The unified payments interface or the UPI is an interface via which you can transfer money between bank accounts across a single window. This means you can send or receive money or scan a quick response (QR) code to pay an individual, a merchant or a service provider to shop, pay bills or authorise payments.
To enable payment using your phone, all you need is a mobile payment application and the virtual address of the payee (that reads something like merawalashop@xyzbank). This implies you can make payments directly to the accounts of a vendor or a person, in one 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 is simple, free of charge and instantaneous. UPI allows you to make transactions 24/7, throughout the year. Currently, one can transfer upto INR 1 lakh in a single UPI transaction.
UPI was launched in 2016, is the brainchild of the National Payments Corporation of India (NPCI), the umbrella organisation that oversees retail payment systems in India. The NPCI is governed by the central banking authority, the Reserve Bank of India, and its primary goal is to drive India towards becoming a digital economy.
Let’s understand 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 of a UPI-member bank.
- Your mobile 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 allowed UPI. This has now increased to 216 banks in 2021.
- The next step is to download any UPI supporting app on your smartphone. Some popular examples of UPI apps are PhonePe, Paytm, Google Pay, BHIM, MobiKwik, Uber, SBI Pay and BOB UPI.
- Once the download is complete, you will be asked to create a virtual ID (identity) by the app. That is your unique ID to make or receive any UPI payment. Your bank will then send a one-time password or an OTP to your mobile number to confirm that it is indeed your bank account.
- Once the verification is through, 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, xyz@merabank. Your VPA unlocks the immense potential of payments and transfers through UPI. The VPA is the gateway that allows you to pay with your phone, from your bank account. It is also possible to link more than one bank account to the same virtual payment address.
The VPA frees you from having to type in long bank account details of both parties participating in the payment, i.e. the sender and the receiver. It also protects your bank information. The VPA is the reason UPI is such a user-friendly platform for any payment, when compared to digital wallets, credit cards or normal bank transfers.
Quick Response (QR) Codes
QR codes are unique to every transaction and enable a seamless payment experience. Several merchants, both online (ecommerce) and brick and mortar shops, use this effectively. There are two kinds of QR codes: static and dynamic.
Static QR codes are the ones we see pasted at a shop counter, an advertisement on the TV or at an event. By scanning them, you’re able to make the payment directly to the merchant’s bank.
Static QR codes have data already encoded in them. It is unique for a merchant and has their bank account linked to it. The only thing a customer has to enter is the amount needed to be paid, after scanning the code. This is ideal in situations like small shops, restaurants and pharmacies, where the amount can vary from one transaction to another.
A dynamic code is generated every time a payment has to be made by the merchant. This code contains the amount to be paid, in addition to the merchant’s name and bank details. This is becoming increasingly popular in cases such as home delivery of groceries, online shopping or delivery of food.
Dynamic code enables easy, cashless payments, as it instantly closes the payment loop, which can empower more customers and retailers.
It is not uncommon to see consumers at kirana shops being requested by merchants to show their own phone screen for proof of payment. This makes the small retailer dependent on his customer for payment proof.
Some retailers, bigger shops maybe, even have a note pasted at their counter asking the customer to “please wait for payment confirmation”, and spend precious minutes waiting for confirmation on the payment. Some retailers even have an extra screen to just track the payment closure. The dynamic QR code eliminates all of this and closes the payment loop instantly.
Aadhaar For Payments
The NPCI has facilitated payments without a mobile phone aimed at social and financial inclusion and to support those who do not own smartphones with the Bharat Interface for Money (BHIM) Aadhaar Pay feature.
The BHIM app is primarily a UPI app available in several Indian languages and was created by the NPCI. Under this, it introduced a feature called BHIM Aadhaar Pay that enables a merchant to receive payments with their Aadhaar number and the biometric information of the customer. With this, it is now possible to pay over the counter at any merchant or trader who uses the BHIM Aadhaar app using Aadhaar authentication.
To make this work:
- The merchant should have an android mobile with BHIM Aadhaar app, and a certified biometric scanner attached with a point-of-sale (POS) device. POS devices are varying 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 Safe?
The NPCI claims that the UPI is the most secure platform for cashless transactions. This claim is supported by certain safety features:
Safety During Verification: The first feature is the mobile number verification during the initial registration. This binds your UPI account to your number, making it a point of identification. If you change your number, you will have to re-initiate the verification all over again.
In the event of mobile phone loss, you can block the mobile number, preventing any further transactions from your bank account. This is a safety net against identity threat.
Safety During Transactions: On signing up, the UPI provides an option to set up a 4 or a 6-digit mobile pin called the MPIN. Once created, you can authenticate every 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 known only to you.
Safety During Authentication of Other Parties: Another feature embedded in the UPI system enables you to check the authenticity of merchants, thus preventing fraud. The Quick Response or the QR code and signed intent option allows you to find out if the merchant is UPI-verified or not. If the merchant is not UPI-certified, you instantly get notified. QR code tampering fraud is also very low, and enhances the security of UPI transactions.
Bottom Line
The NPCI, through the UPI, has created a robust payments infrastructure for making payments cashless and hassle free. It is fairly simple to understand and use, what with the myriad payment apps and convenient steps to register and start transacting.
The exponential growth of cashless transactions in India is imminent with the NPCI predicting the number of UPI users is expected to touch 500 million in a few years.
