Reserve Bank of India Governor Raghuram Rajan launched the Unified Payments Interface (UPI) system on Monday, as its latest offering in boosting digital money transfers.
The interface has been developed by National Payments Corporation of India (NPCI), the umbrella organisation for all retail payments in the country. The UPI seeks to make money transfers easy, quick and hassle free.
Ten major banks — SBI, Canara Bank, BOI, ICICI Bank, HDFC Bank, Punjab National Bank, Bank of Baroda, HSBC, and Citi Bank — are integrating the interface with their mobile apps. “29 banks had concurred to provide UPI service to their customers. We are confident that several banks will join UPI this year and the number will multiply further,” said A. P. Hota, MD & CEO, NPCI.
Raghuram Rajan, Governor, RBI, and Nandan Nilekani, Ex-Chairman, UIDAI and Advisor, NPCI, and at the launch of Unified Payments Interface (UPI) in Mumbai on Monday.
Traditional e-payment methods
Most electronic payments in India is facilitated through NEFT and RTGS.
In National Electronic Funds Transfer (NEFT), money transfers are made via electronic messages. The bank details of the sender and the beneficiary are linked using bank branch name and IFSC code. When a payment is initiated, the payer’s bank sends a ‘message’ to its NEFT service centre. All such messages are pooled every hour and the bank’s NEFT centre sends it to the RBI, which initiates the transfer. The process typically takes a little more than an hour and is available only during the bank’s working hours.
Unlike NEFT, in Real Time Gross Settlement (RTGS), fund transfers handled on one-to-one basis. Large value transactions, typically over Rs. 2 lakhs, are carried out using this method. This is also done during working hours.
Immediate Payment Service (IMPS) is a more recent form of fund transfer that is gaining popularity. A user is given a 7-digit Mobile Money Identifier (MMID) Code. The sender initiates payment using mobile bank by giving the MMID code and registered mobile number of the beneficiary. Most banks offer this service free-of-cost now. It is a round-the-clock immediate payment service.
How does UPI work
Imagine buying grocery from a supermarket by paying cash. You handover the cash, the biller hands you a receipt and the purchased good. UPI is as simple as this. Instead of handing over the cash, you tell your virtual identity to the cashier. The cashier generates an invoice through UPI, you approve it using your mobile phone and the payment is made!
The UPI is an improved version of IMPS. Apart from a bank account, all that you need is a smartphone. Once you register for UPI with your bank, a unique ‘virtual address’ will be created. This is mapped with your mobile phone.
To initiate the payment, UPI invokes this virtual identity of the beneficiary and transfers money in real-time. It works on single-click 2-factor authentication.
UPI will allow a customer to have multiple virtual addresses for multiple accounts in various banks. In order to ensure privacy of customer’s data, there is no account number mapper anywhere other than the customer's own bank. This allows the customer to freely share the financial address with others.
A customer can also decide to use the mobile number or Aadhaar number as the name instead of the short name for the virtual address.
UPI can potentially eliminate the need for maintaining a mobile wallet, as this ‘virtual address’ is not limited only to individuals. This is a significant step towards moving into a cashless economy.