What Is UPI? And How It Works?

What Is a Unified Payments Interface (UPI)?

Unified Payments Interface (UPI) is an instant payment system developed by National Payments Corporation of India (NPCI). The interface facilitates inter-bank peer-to-peer (P2P) and person-to-merchant (P2M) transactions. It is used on Mobile devices to instantly transfer funds between two bank Accounts. The mobile number on the device is required to be registered with the bank. The UPI ID of the recipient can be used to transfer money. It runs as an open source application programming interface (API) on top of the Immediate Payment Service (IMPS), and is regulated by the Reserve Bank of India (RBI). Banks have started depositing their UPI-enabled apps on the Google Play store from August 25, 2016. It is considered as one of the most successful payment systems in the world, in terms of number of user adoption, volume of transactions and the number of transactions.

How Unified Payments Interface (UPI) Works?

The Unified Payments Interface (UPI) is a real-time payment system. It is designed to enable peer-to-peer inter-bank transfers through a single two-click factor authentication process. The interface is regulated by the Reserve Bank of India (RBI), India’s central bank. It works by transferring money between two bank accounts along with a mobile platform.

The system is said to be a safe and secure method of transferring money between two parties and eliminates the need to transact with physical cash or through a bank. The pilot system was launched in India on April 11, 2016. Banks across the country started to upload their interface in Aug. 2016.

UPI uses existing systems, such as Immediate Payment Service (IMPS) and Aadhaar Enabled Payment System (AEPS), to ensure seamless settlement across accounts. It facilitates push (pay) and pull (receive) transactions and even works for over-the-counter or barcode payments, as well as for multiple recurring payments such as utility bills, school fees, and other subscriptions.

Once a single identifier is established, the system allows mobile payments to be delivered without the use of credit or debit cards, net banking, or any need to enter account details. This would not just ensure greater safety of sensitive information, but connect people who have bank accounts via smartphones to carry out hassle-free transactions.

Overall, UPI implies fewer cash transactions and potentially reduces the unbanked population.

Sending Money vs. Receiving Money

Sending money on the UPI is called a “push.” In order to send money, the user logs into the interface and selects the Send Money/Payment option. After entering the recipient’s virtual ID and the amount desired, they choose the account from which the money will be debited. The user then enters a special personal identification number (PIN) and receives a confirmation.

Receiving money through the system is called a “pull.” Once the user has logged in to the system, they select the option to collect money. The user then needs to enter the virtual ID for the remitter, the amount to be collected, and the account in which they will deposit the funds. A message then goes to the payer with the request to pay. If they decide to make the payment, they enter their UPI PIN to authorize the transaction.

Once the transfer has been completed, both the sender and the recipient receive a confirmation by text message to their smartphones.

Services Offered by UPI

A number of key features are offered by UPI. Users can access balances and transaction histories along with sending and receiving money. To send money, users need an account number, the Indian Financial System Code (or IFSC, which is an alphanumeric code that facilitates electronic transfers), the mobile number of the recipient, and a virtual ID or Aadhaar number (which is like a Social Security number).

Is UPI Available in the U.S.?

Yes, UPI is available in the U.S. You are able to send money to India from the U.S. using UPI. You need the UPI ID of the receiver and can use a variety of banking apps, such as Wise, World Remit, and Remitly.3

Which UPI Systems Can You Use in India?

The UPI systems that you can use in India consist of many banking/payment apps that allow you to use UPI. These include PhonePe, Google Pay, Axis Pay, and BHIM.

Is UPI Safe in India?

Yes, UPI is safe in India. It is regulated by India’s central bank, the Reserve Bank of India.2

The Bottom Line

The Unified Payments Interface (UPI) in India is a regulated smartphone tool that allows for mobile payments to be made without debit or credit cards. The UPI has made paying for transactions easier and simpler, facilitating economic movement within the country.

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