What is the first thought that comes to your mind when you hear the term ‘cashless’? Probably you would refer to use of tools such as Online Banking, E-wallets, credit and debit cards etc. Well if you are not a person who spends a lot of time getting his/her attention diverted to what is happening in the finance world. So, here we are to update you with this little modification in the finance world. A system announced by the National Payments Corporation of India (NPCI) along with the joint efforts of RBI governor Dr. Raghuram G. Rajan on 11th April 2016  known as UPI (Unified Payment Interface).

Now, it brings us to the question: What is this UPI? What is the government trying to prove with this new modification? It is a step which is towards the agenda of a ‘cashless’ future. Let us have a look at it.

What is UPI?

UPI Logo - Unified Payment Interface

UPI Logo – Unified Payment Interface

Unified Payment Interface i.e. UPI is a system designed to compile all the banking transactions into a single mobile application. It runs on the platform known as Immediate Payment Service (IMPS). It gives the allowance to a customer to transfer money between two parties. Not only this but also it allows the customer to pay directly online as well as offline without the issue of typing the credit card details., IFSC codes and Net Banking/ Wallet passwords. In this article we would uncover its uniqueness, effects on economy, its components, its participants and its future estimations along with other queries.

What are the Components of UPI?

The UPI is a system which has got basically two main components:

  1. Virtual Payment Address
  2. MPIN
  1. Virtual Payment Address:

UPI came up with this innovative idea of ‘Virtual Payment Address’ (which will look similar to this for example if a person is an account holder in HDFC bank then his address would be displayed as ‘razorpay@hdfc’ for e.g.).You need to provide your merchant this number and they may store this against your payment details. As a result, the confidentiality is maintained.

  1. MPIN:

In earlier days 2FA was used by the RBI. But the way of operating the online transactions has changed. A MPIN is given to a banking customer as they register for Mobile Banking support. Chances are you have one already, but you have never used it. Cards come up with flaws such as type on phones and transmitting the data can bring up security issues. UPI removes all of these issues.

The Participants of UPI

Further moving to the participants of the UPI it has got the following participants:

  1. Payer PSP
  2. Payee PSP
  3. Remitter Bank
  4. Beneficiary Bank
  5. NPCI
  6. Bank Account Holders
  7. Merchants

Many of you might not know what are PSP and NPCI. Let’s have a look.

What is PSP?

In current times, UPI provides all banks to be registered as a Payment Service Provider (PSP). This has a clear inference that they can run their bank accounts and further include the e-wallets too.

What is NPCI?

NPCI is the abbreviated form of National Payment Corporations of India. They run into a lot of the payment infrastructure of India, including the issue of RuPay Cards and also making sure that you can easily withdraw money from any of the ATM’s irrespective of the bank account you hold.

Also to remove further queries let us shower light on the part which is mostly asked consumer questions.

  • What is the Per Transaction Limit?

The per transaction limit in the UPI is INR 100,000.

  • What kinds of transactions are included in the UPI?

Merchant payments, remittances, bills payments alongside other transactions.

  • Which banks are included in the UPI?

The UPI has a tie up of 19 banks in India including Andhra Bank, Axis Bank, Bank of Maharashtra, Bhartiya Mahila Bank, Canara Bank, Catholic Syrain Bank, DCB Bank, Federal Bank, ICICI Bank, TJSB Sahakari Bank, Oriental Bank of Commerce, South Indian Bank and Yes Bank.

How does the UPI work?

  1. User downloads the application from the App Store, Banks Website.
  2. User creates his/her Profile by entering details like Name, Virtual ID (payment address), Password etc.
  3. User goes to the ‘Add/Link/Manage Bank Account’ options and links the bank account number with the virtual ID.
  4. User selects the bank account from which the transaction needs to be initiated.
  5. Then he clicks on the below options
    1. Mobile Banking Registration/Generate MPIN
    2. Change M-PIN
  6. Mobile Banking Registration/ Generate M-PIN:
    1. User receives a OTP from the issuer bank on his mobile number
    2. User provides with his/her 6 digit debit card number and expiry date
    3. Then the user provides the OTP along with his/her preferred numeric M-PIN and clicks on submit
  7. Change M-PIN:
    1. User submits the old M-PIN and preferred new M-Pin and clicks on submit.
    2. He/she receives a confirmation notification of success and failure.
This is how UPI works.

This is how UPI works.

Effects of UPI on the Indian Economy

Benefits for Banks:

  • Single click two factor authentication
  • Universal app for transaction
  • Leveraging existing infrastructure
  • Safer, secured and innovative
  • Payment basis single/unique identifier
  • Enable seamless merchant transactions

Benefits for End Customers:

  • Round the clock availability
  • Single application for accessing different bank accounts
  • Use of virtual ID is more secure, no credential sharing
  • Single click authentication
  • Raise complaint from mobile app directly.

Benefits for Merchants:

  • Seamless fund collection from customers- simple identifiers
  • No risk of storing customers’ virtual address like in cards
  • Tap customers not having debit/credit cards
  • Suitable for e-commerce and m- commerce transactions
  • Resolves the COD collection problem
  • Single click 2FA facility to the customer seamless PULL
  • In app payments (IAP)

Apart from all of this let us look at what is the thing that is making the UPI so unique in its own way.

USP’s of UPI

  • Immediate money transfer through mobile device around the clock 24*7 and 365 days
  • Single mobile application for accessing different bank accounts
  • Single click 2 factor authentication- aligned with the regulatory guidelines, yet provides for a very strong feature of seamless single click payment.
  • Virtual address of a customer for PULL and PUSH provides incremental security with the customer not required to enter the details such as Card No, Account number, IFSC etc.
  • Bill sharing with friends
  • Best answer for COD issues, running into the ATM and getting the same amount out of the ATM
  • Merchant payment with single application or In-app payments
  • Scheduling PULL and PUSH payments for various purposes
  • Utility Bill Payments, over the counter payments, Barcode (scan and based) Payments
  • Donations, Collections, Disbursements Scalable
  • Raising complaint from mobile app directly

Now, we have got a deeper picture of what is UPI all about and what is the working for now let’s estimate about its success in future. On hearing about the future the first question that comes into our mind is:

What will happen to the mobile wallets?

For now, wallets are not included in the UPI at all which means it is just a cross bank transfer medium. Hopefully, a lot of merchants will start accepting payments through UPI instead of using the wallets we currently have. Also, the big players like PayTM won’t have any affects but the minor players in the market can face issues players like Freecharge, Mobikwick, Oxigen and Citrus Pay.

The other effects in the future that can be estimated are as follows:

The public sector banks are likely to face the trouble as they are not adaptive to the new technologies emerging in the market of digital payment portals.

The study of Boston Consulting Group and Google shows that the total digital payments in India are about to rise in the near future about a factor of 10 by 2020 and also by 2023 it is estimated the digital transactions will overtake the cash transactions.

Cashless Econmies Around the World

Cashless Econmies Around the World

It also gives us the insight on the number of wallet users have surpassed the number of online banking users. Also it shows, the number of wallet users is three times the number of credit card users.

Most people would be awaited to look at the opportunities presented by the bank as the small business will find it difficult to obtain a credit card but for them borrowing a loan will be made easier.

As the transactions are digitally recorded the chances are people won’t be able to hide money resulting into the ample amount of tax collections. This will further drop down the rates of the taxes in the future.

It will also change the mindset of the people towards the risk and investments

According to RBI, the 18% of country’s GDP is cash flow in the economy, so for the UPI to turn into success the main focus should be the mobile penetration in the economy.

Still it is a benchmark for the economy and many more to achieve.