Unified Payment Interface (UPI): A Digital Banking Catalyst
Unified Payment Interface (UPI) is an outstanding payment system that has evolved as the backbone of digital banking in India. UPI allows the user to transfer funds money from his account to that of the payee in a flash by providing the identification code of the recipient and a PIN. It also supports receipt. The Unified Payment Interface works in a smartphone and binds together multiple bank accounts to a simple and easy to use mobile application. While using the exceptional interface, the user need not provide details of own accounts or that or that of the beneficiary. The UPI has become the critical component of digital payments, thereby promoting digital banking among the population. It promotes cashless transactions by reducing dependency on physical cash.
The real time payment system UPI is designed and developed by National Payments Corporation of India (NPCI). It facilitates instant inter-bank fund transfers. NPCI is an organization created by Reserve Bank of India (RBI), the banking regulator in India, for designing and promoting indigenous infrastructure for promotion of retail digital payments in a cost effective manner. NPCI is behind other systems and applications like Rupay cards, UPI, IMPS system, BHIM App etc that redefined banking in India and propelled the digital banking journey of the country. Payments utilizing Unified Payment Interface is regulated by the Reserve Bank of India. The pilot UPI system was launched on April 11, 2016. Presently, nearly 100 banks in India are utilizing the UPI system for satisfying digital banking requirement of their customers.
Unified Payments Interface – Crowd puller towards digital banking in India
UPI employs systems such as Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS) to transfer amounts between accounts maintained with different banks/ same bank. Push (pay) and pull (receive) modes or barcode based payment method are used for financial transactions. The interface can be utilized for both one time payments and recurring payments. UPI based mobile applications succeeded in converting even new digital banking users to ardent followers of digital payments by simplifying utility bill payments, mobile phone recharging, movie ticket booking and easy merchant payment modes. Through the hassle-free transactions, UPI has promoted cashless digital transactions and financial inclusion.
Initially, an account identifier has to be established through a simple process. Customer of a bank can download the UPI app of any bank. He must perform a simple registration process. During registration, a unique virtual ID is created. Once this process is over, the UPI system allows mobile based digital transactions to be carried out instantly. The UPI based application need not be linked to credit or debit cards or net banking. Only the account identifier (virtual id) needs to be provided and the beneficiary need not even provide his account number and other bank details. The UPI application identifies the underlying account details from the virtual ID and effects the digital banking transaction. In an era of bank frauds, this ensures greater safety and security for sensitive account information.
Comparisons of digital banking modes, UPI and mobile wallet
UPI and mobile wallets are two important components of digital banking. A mobile wallet is normally a closed wallet. This means, for a transaction to happen between two parties, both should be registered with the same wallet service provider. But UPI frees the users from this dependency. It is not mandatory that the beneficiary should maintain account with the same bank as that of payer. Further, the user can use the UPI based application promoted by any bank. It need not be the one promoted by his own bank. Thus, the customer can down load the most simple and user friendly UPI based application for his digital banking transactions. UPI dismantles the barriers among banks. However, it may be noted that RBI is examining the possibility of allowing inter- wallet operations.
Benefits of UPI based digital banking application
The advantages of UPI based digital banking applications are:
i. The payee need not disclose his account details to the payer.
ii. UPI based digital banking technology is an indigenous one and hence cost of transaction is less
iii. Payments can be initiated by the payee or payer.
iv. It is a simple digital payment system and ensures secure transaction without card or net banking
Digital banking transactions supported by UPI applications
For carrying out any transaction through the UPI based application, the customer must log in to the UPI based application first by providing the log in credentials. Paying money (push/ payment option) to a beneficiary can be carried out by entering the beneficiary’s virtual ID and amount and by authenticating the transaction through personal identification number (PIN). For collecting amount, the user must initiate receive payment (pull / receive option) and enter the virtual ID of the remitter and amount. On authentication, a message will be received by the payer. On approval of the transaction by payee, his account will be debited and the amount will be transferred to the account of recipients. Both payee and payer will receive confirmations messages in all types of transactions.
Other digital banking transaction modes supported by UPI
UPI supports transaction based on account number and IFSC codes too. Those who have not registered for UPI app or virtual ID can receive funds by sharing following details.
Mobile number: Remit or receive money from/to bank account mapped using mobile number.
Account number & IFSC: Transfer money to the bank account of payee.
Aadhaar: Transfer money to bank account of payee linked to his Aadhaar number.
QR code: Transfer money to payee by reading QR code with payee. QR code contains virtual ID, Account number and IFSC or Mobile number of payee
