The Unified Payment Interface (UPI) was introduced in India in 2016. This system is set to change the way we transact money.

Money is important to everybody, but in recent times, it has become vital to our very existence. Rising living costs and an economy not yet performing to its full potential combine to rob most of us of a large chunk of our income every year. Add to that the fear of another demonetisation ever taking place again, and people are sceptical about keeping a large amount of funds at home as well.

The solution lies in going cashless as much as possible. And it is easy to do as well – the use of credit and debit cards has shot up manifold since demonetisation was announced on November 8, 2016. Today, though some people have reverted to their old spending habits using cash as the main component, many others have smoothly made the switch to plastic money.

The Government and the RBI are also urging customers to go cashless as much as possible. Ably supporting this directive is the introduction of the UPI system in the country – it is aimed at making the economy cashless, stronger and more resilient than ever before.

What is the UPI system?

UPI[1] is an abbreviation for ‘Unified Payment Interface’. The Government of India launched the system in 2016[2]. UPI is meant to be a payment system that is designed to facilitate the transfer of monies between two bank accounts – whether they are same bank or different bank accounts – only with the use of a smartphone. The advantage is that advanced UPI systems also work offline, i.e. when there is no Internet connection. Thus, it differs from the usual payment transfers systems such as NEFT (National Electronic Funds Transfer).[3] UPI can be used both for sending and receiving money.

This is how it works: the UPI payment app is available for free download from Google Play Store. Once you have the app on your phone, you have to set it up and start using it. You can use the UPI app to pay different merchants and contacts on your phone, whether they are online or offline.

If you are wondering how this is different from your usual mode of money transfers and payments, get this: UPI does not need the beneficiary account details, IFSC, account name, etc. The UPI system works on a ‘unique identifier’ principle per customer, and uses IMPS (Immediate Payments Service) to transfer money at any time of the day or night. The usual bank transfers using NEFT require the beneficiary’s account details, but the UPI system does not. Thus, money can be transferred at absolutely any time using just the phone contact.

Setting up the UPI on your phone

For starters, your bank must be UPI-enabled; the best banks in India already are, and many more are joining the list. Your bank will have its own UPI payment app, which you can download and set up, thus:

  • Set up the log-in for the app
  • Create a virtual address. You cannot change this address at a later date. It is normally your email ID.
  • Now add your bank account number – this is linked to your virtual address.
  • Set the M-PIN.
  • Start using the app.

Some features about UPI payment apps to know

  • You can effect money transfers using two modes or addresses – Global or Local. Under Global address, you can add your mobile number, bank account number and Aadhaar number. It is a more comprehensive identification system, however, if your phone falls into the wrong hands, your bank account may be compromised. On the other hand, the Local address is only the virtual address that is used while setting up the UPI payment app. It is decided by the bank and is usually the user’s email ID.
  • The Local address is more secure than the Global one because the user does not disclose any information other than the email ID. The transaction is completed after authenticating with your password.
  • UPI payments may soon eliminate the need to have third party mobile wallets. As of now, the system has been extended to Indian banks only, and not private mobile wallet companies.
  • UPI payments are also more secure and involve less steps than payment gateways.
  • UPI payments are also much cheaper – most banks charge 50 Paise per transaction, instead of Rs 2.5 by NEFT and Rs 5 by IMPS.
  • You can add many bank accounts (from same bank or different banks) on the same UPI payment app.
  • You are free to use the UPI app of any bank, not necessarily the one promoted by your bank.

Keywords: UPI, UPI payment App




By Kar

Dr. Kar works in the interface of digital transformation and data science. Professionally a professor in one of the top B-Schools of Asia and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a regular contributor of Business Fundas and a frequent author in research platforms. He is widely cited as a researcher. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.

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