One of the fastest growing digital revolutions is that of India. And the one financial technology that has become viral in India and is replacing the need for debit cards in India is the UPI.
The UPI or United Payments Interface is a real-time payment system for instant payments which is being used by 100 million active users monthly.
Using UPI, one can transfer funds between 2 bank accounts using your mobile phones. You can either use a Virtual Payment Address also known as a UPI ID which is unique to each combination of mobile number and bank account, or you can use QR (Quick Response) Codes. The interface can be used to either pay an individual or a business. UPI was developed by The National Payments Corporation of India (NPCI). UPI is integrated with about 350+ banks and has a monthly transaction volume of 6.7 billion, the value of which amounts to $140 Billion.
UPI has become the number 1 most popular way of transferring money. It has been transformational for the digital revolution for India.
History of UPI
UPI was developed by the National Payments Interface Corporation of India (NPCI) and was launched for the public in 2016. The NPCI was formed to integrate all forms of digital payments and to reduce the use for hard cash in the domestic market.
NPCI under the guidance of the Reserve Bank of India (RBI) was tasked at developing a single form of payment that can be used by the common people of India.
In August of 2018, UPI 2.0 was launched which included new features such as preauthorized payments to business for example setting up autopay for recurring payments such as your Netflix or Spotify subscriptions. Some other new features included, using Auto Draft from your account to your UPI Handle and linking Rupay credit cards to your UPI Handle.
How to Setup and use UPI
Mentioned below are steps to start using UPI
- Download the BHIM UPI app or a third-party app such as Google Pay, Phone Pe and many more.
- Now select your bank name, the app verifies using SMS if an account exists with your mobile number.
- For verifying that this account is indeed your it asks you to enter your last 6 digits of your debit card and the ATM pin.
- Once this is done It asks you to set up a 4- or 6-digit pin also know as your UPI Pin that form now will be used to make payments from this bank account.
- Once this is done your bank account will now be linked with your mobile number and a VPA/ UPI ID will be generated for it. Payment can be made to your bank account by entering your phone number, UPI ID or Scanning the QR code.
How UPI Works
UPI uses an open-source API protocol which is built on top of the Immediate Payments Service (IMPS). It offers a simple architecture and a set of simple API specifications that has revolutionized digital payments in India.
UPI has two main features:
- Collect (Pull) Function: You can request money from other UPI users.
- Pay (Push) Function: You can Pay money to other UPI Users
UPI has a two-factor authentication. One is your phone since UPI can only be used on the phone which has the number registered with the bank account. And second is the UPI Pin which is different for different bank accounts.
Most of the UPI payments app also have a pin/ biometric lock i.e. an additional security feature.
The UPI network uses a virtual payment address for identifying users. Virtual Payment address is like an email address and is the simple and complete replacement for all your bank details including Bank account, IFSC code, bank name and branch.
Future of UPI
UPI has become viral in India. Its fast, easy and secure so a huge percentage of the population has switched to UPI for payments. Almost every business be it a huge store or a street vendor now uses UPI. In major cities like Mumbai and Delhi the usage of cash for daily expenses has reduced by almost 80% for the common man.
Since India has great international relations, Countries are slowly but surely adopting UPI payments. Countries including Singapore, Malaysia, Thailand, Philippines, Vietnam, Cambodia, Hong Kong, Taiwan South Korea and Japan have already started with their UPI usage plans.
India has partnered with many International Banks and fintech companies to accept UPI payments in countries like UAE, France, Europe and are currently in the process of bringing UPI to many more countries.
The United States on the advice of Google to the Federal Reserve is now creating something similar by the name of FedNow.
Some Cool Additions that can be brought to UPI in the future (My Opinion):
- Increasing limit of UPI (currently at Rs. 1 lac/ ~$1200 per day)
- Using NFC for UPI Payments
- Using biometrics for UPI payments
- Completely digitizing currency in India. No longer need for hard cash.
Some useful Links:
Want to work to make UPI better?
Haven’t used UPI yet, download any one of the below apps to start using UPI today!
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