The ABCD of Unified Payments Interface (UPI)
-By Priyasy Bokadia November 7, 2023 6 mins read

As of Sep'23, 492 banks are live on UPI which have contributed to 10,555.69 million transactions in Sep’23 worth 15,79,133.18 crore

UPI stands for "Unified Payments Interface." It is a real-time payment system that allows people to send and receive money using their smartphones with the help of a mobile app. UPI is widely used in India and has simplified the process of making digital payments and conducting financial transactions. It consolidates multiple bank accounts into a single mobile application, offered by participating banks. It seamlessly combines various banking functionalities, facilitating effortless fund transfers, merchant payments, and even "Peer to Peer" collect requests that can be scheduled and paid as needed.

This innovative system was introduced via a pilot launch involving 21 member banks, initiated on April 11, 2016, with Dr. Raghuram G Rajan, the Governor of RBI, inaugurating the event in Mumbai. Banks began uploading their UPI-enabled apps on the Google Play store starting from August 25, 2016.

What sets UPI apart?

  1. Real-time Payments: UPI enables real-time interbank transactions. When you initiate a payment using a UPI-enabled app, the money is transferred instantly from your bank account to the recipient's account, making it ideal for various financial transactions.

Mobile App-Based: To use UPI, you need a smartphone and a UPI-enabled mobile app provided by your bank or a third-party provider. These apps allow you to link your bank account and create a Virtual Payment Address (VPA) for easy identification and transaction initiation.

Virtual Payment Address (VPA): A VPA is a unique identifier associated with your bank account. It is user-friendly and replaces the need for sharing sensitive information like bank account numbers and IFSC codes. You can share your VPA to receive payments, which makes transactions more secure.

Multi-Bank Support: UPI is designed to work across multiple banks and financial institutions. This means you can use a UPI app from one bank to send money to a recipient with an account in a different bank.

24/7 Availability: UPI services are available 24/7, including weekends and holidays. This constant availability ensures that you can make payments whenever you need to, without being constrained by traditional banking hours.

Wide Range of Transactions: UPI supports various types of transactions, including person-to-person (P2P) transfers, bill payments, mobile recharges, online shopping, and more. You can also use it for in-store and online payments through QR codes.

Security Measures: UPI incorporates several security features, such as two-factor authentication, biometric verification, and UPI PIN. These measures ensure that your transactions are safe and that only authorized individuals can access your account.

Interoperability: UPI has been designed to be interoperable, which means that it can be used by different banks and payment service providers. This feature encourages competition and innovation, ultimately benefiting the end-users.

Government Backing: UPI is supported by the Government of India and regulated by the Reserve Bank of India (RBI). This backing has helped establish trust and encourage widespread adoption among the public.

Cashless and Contactless: UPI plays a significant role in India's drive towards a cashless economy. It has gained even more prominence with the rise of contactless payments and digital wallets, making it a preferred choice for many users.

Who are the Participants in a UPI transaction?

  • Payer PSP (Payment Service Provider): The entity initiating the payment.
  • Payee PSP (Payment Service Provider): The entity receiving the payment.
  • Remitter Bank: The bank of the person initiating the transaction.
  • Beneficiary Bank: The bank of the person receiving the transaction.
  • NPCI (National Payments Corporation of India): Regulator and facilitator of the UPI system.
  • Bank Account Holders: Individuals with bank accounts who use UPI for transactions.
  • Merchants: Businesses and service providers who accept payments through UPI.

Unified Payments Interface (UPI) has emerged as a transformative force in the world of digital payments and banking in India. Its ability to seamlessly integrate multiple bank accounts into a single mobile application, coupled with its 24/7 availability, strong security features, and versatility, has significantly simplified and enriched the way financial transactions are conducted. UPI's introduction has not only fostered financial inclusion but has also paved the way for a cashless and contactless economy in India.

With the support of the Indian government, regulatory bodies, and various financial institutions, UPI has gained widespread acceptance and is now an integral part of everyday life for millions of users. Its success is marked not only by its convenience but also by its role in reducing the dependency on physical currency, promoting transparency, and enhancing the efficiency of financial operations.

As UPI continues to evolve and expand, it promises to be a critical tool in shaping the future of digital payments and financial services, not only in India but in Japan, Singapore, UAE, France, the UK, and Japan and many more countries serving as a model for other countries seeking to modernize their financial systems. The UPI's impact has been profound, and its journey is a testament to the power of innovation and technology in enhancing the lives of individuals and businesses in an increasingly digitally interconnected world.