging technology that provides hassle-free payment options. It has made daily transactions more accessible and faster. It has also made India go cashless and pay through its smartphones. Thus, UPI is an integral technology of Digital India.