Chanakya IAS Academy Blog


Unified Payments Interface (UPI) is a system that powers multiple bank accounts (of participating banks), several banking services features like fund transfer (P2P), and merchant payments in a single mobile application.

To manage liquidity in the current situation and move to a cashless era, it makes sense to make payments using online gateways. UPI was launched by National Payments Corp. of India (NPCI) to further RBI’s vision of migrating towards a “less-cash” and more digital society.

UPI platform can be used for:

  • Immediate money transfer through mobile device
  • Single mobile application for accessing different bank accounts
  • Single Click 2 Factor Authentication.
  • Virtual address of the customer for Pull & Push provides for incremental security with the customer not required to enter the details such as Card no, Account number; IFSC etc.
  • Bill Sharing with friends.
  • Merchant Payment with Single Application or In-App Payments.
  • Scheduling PUSH and PULL Payments for various purposes.
  • Utility Bill Payments, Over the Counter Payments, Barcode (Scan and Pay) based payments.
  • Donations, Collections, Disbursements Scalable.
  • Raising Complaint from Mobile App directly.

Through UPI a user can make fund transfers and receive funds using their smartphones. The biggest draw for UPI is its power to make payments seamless and instantaneous by requiring the payee to only remember a virtual payment address (VPA). High cash usage also gives rise to the black money menace. The direct cost of running a cash-based economy is close to 0.25% of India’s gross domestic product (GDP).

The UPI functions with the help of:

  • Payment service providers (PSPs) to provide the interface to the payer and the payee.
  • Unlike wallets, the payer and the payee can use two different PSPs.
  • Banks to provide the underlying accounts. In some cases, the bank and the PSP may be the same.
  • NPCI to act as the central switch by ensuring VPA resolution, effecting credit and debit transactions.

UPI allows a payment directly and immediately from one’s bank account. Money transfers with this interface are secured with the two-factor authentications - the mobile phone handset and the mobile PIN. It involves low-cost infrastructure by allowing smartphones to function as point of sale (PoS) devices.

It is likely to benefit the common man, as the payments service can be provided by banks with an entry level smartphone. There is no need to install a PoS machine. The overall merchant acquisition cost for the banks is going to be reduced by the UPI.

Read 2063 times

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.