Conventional payment methods like IMPS, NEFT, or RTGS may be unsuitable in this fast-paced world due to disadvantages like payment delays and technical glitches. But UPI is truly a game-changer as it allows making real-time payments, receiving money instantly, and authorising transactions - all in just a matter of seconds.
UPI stands for Unified Payments Interface, a platform that has simplified and enhanced end-to-end payment experience through quick and seamless money transfer. Let's learn all about what is UPI, how unified payment interface works, and why this technology is here to stay.
What is UPI?
The National Payments Corporation of India (NPCI) created the Unified Payment Interface (UPI), a real-time payment system, that enables users to quickly move money from one bank account to another using their smartphones. UPI replaces traditional payment methods like cheques, cards and online banking, and allows instant money transfer. It is a unified platform that not only allows sending and receiving money with a unique UPI ID or number but also enables securely managing multiple bank accounts on a single application.
How UPI Works?
A Unified Payment Interface allows bringing together multiple bank accounts into a single mobile application making fund transfer easier for both consumers and businesses. It uses the PUSH and PULL mechanism to:
- Send Money - The users choose the Pay or Send option while using an app that supports UPI. They select the bank account or wallet from which the funds would be debited after providing the receiver's mobile number or UPI ID. After entering the transfer amount, the user is prompted to enter the UPI pin to finalise the transfer. The transaction request is then sent to the PSP of their choice.
- Receive Money - The receivers choose this option to request money from a sender after logging into their UPI-enabled app. The payer chooses the bank account to which they want the funds to be transferred to after entering the amount and Virtual Payment Address (VPA). The payer receives a money request message to which they must reply with their UPI PIN to approve the transaction request.
Features of UPI
Here are the primary features of UPI:
- Real-time money transfers between bank accounts are made possible with UPI, guaranteeing speedy and easy transactions
- Users may conduct transactions at any time as UPI services are available 24/7
- UPI is a unified platform that lets users bring together and manage several bank accounts from different banks on a single app
- It gets rid of the need to provide bank account information with every transaction; to securely send and accept payments, users must generate a unique UPI ID which is just like an email address
- Numerous types of transactions are made possible with UPI, such as cash-on-delivery transactions, payments to merchants, bill payments, and person-to-person transfers
- UPI also has a 'scan and pay' feature that allows users to scan the unique QR code of the receiver and make payments instantly
Benefits of UPI
UPI offers some brilliant benefits for both customers and merchants. Let’s have a look.
For Customers:
- Increased Customer Convenience - Customers may pay using UPI straight from their bank accounts, doing away with the need for cash or credit cards. This is a great way to improve customers’ payment experience. Moreover, UPI payments are accepted by a huge number of online and offline merchants, including utility providers, e-commerce businesses, retail stores, etc., making UPIs more popular among users.
- Secured Transactions - UPI encrypts data and also uses multi-factor authentication to safeguard financial information, reduce the risk of fraud, and build trust.
- Access to Transaction Data - Customers get real-time notifications for successful transactions. They can also view transaction history to keep track of expenses.
For Merchants:
- Faster Settlement - Merchants can receive payments promptly due to UPI's facilitation of real-time transactions. In addition to reducing settlement times, this enhances cash flow.
- Cost-Effectiveness - Compared to conventional payment options like credit cards, UPI transactions usually have cheaper transaction rates. This reduces transaction costs for retailers, particularly in cases of large transaction volume.
- Wide Customer Reach - A vast consumer base can utilise UPI because it is accepted by several banks and service providers. By attracting clients from several banks, merchants may access a wider market.
- Enhanced Business Insights - Merchants may analyse client behaviour, monitor sales trends, and make well-informed business choices by utilising the detailed transaction data that UPI transactions give.
UPI Payment Rules
The UPI transaction limit for regular UPI transactions is INR 1 lakh per day according to NPCI. Moreover, NPCI permits up to 20 UPI transactions per day. The maximum UPI daily transfer limit might range from INR 25,000 to INR 1 lakh, depending on the bank.
What Makes UPI Unique?
UPI simplifies the payment ecosystem and removes time limits for both people and enterprises, in contrast to conventional techniques like RTGS or NEFT. With several encryption layers and a highly secure layered design, it guarantees the security and integrity of data while conducting transactions.
