UPI: A freebie payments system

It’s an easier, convenient and secure way of conducting financial transactions
Representational Iamge
Representational IamgeFile/ GK

Payments system around the world is undergoing tremendous transformation as the Covid 19 pandemic forced the countries to capitalise on the power of the digital ecosystem to keep their financial systems afloat. India is not any exception to the ongoing revolution in the digital landscape, especially in the payments system.

It will be interesting to watch banks and financial institutions adapting to the new payment trends like buy now pay later (BNPL) (BNPL), e-RUPI, central bank digital currency (CBDC) and offline payments. Notably, the homegrown payments system unified payments interface (UPI) has taken the lead to drive digital payments in India.

A report by PwC India, titled “The Indian Payments Handbook – 2021-26”, pointed out that the domestic digital payments market grew at a compound annual growth rate (CAGR) of 23% by volume and is expected to reach 217 billion transactions in FY26.

Notably, the UPI driven system payments system has become the preferred mode of online payments and has edged out debit and credit cards. According to an official report, in July, UPI clocked three billion merchant transactions worth Rs 2.3 trillion, while debit and credit cards put together recorded 452.5 million swipes worth Rs 1.4 trillion.

Meanwhile, digital payment transactions value through UPI rose to Rs.10.73 lakh crore in August. As per data released by the National Payments Corporation of India (NPCI), the value of UPI transactions during August relates to a total of 6.57 billion (657 crore) transactions, up from 6.28 billion (628 crore) in the preceding month.

The pandemic triggered growth in the UPI transactions and its volume and value of transactions have doubled in a year’s time. The consistency in the growth of UPI transactions and leaping beyond the country’s boundaries indicates that the market is ready for the next stage of growth of UPI adoption. The public trust earned by the UPI digital payments system has delighted the regulator of the system and further innovations for the convenience of the general public cannot be ruled out.

The growing use of UPI has already encouraged the Reserve Bank of India to explore its use beyond the country’s boundaries. The international journey of the system started from Bhutan. It was in July last year when Bhutan became the first neighbouring international destination to adopt Unified Payment Interface standards for National Payments Corporation of India’s (NPCI’s) QR deployment. In February this year, the UPI landed in Nepal to bolster real-time digital transactions.

Now the UPI is all set to foray into United Kingdom (UK) markets starting with QR code-based transactions. In this connection, just a few weeks back, the NPCI International Payments Ltd (NIPL), the wholly-owned subsidiary of National Payments Corporation of India (NPCI), has forged a partnership with payments solutions provider PayXpert to internationalise the acceptance of its payment solutions in the UK. Notably, there are also plans to explore integrating the possibility for RuPay card payments in the UK. The foray of UPI and RuPay card is believed to cater over 5 lakh Indians, including over 1 lakh students, who travel to the UK every year.

Why UPI is called a revolutionary payment solution in modern times?

The UPI is a user-friendly, real time payment solution that facilitates inter-bank transactions, and enables greater digital payments adoption in the country. Developed and launched by the National Payments Corporation of India in 2016, UPI is now one of the most preferred payment solutions in India, with over a billion transactions every month.

UPI’s core function to support easy and secure money transfers between bank accounts has earned it the trust of users. It does this by adding multiple bank accounts into a single mobile application, allowing for seamless fund transfers and merchant payments from one place. It also enables ‘peer to peer’ and ‘peer to merchant’ collection requests, which can be scheduled and paid as requested.

Precisely, a single-interface payment system, developed by the National Payment Corporation of India (NPCI) and is regulated by the RBI, is a mobile based, 365x24x7 ‘fast payment’ system wherein users can send and receive money instantly and the user is not required to share account or bank details to the remitter. It supports person to person (P2P) and person to merchant (P2M) payments. Although its use was mostly limited to smartphone users and merchant locations, the launch of UPI123pay version will now allow the feature phone users to use the facility without having an Internet connection.

In other words, it facilitates immediate money transfer through pull and push payments, merchant payments, utility bill payments, QR code (scan and pay) based payments, etc. Non-financial transactions such as mobile banking registration, balance enquiry, etc., can also be carried out using UPI. It powers multiple bank accounts into a single mobile application of any participating bank / non-bank Third Party Application Provider (TPAP). Funds can be transferred using Virtual Payment Address (VPA) or account number with bank code (IFSC).

Notably, its framework comprises NPCI as network and settlement service provider, banks as Payment System Providers (PSPs), and as issuer banks and beneficiary banks; apart from TPAPs such as Google Pay, Truecaller, WhatsApp, etc. Non-bank PPI issuers have also been allowed to provide this facility in an interoperable manner to their PPI wallet holders.

What types of transactions are supported by UPI?

It supports both financial transactions and non-financial transactions.

Financial transactions include a ‘pay request’ and ‘collect request’. Pay request is a transaction where the initiating customer ‘pushes’ funds to the intended beneficiary. While a collect request is a transaction where the customer is ‘pulling’ funds from the intended remitter by using a Virtual ID.

The system supports non-financial transactions such as registration for mobile banking , one time password (OTP) generation, set/change PIN, transaction status check, raising disputes/queries. However, mobile banking registration is only possible if the mobile number (which is to be registered) is already registered with the issuer bank for SMS /mobile alerts.

Remarkably, UPI is also loaded with an autopay facility. This facility allows customers to set recurring payments for their UPI transactions. Recurring payments up to INR 2,000 can be set at the frequency desired. A one-time authorisation needs to be provided by the customer.

Do banks charge any fees for UPI transactions?

No. Currently, banks are bearing the cost of UPI transactions. However, last week, the Reserve Bank of India (RBI) has formally initiated a consultative process on transaction charges in India’s digital payment ecosystem, while enumerating the various options for devising fee structures. The RBI has uniquely identified UPI as a payment channel that is both a funds-transfer as well as a merchant-payment system. Since the discussion paper created speculations in the market that UPI users shall have to pay charges, the finance ministry swiftly put such speculations to rest through its clarification that the government is not planning to charge for payments through the UPI channel. However, as per the government statement, the concerns of the service providers for cost recovery have to be met through other means,” said a tweet from the official handle.

What happens when a transaction fails on UPI?

NPCI has devised a system through which a failed transaction is automatically reversed if money has been deducted but not credited to the recipient within one hour. If it doesn’t happen within the given timeline, users can contact their bank to get the issue resolved.

Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.

The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK.

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