India has made significant strides in strengthening its technological capabilities, which has contributed to its remarkable growth. One groundbreaking example is UPI, a revolutionizing technology that has transformed the way millions of Indians transfer cash seamlessly. Whether making merchant payments or transferring funds to your peers, UPI allows you to carry out these transactions instantly.
In this blog, we’ll explain the UPI meaning, its benefits, and how it works. Let’s dive right in.
What is UPI?
UPI is a new-age payment system introduced in 2016 by the National Payments Corporation of India (NPCI). UPI ID’s full form is the United Payments Interface. It simplifies payments by allowing users to link their bank accounts to a mobile application.
Since its inception, it has created an impressive user base with over 260 million users using its systems. Because of its popularity and ease of use, UPI accounted for 52% of India’s total digital transactions in FY22, and this number is only expected to rise to a whopping 90% by 2026-2027.
So what makes UPI such a rage? The myriad of benefits it offers.
Benefits of UPI
#1 Instant, real-time transactions
Traditional digital payment methods like IMPS and Mobile Banking offer the convenience of online payments. However, they are not as fast as UPI, as it takes time for the money to reflect in the receiver’s account. With UPI, the funds get reflected in seconds. This real-time transaction makes it easier to process money without checking bank statements constantly or waiting for hours to receive the payment.
#2 Use multiple lender accounts from one single place
Most lenders have their own mobile apps and internet banking systems to facilitate payments. This means if you have bank accounts with more than one lender, you will have to use multiple applications to access them for payments. UPI eliminates this hassle by allowing you to use multiple lender accounts at the same time. You can choose the lender accounts at the time of registration and link them to the system. This way, every time you want to transfer funds or make payments, you can select the account you wish to use.
#3 Hassle-free payments
Digital payment options like net banking often ask you to enter details like the recipient’s name, bank account number, IFSC code, etc. But with UPI, all you need is the UPI ID or linked phone number of the recipient to transfer the funds. Many merchants also facilitate OR code-based payments, eliminating the need to enter any detail. This helps you save time by sending money faster and avoid mistakes by entering incorrect information.
#4 Rewards for using UPI
Many UPI applications incentivize users to use their services. This is through rewards such as gift coupons or cashback offers after making payments of certain amounts. These perks make your transactions more rewarding and allow you to save more on other payments.
#5 Privacy protection
UPI has strict security measures in place to ensure safe transactions. This includes regular security audits, safe storage of user data, and compliance with regulatory guidelines. Additionally, two-factor authentication methods like UPI PIN, pattern lock, and biometric recognition increase the platform's security, preventing fraud and unauthorized access.
How does UPI work?
UPI is only a medium of exchange. Before understanding how it works, you must understand its key requirements. This includes:
-A smartphone
-An active lender account (s)
-The mobile number linked to the lender account(s)
There are different participants involved in facilitating UPI. They are:
1. Payer app/PSP
These are the applications that support UPI. PSP is short for a payment service provider. These applications support various lender accounts and allow users to transact using UPI IDs.
2. National payments corporation of India (NPCI)
NPCI is the bridge between the PSPs and the lenders. It ensures data between the two parties is sent accurately and to the right destinations.
3. Issuing lender
This is the user who uses the lender account to make payments. Here, NPCI sends the request to the lender to debit money. Once the money is debited, a response is sent to NPCI.
4. Receiving lender
This is the user who receives the payment. Here, NPCI requests the lender to credit money and receives a credit response after the money gets credited.
5. Payee PSP
Payee PSP is the payment service provider for merchants. It is specifically for Person to Merchant (P2M) transactions.
Now that you know the information required and the players involved, let’s see how UPI works with an example.
Suppose you want to make a payment of Rs. 100 to your friend. But to transfer the money, you must set up a few things:
-UPI Pin means the pin that you enter, similar to a password, before you make the payment
-UPI ID/VPA, which is the unique link that is assigned to you for identification purposes
Now, to make the payment, you need to follow these steps:
-Download your preferred UPI app
-Enter the phone number linked to your bank account
-Enter the received OTP for verification
-Grant access to the required permissions
-Now, you will have to set a UPI pin
-Select the account you want to use for transactions
-Enter the UPI pin to generate your unique UPI ID/VPA (Virtual Payment Address)
-Find your friend’s contact from the list and send the Rs. 100
Using UPI in your daily life
UPI has revolutionized how people conduct digital transactions. It is safer, quicker, and more convenient than traditional methods like NEFT or IMPS and allows you to transfer funds seamlessly. Plus, it is quite straightforward to set up.
At Tata Capital, we understand the growing importance of UPI and have taken measures to make it a part of our services. With the launch of UPI123PAY, we will enable a UPI payment facility, which will be particularly useful for low-value payments and microfinance customers. Visit our website to learn more about the service.
04 July 2023
5 mins read
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