Unified Payments Interface

Context: The success of United Payment Interface

• The UPI was launched in 2016 and is operated by the National Payments Corporation of India (NPCI).
• UPI operates on top of the Immediate Payment Service (IMPS) which was created by the NPCI for immediate fund transfers.
• UPI based payments function broadly through three steps.
• First, one’s bank account is mapped to a Virtual Payment Address (VPA).
• A VPA eliminates the risk of mentioning account details in every transaction
• Secondly, a Payment Service Provider (typically a bank) takes care of the to-and-fro transactions to this VPA and
• Finally, the UPI software organize the fund movement from a customer’s VPA to a target VPA and completes the transaction.
• This transaction is different from paying with a debit card or credit card as it does not involve a Merchant Discount Rate (MDR)

Popularity of UPI

• The popularity of UPI is evident — from tiny roadside shops to large brands, many merchants accept UPI-based payments.
• The primary reason for this penetration is that UPI accepts transactions as small as one rupee and for merchants, the absence of MDR that they have to pay to their banks is a significant incentive to accept UPI payments.
• The security of a UPI transaction is tied to the user’s authentication with the mobile phone — there is a mobile personal identification number (MPIN) for the UPI application and there is one more layer of security through the bank’s online transaction PIN is to be keyed in as part of every UPI transaction.
• The ecosystem in which UPI thrives: the presence of high-speed internet in many parts of the country, technologies that power a smartphone, cloud computing and modern software engineering technologies that fulfil a transaction in a few seconds has made it very popular.

The UPI is a phenomenal Indian technological success story. In 2019, Google requested the U.S. Federal Reserve to develop a solution similar to India’s UPI citing the thoughtful planning, design and implementation behind it.

From the dawn of civilisation, man has always accumulated and hoarded; however, UPI enables one to move around with an empty pocket barring a smartphone.

Source: The Hindu