National Payments Corporation of India (NPCI) after successfully launching the
IMPS online payments system, has taken a step further in turning the Indian
Economy into a “less-cash” and more “digital society”. The launch of a Unified
Payments Interface (UPI) adds a feather to its cap. UPI is set to completely
revolutionise the financial sector for good.
What is Unified Payments Interface (UPI)?
The United Payments Interface is a system for instant, electronic payments
through your smart phone.
It authenticates the identity of the user like a debit card does using the phone
as a tool instead of a separate card.
It is an advanced version of Immediate Payment Service (IMPS) which was
used to transfer money between bank accounts.
Like IMPS, UPI will facilitate round-the-clock funds transfer service.
It works 24x7, 365 days, unlike RTGS or NEFT services which have specific
working hours.
How does it work?
Let us assume a person named ‘Ram’ has to make payments using UPI (let’s
explain this with an example).
To make UPI money transfer, Ram needs 2 basic things:
o A smartphone with UPI application (app),
o A bank account.
Ram has to download the UPI app and get a UPI ID by registering on the app
with his bank details.Why is it better?
UPI eliminates the need to share your name, your bank account number, IFSC
code, or bank branch.
UPI also eliminates the use of physical tools like debit cards.
It also eliminates the need to use multi-step processes like net-banking, which
are prone to phishing due to insecure frameworks.
It is a very simple application and can be used by anyone.
The authentication is instant and secure and can be initiated anywhere.
It opens up the pathway for a completely cashless digital society.
The UPI (as it stands now) is the foundation for future innovations to make all
transactions more fluid, natural and secure.
What are the other benefits?
UPI can also be used to send a request for money, like an invoice.
For example, Ram can become a merchant, and take payment for any goods or
services he is providing from clients account to his account.
All companies like Uber, Ola, Big Basket, Zomato, BookMyShow, etc. can
register their virtual identifiers on the UPI system and receive funds from a
customer’s bank account through the UPI.
Customers can also use UPI to make online payments of utility bills and
school fees.
Challenges that prompted the need for UPI
The number of non-cash transactions per person per year is only 6. This is bad
because cash transactions are often hard to trace. Cashless transactions can be
tracked, eventually eliminating black money from society.
Only a fraction of retailers (6 lakh) in India have card payment facilities. The
biggest sufferers in these are local and small shops. However, the ubiquity and
ever-falling prices of smart phones is making it an attractive and convenient
option to facilitate transactions.
Of the six lakh villages in the country, fewer than one lakh villages have
banking services (as of May 2011). Financial inclusion has also been hard to
achieve. It is only through recent innovations like Direct Benefits Transfer
(DBT) and Pradhan Mantri Jan Dhan Yojana (PMJDY) that financial
inclusion has become a reality.
There are more than 150 million smartphone users in the country, a number
set to more than triple within 5 years. Here was a readymade solution that
wasn’t being addressed.
Future Innovations
The present form of the app, while revolutionary, is not the end product. The
document detailing technical specifications of the app details upcoming features that
will merge the UPI and identification tools like Aadhaar for even smoother
functioning. Some of these are:
Aadhaar Enabled Payments System (AEPS) – This will allow users to
authenticate payments using biometric information like fingerprint that will
be verified against the Aadhaar database and your linked bank account. This
could eliminate the need to even use your smartphone for authentication.
Aadhaar Payments Bridge (APB) – Remittances can be made to an
Aadhaar number without providing other details. This would help with direct
remittances of government subsidies and direct benefits.
Micro-ATMS – Withdrawal of money without the use of a card.
Bill Splitting – Bills can be split between different parties instantly.