UPI – A Step Towards Improved Payments System, A Giant Leap Towards Cashless Economy

Money CAN buy one happiness. In fact it does more often than anything else these days. Unless of course there is a major change of denominations. But since time immemorial money has been the sole motivator of our improved existence as human beings. Discoveries, inventions, innovations fuelled, helped or are motivated by money, majorly. Whole economies depend on simple, efficient ways of transfer of currencies in exchange of materialistic and significant services and objects.

And right from the pre-historic barter system to the new age mobile wallets, payment systems have attracted significant innovators. Right here in India the newest entrant in this space is the UPI (Unified Payments Interface) enabled payment systems. UPI is aimed at moving towards making India a cashless economy by leveraging the growing mobile and network penetration in the country.

What is UPI ?

UPI or Unified Payments Interface is a payments system put into place by the National Payments Corporation of India (NPCI). It allows for a simple, efficient and secure transfer of money between any two bank accounts in the country. In layman terms, just for the sake of simplicity, it’s an additional option to transfer funds in addition to Credit/Debit cards, Cash on Delivery and mobile wallets.

UPI is unique in its USP of having all banks unified at one platform i.e. interconnected. This means that one does not need to have specific bank apps to initiate transaction. Any third party app which supports UPI can do the trick. UPI is based on the underlying architecture of IMPS. Thus, all rules governing IMPS transactions apply to UPI too.

How is this better than the existing methods of payment ?

Existing methods of online fund transfers include NEFT, RTGS, IMPS and various mobile wallets.  However, all of these have certain constraints. A few of them get addressed by UPI enabled systems. Transferring funds via NEFT, RTGS or IMPS involves delays owing to the tedious, critical and an error prone process of adding the beneficiary details before a transfer can be initiated.

NEFT in particular involves time constraints as the transactions can be initiated only between a particular period of time during the day. Also, it does not work on public holidays. RTGS, IMPS, although instant and real time, have to go through the same beneficiary addition process. Mobile wallets, albeit much more convenient, have to work under monthly limit of Rs. 10,000.

UPI resolves these issues and a lot more. Here, each beneficiary is identified by a unique ID, which could either be one’s mobile number or VPA (Virtual Payments Address). The sender does not have to worry about the recipient’s bank details as those are mapped with each unique ID during the registration process itself. This directly cancels the delays associated with each transaction. Let’s not even debate on the hassle of dealing with cash staring at each other’s face for who needs to produce the required change.

Additionally, this method provides an additional layer of security since as a recipient you don’t have to share critical details like bank account no, IFSC code etc. All you need to provide is the VPA or the mobile no. mapped to your bank account.

The Process

During registration, the app verifies you mobile number. The user then needs to select his/her bank (not all banks are live with UPI yet). The beauty of UPI is demonstrated here. The moment you select your bank, your account details associated with the mobile no. are automatically fetched. This is because all banks are now interconnected via the UPI architecture.

Next, each user selects what is called the Virtual Payment Address (VPA) of the form of name@bankname (harrypotter@gringotts). Select a password to authorise each transaction (as the final defense) and voila!  you’re done.

Supporting Applications

PhonePe by Flipkart, Pockets by ICICI, Chillr are some android apps with good, seamless user flows that support UPI. Also almost each bank has a dedicated UPI enabled app too. Now since all banks are interconnected, all you need is one third-party app and it will work with all bank accounts (banks that are live with UPI of course).

Also, currently UPI based apps are available only for Android phones as of now. iPhone users will have to wait a while.

As we can see we are one step closer to being a cashless economy with this particular innovation. Embracing technology to simplify a complex architecture of banking. UPI based systems provide easier, faster, more secure, hassle free and one touch payment options, independent of bank. An obvious argument favouring the use of app based banking is the recent decision of currency demonetisation in the country. 


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