The UPI Transaction Flow
PUSH - Streamlined Payment Initiation and Authorisation
Here's how unified payment interface works when initiating payment:
Phase 1: Transaction Initiation and Authorisation
The customer begins by providing the recipient's details and transfer amount. The UPI-enabled app forwards the transaction request to the chosen PSP which then routes the request to the NPCI to oversee the transaction. The sender's bank verifies the balance, customer credentials, and transaction's authenticity. If all information is correctly verified, the bank generates a digital signature for information security.
Phase 2: Verification and Fund Transfer
In phase two, the PSP shares the sender's bank details with the UPI system. The account balance and fund availability are then checked by NPCI before triggering fund deduction. The UPI server sends a notification as soon as the funds are transferred to the receiver's account.
PULL - Controlled Payment Requests and Execution
In the Pull transactions, the recipient requests payments. Here's the process -
Phase 1: Transaction Initiation and Payment Message Flow
As soon as the recipient generates a payment request, it flows to the NPCI signalling the intention to pull funds.
Phase 2: Transaction Flow between Banks
The payment request reaches the receiver's bank and is then forwarded to the sender's bank. The debtor's bank verifies the request as well as the available balance. The payment goes through if the bank approves the requested transaction based on the fund's availability.
Different Ways to Transfer Funds via UPI
You can send money using UPI in multiple ways:
- Contact or Mobile Number - You can input the transfer amount, your PIN, and either a contact from your phonebook or a cell number to make a transfer.
- UPI ID - The sender can enter the receiver's UPI ID, also known as Virtual Payment Address (VPA), to transfer funds. A VPA is a unique identifier to track bank accounts.
- QR Code - You can transfer money via UPI by scanning the receiver's QR code. Every user is given a unique QR code to accept payments.
- Account Number & IFSC Code - This is the standard payment mechanism that UPI accepts as well. You can provide the recipient's account number and IFSC to initiate a transaction
How to Use UPI on Freo?
Here are the simple steps to use UPI on Freo:
- Select the Scan and Pay option either from the payments page or the home screen.
- Enter the desired transfer amount.
- Enter the OTP that you received on your registered cell phone number.
- To maintain a safe and secure transaction experience, keep your UPI PIN confidential and use caution while handling your financial and personal information.
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FAQs
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Who regulates UPI?
UPI was created by the National Payments Corporation of India (NPCI), which also oversees it. The Reserve Bank of India controls UPI.
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What if I enter the incorrect UPI-PIN when making a transaction?
If you input the wrong UPI PIN, the transaction will be unsuccessful. If you keep entering the wrong UPI PIN, your bank may temporarily block you from using UPI to transfer money.
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What should I do if I forget my UPI PIN?
You must reset your UPI PIN using the last six digits of your debit card and the expiration date.
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Is UPI safe?
UPI is secure as it is based on two-factor authentication. The Reserve Bank of India is in charge of overseeing UPI regulation to prevent fraud and conduct transactions only between authorized banks. In addition, every UPI transaction is secured by a unique MPIN that is known only to the sender.
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Are UPI ID and UPI PIN the same?
No, the UPI ID and PIN are not the same. Payees must have access to your virtual payment address, or UPI ID for them to be able to send funds to your account. On the other hand, a UPI PIN is like a password to authenticate payments from your account.
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What is VPA in UPI?
A Virtual Payment Address (VPA) is a special code that aids in account tracking for UPI users. In essence, it enables identification regardless of your bank account number or other information.
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What is UPI PIN or mPIN?
The mPIN is a password of four to six digits which is required to transmit money over UPI, just as the ATM PIN.
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Is UPI free?
Yes, UPI is now free, but according to certain media sources, it could eventually cost a fee. The fee is anticipated to be around INR 0.5 for each transaction.
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What is the daily UPI transaction limit?
A person can conduct up to 20 fund transfer transactions per day using UPI, which has a daily transaction limit of INR 2 lakhs. Bill payments, collect requests and merchant transactions are not included in this cap.
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Can I link my UPI ID with multiple accounts?
Yes, If the bank or provider permits it, you may link your UPI ID to several bank accounts using the UPI app.
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Can I send money to someone who is not registered with UPI?
Yes, the recipient's bank account number, IFSC code, and name are among the essential data you must submit in order to send money to someone who is not registered on a unified payment interface.
