Everything you need to know about Unified Payment Interface (UPI).
The Unified Payment Interface is a smartphone-based, real-time interbank payment system capable of transforming and universalizing digital payments. It is a new age payment system that was established in India. UPI has been significant and proved better in terms of cost, settlement times, ease of use for consumers, and security (Gochhwal, 2017). The idea of UPI was so unique and revolutionary that within 12 months of its launch, more than 20 million users had downloaded various UPI based applications (Gochhwal, 2017). This helped not only the consumers but also multiple startups and financial institutions to grow in this newly established market.
The working of the Unified Payment interface can be shown below –
Step 1 — The payee initiates the transaction by inputting the virtual address of the payer and the transaction amount to be collected.
Step 2 –The Payer PSP (payment service provider) captures the virtual address of the payer while communicating with NPCI-UPI and providing NPCI-UPI with bank details of the payee
Step 3 — The NPCI-UPI will check the Virtual address and sends the transaction to the respective Payee PSP.
Step 4 — After successful authentication, the payee PSP provides NPCI-UPI with bank details of the payer for settlement.
Step 5 — NPCI-UPI will send a request to the remitting bank to debit the payer’s account
Step 6 — The remitting bank will send the response to the UPI, confirming that the payer account is debited.
Step 7 — NPCI-UPI will then send a request to the beneficiary bank to credit the payee’s account.
Step 8 — The beneficiary bank will send a response to UPI confirming the credit.
Step 9 — The UPI will forward a credit response to the payee’s PSP
Step 10 — The payee’s PSP will confirm to the payee that his/her account is credited, and the transaction is completed, followed by a notification to both the payee and the payer.
The benefits of the UPI is summarized as follows (Hota, 2016)-
i. Benefits for member banks
a. Single click two-factor authentication
b. Universal app for transactions
c. Leverages existing infrastructure of the banks
d. Use of Government body (NPCI) to securely capture credentials for enhanced security
e. Payment basis is uniquely identified
ii. Benefits for the end-user
a. 24/7 availability of service
b. Single app for accessing multiple bank accounts
c. Use of virtual ID for more protection since there is no credential sharing from the user side
d. Single click authentication
e. Instant gratification
iii. Benefits for merchants
a. Seamless fund collection from customers — unique identifiers
b. No risk of storing customers’ virtual address
c. Tap customers without credit/debit cards
d. Suitable for eCommerce and mobile commerce
e. In-app payments (IAP)
UPI has followed the footsteps of the world in adopting a real-time retail payment system for both credit and debit. UPI can be compared to similar technologies like Fast and secure transfer (FAST) in Singapore and the Faster payment system in the United Kingdom. UPI is unique because it leverages the growing usage of smartphones and inter-operability across the banking system at a national level for 24/7 real-time ‘collect’ and ‘pay’ service (Hota, 2016).
UPI has enabled Bank account holders to send and receive money from their smartphones with a single identifier like mobile number, virtual payment address or QR code without entering the bank account details (Thomas & Chatterjee, 2017). This is quite in contrast with IBAN, which is currently used in Europe.
The Ecosystem of UPI is supported by three key players (Thomas & Chatterjee, 2017)–
i. Payment Service Providers — They provide the interface between the payer and the payee.
ii. Banks — They provide the underlying accounts for the payer and the payee
iii. NPCI (A government body) — They act as a central switch to determine the virtual payment address affecting the credit and debit transactions
This enables everyone in the ecosystem to be a part of user transactions. This kind of ecosystem helps financial businesses, banks, and is looked after by the government body as well.
One of the best benefits of using UPI is that it has made digital transactions for individuals as easy as sending emails or text messages. The service is available 24x7, it is not like the traditional methods wherein transactions do not occur during holidays or non-banking hours (Kakade & Veshne, 2017).
Some of the critical objectives of UPI are as follows (Kakade & Veshne, 2017) –
i. Instant payments by means of smartphones and the web.
ii. Easy, secure and convenient payment service to both sender and receiver
iii. It has allowed banks and other players to innovate and offer a superior customer experience to make electronic payments more secure and convenient. Hence, it’s a win-win situation for everyone involved in the UPI ecosystem.
iv. It supports the growth of E-commerce and other businesses involved in it.
v. Virtual payment addresses, one-click 2-factor authentication, use of payer’s smartphone for secure credential capture, etc. are some of the core features.
REFERENCES
Gochhwal, R., 2017. Unified Payment Interface — An Advancement in Payment Systems. American Journal of Industrial and Business Management , 7(10).
Hota, A. P., 2016. Unified Payments Interface in India: Revolution in the making. Journal of Payments Strategy & Systems , 10(3), pp. 279–284.
Thomas, R. & Chatterjee, D. A., 2017. Unified Payment Interface (UPI): A Catalyst Tool Supporting. International Journal of Innovative Research and Advanced Studies (IJIRAS), 4(2).
Kakade, R. & Veshne, P. N., 2017. UNIFIED PAYMENT INTERFACE (UPI) — A WAY TOWARDS CASHLESS. International Research Journal of Engineering and Technology (IRJET), 4(11).
