The Unified Payments Interface or UPI is an interface through which you can transfer money between bank accounts through a one-stop shop. This means you can send or receive money or scan a Quick Response (QR) code to pay an individual, merchant or service provider to make purchases, pay bills or authorize payments.
To activate payment using your phone, all you need is a mobile payment app and the recipient’s virtual address (which reads something like [email protected]). This implies that you can make payments directly to a supplier’s or individual’s accounts, in a single step. There is no repetitive step involved. For example, entering bank details or other sensitive information each time you need to make a payment.
It’s simple, free and instant. UPI lets you transact 24/7, all year round. Currently, one can transfer up to 1 lakh INR in a single UPI transaction.
UPI was launched in 2016, is the brainchild of the National Payments Corporation of India (NPCI), the apex organization that oversees retail payment systems in India. The NPCI is governed by the central banking authority, the Reserve Bank of India, and its main objective is to lead India towards a digital economy.
Let’s see how you can use UPI and what its framework entails.
Steps to Create a UPI Account
You can set up a UPI account in five simple steps:
- To enjoy the benefits of cashless payments and instant money transfers through UPI, you need two things: your smartphone and a bank account from a UPI member bank.
- Your mobile phone number must be registered as part of your information with the bank. Majority banks in India are member banks as of today. In 2016, 21 banks authorized UPI. This number has now increased to 216 banks in 2021.
- The next step is to download any application that supports UPI on your smartphone. Some popular examples of UPI apps are PhonePe, Paytm, Google Pay, BHIM, MobiKwik, Uber, SBI Pay, and BOB UPI.
- After the download is complete, you will be asked to create a virtual ID (identity) by the app. This is your unique identifier for making or receiving any UPI payment. Your bank will then send a one-time password or OTP to your mobile number to confirm that it is indeed your bank account.
- Once verification is complete, you can set up your virtual payment address (VPA).
Virtual payment address (or VPA)
The virtual payment network (VPN) looks like an email address and is unique to you, for example, [email protected] Your VPA unlocks the immense potential of payments and transfers via UPI. The VPA is the gateway that allows you to pay with your phone, from your bank account. It is also possible to link several bank accounts to the same virtual payment address.
The VPA saves you from having to enter long bank details of both parties participating in the payment, i.e. the sender and the recipient. It also protects your banking information. The VPA is the reason why UPI is such a user-friendly platform for any payment, compared to digital wallets, credit cards or normal bank transfers.
Quick Response (QR) Codes
QR codes are unique to each transaction and enable a seamless payment experience. Several merchants, both online (e-commerce) and in physical stores, use it effectively. There are two types of QR codes: static and dynamic.
Static QR Codes are the ones you see stuck in front of a store counter, a TV ad or at an event. By scanning them, you can make the payment directly to the merchant’s bank.
Static QR codes already contain encoded data. It is unique for a trader and his bank account is linked to it. The only thing a customer needs to enter is the amount to be paid, after scanning the code. This is ideal in situations like small stores, restaurants, and pharmacies, where the amount may vary from transaction to transaction.
A dynamic code is generated each time a payment is due from the merchant. This code contains the amount to be paid, as well as the merchant’s name and bank details. It is becoming more and more popular in cases such as home delivery of groceries, online shopping or food delivery.
The dynamic code enables easy, cashless payments because it instantly closes the payment loop, which can empower more customers and retailers.
It is not uncommon to see consumers in kirana stores being asked by merchants to show their own phone screen as proof of payment. This makes the small retailer dependent on their customer for proof of payment.
Some retailers, larger stores perhaps, even have a note taped to their counter asking the customer “please wait for payment confirmation”, and spend precious minutes waiting for payment confirmation. Some retailers even have an additional screen to simply follow the close of payment. The dynamic QR code eliminates all that and instantly closes the payment loop.
Aadhaar for payments
The NPCI facilitated mobile-free payments aimed at social and financial inclusion and to support those who do not own smartphones with the Aadhaar Pay feature of Bharat Interface for Money (BHIM).
The BHIM app is primarily a UPI app available in multiple Indian languages and was created by the NPCI. Under this, it has introduced a feature called BHIM Aadhaar Pay which allows a merchant to receive payments with his Aadhar number and the customer’s biometric information. With this, it is now possible to pay over the counter at any merchant or merchant who uses the BHIM Aadhaar app using Aadhaar authentication.
To make this work:
- The merchant must have an Android mobile with the BHIM Aadhaar application and a certified biometric scanner connected to a point-of-sale (POS) device. POS devices vary in range and include mobile phones, kiosks, mPOS or tablets, among others.
- Both the merchant and the customer must have linked their bank accounts to their Aadhaar numbers.
- The payment process is as simple as entering your Aadhaar number and placing your thumb on the scanner for your fingerprint.
Currently, there is a limit of INR 10,000 on BHIM Aadhaar Pay transactions.
Are UPI transactions secure?
The NPCI claims that UPI is the most secure platform for cashless transactions. This claim is backed up by some security features:
Security during verification: The first feature is mobile number verification during initial registration. This links your UPI account to your number, making it a point of identification. If you change your number, you will have to start the verification again.
In case of loss of the mobile phone, you can block the mobile number, preventing any further transactions from your bank account. It is a safety net against identity threats.
Security during transactions: During registration, the UPI offers the option of setting up a 4 or 6 digit mobile PIN code called MPIN. Once created, you can authenticate each transaction with the MPIN. This prevents someone else from using the app on your phone to make a payment from your account, as the MPIN is only known to you.
Security when authenticating other parties: Another feature built into the UPI system allows you to verify the authenticity of merchants, thus preventing fraud. Quick response or QR code and signed intent option lets you know whether the merchant is UPI verified or not. If the merchant is not UPI certified, you are notified immediately. QR code tampering fraud is also very low and improves UPI transaction security.
The NPCI, through the UPI, has created a robust payment infrastructure to make cashless and hassle-free payments. It’s pretty simple to understand and use, thanks to the myriad of payment apps and convenient steps to sign up and start transacting.
The exponential growth of cashless transactions in India is imminent, with the NPCI predicting that the number of UPI users will reach 500 million within a few years.