Unified Payment Interface (UPI)

In the second week of April 2016, RBI Governor launched the Unified Payments Interface (UPI) developed by National Payments Corporation of India (NPCI). It is a payment system that allows easy, quick and hassle free money transfer between any two parties.

Basic Questions – How it works?

What is UPI?

UPI is a payment system much like the existing NEFT, RTGS, IMPS etc. but it is far more sophisticated and standardized across the banks. Technically, UPI is a standard set of APIs {Application programming interface}.

We already have NEFT, RTGS, IMPS etc. What is different in UPI?

UPI allows us to pay directly from bank account to different merchants without putting details of card details, net banking, IFSC code, wallet password etc. Since, it is standardized across banks, the transaction is hassle free. The transactions which can be done using UPI include Merchant payments, remittances, bill payments and so on.

How one can use UPI?

A user with android phone can download the UPI app of Indian Banks {more than 20 banks have launched or are launching UPI app} from Google Play store. Once downloaded and installed, the user has to set app login, create a virtual address, add the bank account, set an M-Pin, and start using UPI. Currently, per transaction limit is Rs.1 lakh.

Is UPI Safe?

Yes. UPI is safe because customers share a virtual address and no other sensitive information is provided.

What is Virtual Address?

The virtual address seems to be the most innovative idea of the UPI. Up till now, we use to make payment using debit card details such as number, expiry date, cvv code etc. Typing these on mobile is a problem and to solve this problem UPI brings the idea of virtual address which looks something like this: “gktoday@idbi”. There is no need of any other details.

Important Facts

• In NEFT, money transfers are done through electronic messages. The process consumes more than an hour and can be carried out only during the bank’s working hours. The bank details of both the sender and the beneficiary are linked using branch name of the bank and IFSC code. The payer’s bank sends an electronic message to its NEFT service centre which is pooled every hour. These messages are then sent to the RBI from the bank’s NEFT centre. Subsequently, RBI initiates the transfer of money.
• In RTGS, transfer of funds is carried out on one-to-one basis. Here also, the process is carried out only during the working hours of the bank. This method is used for carrying out large value transactions, typically over Rs. 2 lakhs.
• In IMPS, a 7-digit Mobile Money Identifier (MMID) Code is provided to the user. This method of payment can be done round-the-clock. In this, the sender specifies the MMID code while initiating payment to the registered mobile number of the beneficiary through mobile banking. This service is currently offered free of cost.
• UPI can be called an improved version of IMPS. With the launch of UPI, NPCI joins an illustrious list of state-promoted initiatives like NSE, NSDL and UIDAI which are revolutionary and showcased India’s tech talent and ability to find solution for trruly large problems.

Questions for Analysis

• What are the salient features of UPI? How it is advantageous over existing payment systems?
• Technology is changing the way people transact and do banking operations in India. How is the scenario in India?

What are the features of UPI?

The state-owned NPCI has come up with this revolutionary payments concept similar to the revolutionary change it brought to the card business with its RuPay. UPI is both interoperable and fully mobile.

The UPI is an improved version of IMPS. It just requires a bank account and a Smartphone. A user is provided with a unique ‘virtual address’ after registering for UPI with the bank. This virtual address is mapped to the user’s Smartphone. UPI works on a single-click 2-factor authentication. To initiate the payment, UPI invokes this virtual identity of the beneficiary. For example, if a user wants to make payment to the grocery store, he can simply tell his virtual identity to the cashier. After which the cashier generates an invoice through UPI. Once the user approves it using his mobile phone, the payment will be made.

UPI allows customers to have multiple virtual addresses for multiple accounts in various banks. The account number mapper is not made available anywhere other than the customer’s own bank. This helps to ensure the privacy of the customer’s data. This also facilitates free sharing of the financial address with others. A customer has also the flexibility of using the mobile number or Aadhaar number as the name instead of the short name for the virtual address.

Advantages

Unlike other payment methods like RTGS and NEFT, the money transfer takes place in real time. Unlike all these payment methods which require users to input lots of details like the IFSC code, credit card number, expiry date and CVV, UPI simply makes use of a unique number. Also, UPI allows users to create a different UPI addresses for different people like one for a grocery store and another for an e-commerce company etc. It is expected that the UPI can also potentially eliminate the need for maintaining a mobile wallet, as this ‘virtual address’ offered by UPI is not only limited to individuals.

Technology is changing the way people transact and do banking operations in India. How is the scenario in India?

The spread of internet banking and mobile wallets have done wonders for India’s digital payments economy. The emerging key segments in Indian Fin-tech landscape include transaction gateways and platforms, online/ mobile wallet, ATM & POS services, remittance and cash cards. With the increasing internet penetration in the country, digital wallet services have come in to prominence. Also, the proliferation of the connected devices like the smartphones has led to the growth of the fintech sector. It has been found out that in FY 15, there were more transactions on non-bank digital wallets (255mn transactions) than on mobile banking transactions (172mn). These figures are set to grow exponentially.

In an report titled, “Indian Fin-tech Products—Innovation Driving Growth” by National Association of Software and Services Companies (Nasscom), it has been found that India has quickly emerged as a fintech products hub with a presence of around 400 companies in the fintech space, all of which have grabbed investments to the tune of about $420 million in 2015. However, Data analytics company Traxcn puts a different number and claims that the investment in fintech had touched $1.2 billion in FY15. The Nasscom report also points out that the total fintech software and services market is expected to be in the order of $8 billion and pegged its growth to 1.7X by 2020.

In 2015, apart from Paytm (the mobile wallet company) Bank Bazaar, MobiKwik Fintellix, Itzcash etc., are the other prominent fintech companies that have raised significant amount of funding.