UPI (Unified Payment Interface) is a digital innovation with an instant payment option developed independently in India. It is a mobile payment system developed by the National Payments Corporation of India (NPCI). All you need to make/receive a payment is an internet connection and a QR code/ persons’ mobile number to whom you are paying.
It is the name of that technology by which we can make payments digitally just by scanning a code/ by knowing their mobile number in the blink of an eye. Transferring money becomes a safe and secure process and eliminates the need to transact with physical cash.
It also eliminates the need of paying ‘chillar’ which used to be such a headache as there was always a shortage of ‘chillar’ to pay in cash. Even bank transfers nowadays occur in the blink of an eye.
UPI works on a technology known as Open API (Application Programming Interface). If there is no entry restriction on the users of an interface, it is called Open-API. UPI is based on the Open API platform. UPI has been designed by keeping three things in mind: to make it mobile-friendly, easy to use, and ensure the process happens in an instant to provide a terrific user experience.
The UPI system was launched in India on April 11, 2016. Banks across the country started to adapt and operate through UPI in August 2016. Fortune magazine states that UPI is the biggest revolution that happened in India after its independence. It truly signifies the innovation that we Indians possess. Thanks to UPI, India has become the largest real-time payments market in the world.
Need of UPI?
Before the UPI era, credit cards were not mainstream and debit cards used a machine to swipe which was not affordable by ‘kirana’ stores of our country. Moreover, merchants had to pay 2% to Mastercard/Visa on digital transactions. This was a huge amount for small shopkeepers whose gross margin is relatively low. Cards getting stolen and duplicated were also a problem.
Even more, all the financial data and spending habit data of our citizens were going to the US just for free. A solution was required to stop this data breach and keep our data within the country. So, the Government of India took a bold step in launching UPI.
UPI is like your personal assistant that goes to the bank for you to make/receive payments, is available 24*7, and doesn’t charge anything to be your assistant. Cool right! I think so too.
How does UPI work?
To process a UPI transaction, the following organizations are involved:
PSP stands for Payment Service Provider. Payable PSPs are applications that allow customers to start/end transactions. These applications have replaced conventional banking applications and allow users to create UPI handles to perform or accept tasks.
2. National Payments Corporation of India (NPCI)
NPCI is a non-profit organization founded by the RBI and funded by various major banks. It serves as a reliable switch to connect banks with Payment Service Providers (PSPs). In line with VISA’s role in card payments, NPCI ensures that data flows between banks and payment systems are delivered to a secure and secure environment.
3. Issuing Bank (Sender Bank)
In the case of a UPI payment, the money is transferred from the issuer/sender bank account to the receiving bank account (seller/receiver). The issuing bank must deduct the money from the UPI application and send a debit response to the NPCI once the withdrawal has been successfully made.
4. Acquiring Bank (Recipient Bank)
The benefit of the beneficiary bank (receiver) is to borrow money at the request of the NPCI and send the credit response to the NPCI if the credit has been successfully made.
5. Paid PSP
This is the acquirer or payment gate used by the merchant in the case of P2M (Person To Seller) transactions.
Is UPI safe?
A user’s bank account can be used as a wallet with a simple two-factor authentication that eliminates the need to store funds in any other wallet. When you sign up for a UPI app, your phone sends you a push SMS to confirm your registration. (This prevents the OTP from being copied from another device.)
Push SMS connects your device to your phone number and must be redone every time you switch devices.) By forcing you to set a PIN for your transactions, UPI offers an added layer of protection.
To generate a PIN, you’ll need to enter your card information and confirm an OTP provided to your registered mobile number by your bank. You must enter your PIN for each transaction to be authorized. To make a transaction, you’ll need physical access to your phone. This basically means that your PIN is safe even if your phone is taken.
UPI apps as your digital wallet partner
As 50% of UPI operations are less than ₹ 200 at a high frequency, it creates significant volume backlogs that increase the failure rate and affect the stability of the entire payment network. To save computer banking power, UPI mobile applications will have to support the features of the wallet on the device as per the RBI directive from December 2021.
The built-in wallet will help pay the minimum amount quickly through the mobile app developer infrastructure, thereby reducing the burden on banks by deploying infrastructure, background, and resources.
Apps that facilitate the use of UPI
BHIM (Bharat Interface for money) is pioneered and developed by the National Payments Corporation of India (NPCI). It has been conceived and launched by the Hon’ble Prime Minister of India, Narendra Modi on 30th December 2016 to bring Financial Inclusion to the nation and a digitally empowered society.
Banks also have their own UPI like SBI pay of State Bank of India, HDFC Bank MobileBanking for HDFC bank. The other third-party apps include popular ones like Google Pay, PhonePe, Paytm, MobiKwik, Amazon Pay, and many more.
How is the UPI model profitable for the likes of Google Pay and Paytm?
1. Mobile Recharges
Mobile recharges are the primary source of UPI apps revenue. Whenever a user makes a recharge on a SIM operator from this app, it gets commissions from it.
2. Bill Payments
One of the most convenient and essential features of UPI apps, which makes them so popular among users, is that they can be used to pay all the different kinds of bills.
These bills include electricity bills, water bills, DTH recharges, postpaid bills, loan payments, and even various bank transactions. Whenever a user uses a UPI app to pay any such kind of bill or make a transaction of this sort, the app gets a commission from that company.
3. UPI Transactions
UPI Transactions constitute a significant component of online payments. They might not earn any revenue from it.
Still, it gains access to users’ data, which it then uses to present the services and suggestions on products that will perfectly capture their interest and thus increase their involvement with the app, growing its base further.
Global expansion of the quest of UPI
On 26 January 2022, UK-based fintech start-up Transact365 enabled UPI for global merchants with a real-time currency conversion facility that will help them do business in India independent of local presence.
Before that, it is already approved to be operated in Singapore. Bhutan has already adopted UPI. More than 10 countries are interested in making UPI their go-to solution for payments.
The advent of digitalization itself is a path-breaking innovation, and UPI is one such innovation that supports the digital ecosystem and contributes to the inclusion of the bottom of the pyramid into the financial system.
UPI even gives safe transactions to the individuals who hold PMJDY accounts. If these individuals will transact through these programming interphases, this will help their inclusion in the financial system and lead to economic development. All these were possible due to connected AADHAR cards with bank accounts and the mobile number of every individual. Due to those small steps by the government, UPI has received such overnight success.
From my perspective, even I was skeptical of the use of UPI platforms at first, but then lockdown happened. The ease and security I felt and the smoothness of the process made me a frequent UPI user. The lucrative offers and cashback act as icing on the cake furthermore. It truly symbolizes going cashless.
That’s all for now friends. Have any questions? Feel free to contact us and we will let you know.
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