UNIFIED PAYMENT INTERFACE (UPI)

What is UPI?

Unified Payments Interface (UPI) is a real-time digital payment system developed by the National Payments Corporation of India (NPCI) that facilitates instant money transfers between bank accounts via mobile devices. Introduced in 2016, UPI transformed the digital payments landscape by enabling 24×7 fund transfers using mobile apps. Users can send or receive money seamlessly through a Virtual Payment Address (VPA), eliminating the need to share confidential bank details.

Features of UPI:

• Anytime, Anywhere Transfers: UPI allows users to send money to any bank account 24/7, even on holidays and weekends. This ensures instant and smooth payments any time of the day, with no delays.
• One App, Many Banks: With UPI, there’s no need to juggle multiple banking apps. A single UPI-enabled app gives users access to all their bank accounts, making money management far more convenient.
• Versatile Ways to Pay: Whether it’s a mobile number, Virtual Payment Address (VPA), or account and IFSC code, UPI supports multiple methods to transfer money—offering flexibility to suit user preferences.
• Scan & Pay in Seconds: UPI supports seamless payments through QR code scanning, which has become the go-to method for paying at shops, markets, and even roadside vendors fast, secure, and touchless.
• Automate the Routine: With AutoPay on UPI, users can automate recurring transactions like electricity bills, OTT subscriptions, and EMIs—ensuring you never miss a payment again.
• Smart Peer-to-Peer Payments: UPI also enables users to request money or respond to collect requests from friends or service providers, making person-to-person transactions simple and effortless.

New Features of UPI:

1. Credit Line on UPI: It enables pre-sanctioned credit lines from banks via UPI. Earlier, only the deposited amount could be transacted through the UPI System.
2. UPI Lite X: Users can both send and receive money offline through any compatible device that supports Near Field Communication (NFC).
3. UPI Tap & Pay: It allows NFC-enabled QR codes at merchants to complete payments, with a single tap without entering the PIN.
4. Conversational Payments: Hello! UPI: Users can simply give voice commands to transfer funds and input a UPI PIN to complete the transaction.

List of countries where international merchant payments are accepted at select merchant outlets:

1. Bhutan 2. France                      3. UAE
2. Mauritius 5. Singapore 6. Nepal
3. Sri Lanka

Challenges Associated with UPI:

• Regulation: Expanding UPI to accommodate a global user base will require adhering to data protection, financial laws and regulations of different countries posing regulatory and compliance challenges.
• Dominance of Foreign owned UPI apps: Parliamentary panel’s report, ‘Digital Payment and Online Security Measures for Data Protection’ recently highlights that foreign entities like PhonePe and Google Pay dominate Indian fintech sector. Market share of PhonePe is 46.91% and Google Pay is 36.39% in terms of the transaction volume in October- November 2023, whereas for BHIM UPI it is 0.22%.
• Security and Fraud: Cybercriminals may exploit vulnerabilities in the system or use social engineering techniques to gain access to sensitive information leading to financial losses.
• Exchange Rates: Managing currency conversion and exchange rates while facilitating payments and loading money to the wallet poses a significant challenge for cross-border transactions.
• Lack of awareness: UPI remains a barrier to its widespread adoption especially among individuals with a lack of familiarity with digital payments, leading to financial fraud.

NPCI: National Payments Corporation of India

National Payments Corporation of India (NPCI), an umbrella organization for operating retail payments and settlement systems in India, is an initiative of the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

Considering the utility nature of the objects of NPCI, it has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of the Companies Act 1956 (now Section 8 of the Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems. The company is focused on bringing innovations to retail payment systems through the use of technology to achieve greater efficiency in operations and widen the reach of payment systems.

UPSC Prelims 2025:

Consider the following countries:

1. United Arab Emirates
2. France

III. Germany

1. Singapore
2. Bangladesh

How many countries amongst the above are there other than India where international merchant payments are accepted under UPI?

1. Only two
2. Only Three
3. Only Four
4. All Five

Answer: B