What is a Unified Payment Interface (UPI) and How it Works?

What is Unified Payment Interface and how does it workWhat is a Unified Payment Interface (UPI) and How it Works?

Launched by the National Payment Corporation of India (NPCI), Unified Payment Interface (UPI) is a single window mobile payment system. In other words, it powers multiple bank accounts into a single mobile application, merging several banking features. Mr.Raghuram Rajan, former RBI Governor has initiated this payment system. What is Unified Payment Interface (UPI)? How does this UPI work exactly? Are there any risk factors by using this Unified Payment Interface application for making online payments?

What is Unified Payment Interface (UPI)?

It is a system which is designed to transfer the money between two parties in a simple, secure and convenient ‘single interface’. It enables the user to receive and send the money using smart phones through a ‘single identifier’ which can be a virtual address like Aadhar number, email id etc. It prevents the user from entering the bank details or other sensitive information again and again whenever you initiate a transaction.

Once the system of the single identifier is established, it allows the payments to be transferred without entering the details of debit card, credit card, net banking or any other type of information. This would definitely ensure greater safety to your sensitive information.

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Who can avail the service of Unified Payment Interface (UPI)?   

Any individual who possesses a smart phone and a bank account will be able to take the benefit of this new system for either receiving or transferring the funds. He needs to have a good internet connection.

How does Unified Payment Interface (UPI) Work exactly?

Launched by Dr. Raghuram Rajan, UPI is a new payment method that gives the recipient the power to initiate the payment through a payment request and operated from your smart phones. The mobile application assimilates your multiple accounts into one application along with many banking features and fund transfers. It uses a virtual address for the process. This virtual address is a payment identifier for sending and collecting money using simple 2 factor authentication pin. Through this system, transactions of money have become as simple as sending an email. It works on PULL as well as PUSH system too. It also has feature of request payments.

Unified Payment Interface (UPI) explained with an example

Step-1 – After buying something online and reaching the payment gateway to select a payment mode.

Step-2 – Here, you or merchant banker selects UPI and enter your virtual address as the identifier (e.g. sureshkp@icicibank). Immediately, a notification is received on your smart phone application for the service to which the particular virtual address is linked like your bank account, or Paytm, or other payment wallets.

Step-3 – When this notification is opened, it asks for a security pin called MPIN. On entering the MPIN, your transaction is completed within seconds. Under this system, the user will have multiple virtual addresses for different bank accounts in various banks. It enables you to purchase anything without sharing your account details, credit or debit card details. 

An MPIN is given to a banking customer once they register for Mobile Banking support. Chances are you have one already, but have never used it.

How UPI is different from NEFT, RTGS or net banking?

In the current position, most electronic payments are carried out through NEFT or RTGS.

National Electronic Fund Transfer (NEFT), the transfers are made through electronic messages. The bank details of the sender and the beneficiary are linked by mentioning the bank branch and the IFSC code. The process typically takes more than an hour and available only in the working hours of the bank. 

In Real Time Gross Settlement (RTGS), fund transfers are handled on one-to-one basis. Usually, the high value transactions are dealt with this system. It is also available in the working hours of the bank.

But, while using UPI system, the user will be allotted a virtual address for a bank account and assimilated in a single mobile app. He can initiate the transfer of money using that address from his mobile phone only. The service can be used round the clock and throughout the year, even on Sundays and national holidays.

Which banks are authorized for UPI?

The Reserve Bank of India (RBI) has been trying hard to make the Indian economy a ‘cash free economy’.  It is finding ways to reduce the transactions based on cash in the entire financial system. The UPI system seeks to make the transfers of money easy, convenient, hassle-free and safe.

As of now, 29 major banks are a part of the UPI system out of which 15 banks have already started integrating the interface into their smart phone apps and this number will multiply very fast as the system gains popularity. 

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Will my Credit Card not better than UPI?

Credit card details are a hassle to type on smart phones, and transmitting card data brings its own security problems. UPI removes all these hassles.

Will my merchant banker know my bank details if I pay through UPI?

You only share virtual payment address (which looks like sureshkp@icicibank as an example) with your merchant banker while making payment. They never even get to see your bank account number. This is the unique feature of UPI.

Does UPI effects Payment Wallets?

Currently UPI is used only cross banking transfer medium. Currently Wallets are not included in UPI.

How refunds handled in UPI?

Currently,  only payments are taken care through UPI. In case of any issues with payments, one need to check directly with NPCI.

How can we use UPI Interface?

UPI is already launched few months back and reached maturity now. You need to check if your bank has released an updated mobile app with UPI support. With this App, you can register Virtual address for UPI along with MPIN.

Is UPI Safe to use?

UPI works on a single click-two factor authentication system. It means that with on click, the transaction is verified at two levels. The user will need a mobile phone along with a mobile pin known as MPIN and virtual id offered by the provider. With a single click, the transaction is checked and if the mobile pin matches with the virtual id only, then only the transaction goes through.

As we know, the users can have multiple virtual addresses for multiple accounts and in order to ensure privacy and safety of consumer’s data, there is no account number mapper anywhere other than the customer’s own bank. 

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Are there any negative points of Unified Payment Interface?

In this technological world, where people are going techno-freak, the Unified Payment Interface System will have to deliver a great user-friendly experience. It may face strong resistant from the people who are already using various mobile wallets. People will need to have a better understanding of the technology if they want to use this system. Moreover, all the banks are not completely computerized. Implementing UPI means a better trained staff, merchants, retailers, and upgrading the existing system of technology. The system is not in use with its full bloom. The first few experiences of the users need to be extremely satisfying to gain popularity on this front.

Conclusion: UPI is a grand step towards making the cashless payments faster, smoother and easier. It is said that the launch of UPI will prove to be a milestone in the transformation of modern India. It is all set to become an efficient alternative to mobile wallets.

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Unified Payment Interface (UPI)


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