Unified Payments Interface

Unified Payments Interface is developed by the National Payments Corporation of India (NPCI) under the guidelines of the Reserve bank of India. The Unified Payments Interface (UPI) is the new face of cashless payments, fast-tracking India into a cashless economy.

Unified Payments Interface | What is it?

Unified Payments Interface

The Unified Payments Interface (UPI) is a new system developed by the NPCI and the RBI to aid instant transfer of money using a cashless system. Using UPI services, one just requires a smartphone and a banking app to send and receive money instantly or to pay a merchant for retail purchase. In the long run, UPI is likely to replace the current NEFT, RTGS, and IMPS systems as they exist today.

The UPI ecosystem functions with three key players:

  1. Payment service providers (PSPs) to provide the interface to the payer and the payee. Unlike wallets, the payer and the payee can use two different PSPs.
  2. Banks to provide the underlying accounts. In some cases, the bank and the PSP may be the same.
  3. NPCI to act as the central switch by ensuring VPA resolution, effecting credit and debit transactions through IMPS.

Unified Payments Interface | The workings

UPI, built on IMPS, allows a payment directly and immediately from bank account. There is no need to pre-load money in wallets. It allows payments to different merchants without the hassle of typing one’s card details or net-banking password.

Unified Payments Interface and other payment networks

Unified Payments Interface cards

Currently, NEFT, RTGS, or IMPS systems are used to send or receive money. For all of these, one is required to furnish detailed information of the recipient. For example, for a NEFT transfer, bank account details of the recipient, the IFSC code of the bank, bank account number, etc. are required.

  • For IMPS transactions, either the IFSC code of the bank or the bank-generated MMID code is required. While IMPS transactions are available around the clock, NEFT and RTGS are available for a limited time and not on Sundays or other public holidays.
  • With UPI, only the mobile phone number of recipient is needed and one can send money instantly, any time or day of the week, in a secure environment using just Smartphone.

Unified Payments Interface | Advantages


  • Currently there are less than 25 million credit card users and about 125 million users of mobile wallets. The UPI generates a ‘virtual ID’ and a secret mobile PIN. Money can be transferred from any virtual ID to another virtual ID.
  • The confirmation and reconciliation of transactions are done by the National Payments Corporation of India (NPCI), an umbrella organisation set up by the RBI, signalling the security of transactions.
  • The users of the UPI need not reveal bank account details, PAN etc to each other.
  • The costs are minimal, the system operates 24X7 and the transfer is instantaneous, unlike with a cheque payment, or even a conventional electronic bank transfer (NEFT/RTGS).
  • Also, while pre-paid wallets can’t do more than Rs 10,000 worth of transactions without KYC (know your customer) norms in a given month, a UPI-enabled platform bank account can transfer up to Rs.1 lakh instantaneously.
  • Besides, the cost of each transaction is going to be less than Rs.0.45, and one can also factor in all the savings from, and to, bank accounts.
  • UPI will usher in low cost, high-volume payments and create a new ecosystem where customers and merchants will come together for faster and simpler electronic payments. It is likely to benefit overall payments ecosystem, as the payments service can be provided by banks to the merchant with an entry level smartphone and there is no need to install a PoS machine. Thus, it is likely to reduce the overall merchant acquisition cost for the banks.
  • The most important aspect of UPI is its open architecture. The user interface is fully flexible and banks are free to create most intuitive interface. The innovation will also bring all the key stakeholders on a common platform, creating a plethora of services that are unheard of in today’s global payment offerings.
  • Roughly 2/3rd of India’s GDP by volume or about 95 lakh crores is estimated to be generated in cash transactions. UPI would reduce the need to print and circulate expensive paper currency.
  • UPI would also generate huge data, which would help to accurately map the cash economy and identify areas of tax leakage. Over time it would also be possible to develop credit-profiling models that are more accurate and dynamic.

Unified Payments Interface | Security issue

UPI will need robust security. Apart from strong authentication for end-users, the NPCI server will have to be very secure and completely backed up. There must also be end-to-end encryption to prevent messages being read in transit and fail-safe measures to deal with the theft of mobiles, and loss of connectivity during a transaction etc.


UPI is a great step in right direction and it is set to become an efficient alternative to mobile wallets and make cashless payments faster, easier and smoother for millions of people in India. It has potential to make micro payments cashless which will benefit both buyers and sellers. However, its success is dependent on the number of products and services that banks and other payment system participants shall offer when using the UPI. The Government has visualised an ambitious aspiration of a cashless economy, which efforts like UPI and Payment Banks would ride into reality. It seems that demonetisation effort was not a decision in isolation, rather the government has a long term plan for a transparent and efficient economy.

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