Unified Payments Interface UPI Definition and How It Works
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A Unified Payments Interface (UPI) is a smartphone application for transferring money between bank accounts in India. It was developed by the National Payments Corporation of India (NPCI) to eliminate the need for customers to enter bank details each time they initiate a transaction.
Key Takeaways:
– The UPI is regulated by the Reserve Bank of India (RBI), the country’s central bank.
– It provides a safe way to bank, as it eliminates the need to enter sensitive information for each transaction.
The UPI is a real-time payment system that enables inter-bank transfers through a two-click authentication process. It works by transferring money between two bank accounts using a mobile platform.
The system is considered safe and secure, reducing the need for physical cash or traditional banking methods. It was launched in India in April 2016, and banks started adopting it in August of that year.
UPI utilizes existing systems like Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS) to ensure seamless settlement across accounts. It supports push and pull transactions, including over-the-counter and barcode payments, utility bill payments, school fees, and subscriptions.
In 2021, more than $940 billion was transacted over UPI, with an average monthly count exceeding six billion transactions in 2022.
The system allows mobile payments without the use of credit or debit cards, net banking, or entering account details. This enhances safety and enables hassle-free transactions for those with bank accounts linked to their smartphones. UPI also reduces cash transactions and the unbanked population.
Sending money on the UPI, called a "push," involves logging into the interface, selecting the Send Money/Payment option, entering the recipient’s virtual ID, desired amount, choosing the debiting account, entering a PIN, and confirming the transaction.
Receiving money through the UPI, called a "pull," requires logging in, selecting the option to collect money, entering the remitter’s virtual ID, amount, and destination account. A payment request is sent to the payer, who authorizes the transaction by entering their UPI PIN. Both the sender and recipient receive a confirmation via text message.
UPI offers various services, including balance checking, transaction history, and sending/receiving money. To send money, users need the recipient’s account number, Indian Financial System Code (IFSC), mobile number, or virtual ID/Aadhaar number.
UPI is available outside of India, such as in the U.S., for sending money to India using UPI IDs through banking apps like Wise, World Remit, and Remitly.
Multiple banking/payment apps in India support UPI, including PhonePe, Google Pay, Axis Pay, and BHIM.
UPI is safe in India as it is regulated by the Reserve Bank of India.
To summarize, the UPI is a regulated Indian smartphone tool that enables mobile payments without debit or credit cards. It has simplified transactions and facilitated economic movement within the country.
