Unified Payment Interface - What is it and how does it work?

With everything around us going digital, now it is time to go digital when it comes to payments too. UPI - the Unified Payment Interface is the new unified way of making payments. Let us examine what exactly does it mean.

The National Payments Corporation of India, or NCPI is going live with its ambitious project named UPI this April. In an attempt to achieve the goal of financial inclusion, the UPI will be a major step. It will strengthen the inter connectivity of the banks to carry out financial transfers. The new interface is set to change the way retail payments are made. If implemented as planned, it should replace all your credit cards or debit cards.

What is UPI?

UPI stands for Unified Payment Interface. It can be safely treated as the next gen payment system. All your financial transactions across all banks and financial institutes will be handled by a single identifier.
In fact, once implemented it will make your financial transactions as easy as those WhatsApp chats you have almost daily.
UPI can be treated as the the personal identity of your money. Just like you have a personal email ID or a PAN number, your money across all banks and related institutions will have its own identifier. The system will base itself on IMPS - Immediate Payment Service.
Currently the IMPS needs you to have the recipients MMID - the Mobile Money Identifier along with the mobile number to make a transaction. If you do not have it, then you need account number and IFSC code of the recipient's bank account. Thus the system needs you to enter all those details each time you want to send money to someone. UPI plans to get rid of all these requirements. Each person will have unique UPI - which could be anything like your email ID, or a string of characters based on your name and bank. The exact plan on what kind of identifier will be used has not yet been decided. It could even be a unique number like your PAN card number or Aadhaar number. Thus a unique UPI will be the only piece of information you will need to transfer money to your family or any other payments.

How does UPI work?

It will completely simplify your financial transactions. In other words, it will just simplify your netbanking experience. As of now, you need to enter your credit/ debit card number, expiry date and security code to be able to complete a transaction. Or in case of netbanking, you need to go through an equally longer process of confirming the payment. UPI will just do away with the need to do all that hectic work. You will only need to share your UPI with your vendor and that's it. The vendor will then request your bank for the payment on receipt of which you will receive a confirmation message on your phone. You can either accept the transaction by providing your password, or reject it. Isn't that so simple?
Your bank needs to be UPI enabled if you want to use this service. If your bank does, you just need to request your bank to register for the service. As per the current plans, you can perform a transaction with two types of addresses - a Global address which includes your bank account number, Aadhaar number and bank account details, and a Local address. The local address will be your Virtual address which can be used for making payments. This is the address you will share with your merchants.
The new transaction method will be much inclusive as even the low budget phones have more features, and as smartphones have become extremely budget friendly - you can expect a large number of users with them than those having a credit/debit card.
The service will run on IMPS platform and as such will be available round the clock. NCPI will make Re 0.50 per transaction.

What is the current status?

As said before, the UPI needs your bank to be UPI enabled. As of now, only 29 banks have agreed to tie up with the service. Other banks will join in soon.
NCPI has indicated that the pilot project has been successful. The full scaled service will be rolled out in April, 2016. It would be little difficult to assess the performance before it is rolled out. But, by seeing the benefits of using it, it will definitely change the scenario of cash transactions.

How will it affect mobile wallets?

The mobile wallet business has been a fastest growing category in India recently. They have become much popular with the ease of use and multiple functionality. Now, without the need to use a credit or debit card to load the money into the wallet, it should mean better avenues for them. It will just simplify the process of loading your mobile wallet.
But, as you can directly pay the seller with the aid of UPI, where is the need for a mobile wallet? The wallet firms believe that it will bring in more customers. As Mobikwik CEO Mr. Bipin Preet Singh says
"Unified Payment Interface will let us unlock new channel for growth as the universe and reach would enlarge".

Parting thoughts

When launched on a full scale, UPI will indeed be much powerful tool for secure financial transactions. Since it uses two factor authentication, and needs you to enter the password on your phone to authenticate the transaction - it will be much secure. No bank details are shared between you and your vendor, and that will be an added advantage. The Unified Payment Interface will let you avail the services of a bank even without being a customer of the bank. We will need to wait till the interface comes in to the real world to see how will it perform. Hopefully, we will come up with a full review after the platform launches pan India in April, 2016.

Article by Timmappa Kamat
Timmappa Kamat is a technology enthusiast. He has an active interest in newer technological developments. He is fond of new gizmos & gadgets. He loves to share his knowledge through tech-savvy websites as a freelancer. A Mechanical Engineer by profession, he is equally interested in blogging, with his own blog. He wants to carve a name for himself in blogging arena one day! If you need any clarifications about his articles,please respond here below or get in touch with him through his profile.

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