Unified Payment Interface (also known as UPI) is a system developed by the National Payments Corporation of India that facilitates interbank peer-to-peer or person to merchant transactions. It allows the owner of the account to make or receive payments or scan a Quick Response(QR) code to pay a merchant, individual, or authorize payments.
The difference between stumbling blocks and stepping stones is how you use them
The pandemic has brought a change that most would never imagine would happen. While people were going frantic due to the threat to their lives, society still needed to continue to operate. Contact- was the biggest issue, isolating a human being, making something as small as going to pick up groceries seemed like a daunting task. Amid these difficult times, the Indian Government supported the people by promoting cashless payments which resulted in the booming of the digital payment industry.
Unified Payment Interface (also known as UPI) is a system developed by the National Payments Corporation of India that facilitates interbank peer-to-peer or person to merchant transactions.
It allows the owner of the account to make or receive payments or scan a Quick Response(QR) code to pay a merchant, individual, or authorize payments. Whilst earlier a person looking to make a transaction would have to request the bank for payment or deposits, through UPI an app will collect the money from the bank on your behalf or deposit money into your account. The consumer receives a virtual payment address(VPA) which is linked to their mobile number and bank account.
The Reserve Bank of India (RBI) estimates payments through digital modes to jump to 1.5 billion transactions, worth Rs 15 trillion a day in five years. The current daily transactions average around 100 million transactions with a volume of Rs 5 trillion.
Why were people hesitant to shift from cash to digital payments?
- Frauds: Cards getting stolen or duplicated is not unheard of. Due to the uncertainty of the safety of the transaction, many customers would rely on cash payment.
- Lack of trust: Due to lack of awareness, customers were unsure whether to trust this form of payment. People who are not completely educated as to how to use a card or know what information to keep confidential would fear the security of the payment.
- Complexity: Cash payments were a more convenient mode to make a transaction since there were no machines required, unlike a debit or credit card. If a person wanted to transfer money into a bank account, they would have to add the beneficiary’s details such as account number, IFSC code, bank name, if they desired to transact digitally.
- High charges: Merchants would have to give a 2% fee on every card transaction to companies such as Mastercard or VISA. For smaller shops, this fee was very high and not feasible for the merchants.
UPI payments are free of charge, are functional 24x7, and have a huge network within the country enabling payments to be made from one part of the country to another.
This real-time payment system has not only turned out to be the best financial innovation post gaining independence in India but also has made India a pioneer of the financial revolution. Reports on UPI payments have shown that there has been a threefold jump in volume and value over the fiscal year of April 20–21. Due to this highly accelerated growth, India now is the largest real-time payments market in the world.
The success of the UPI system in India has been acknowledged globally. With tech giants such as Google, has recommended the US Federal Reserve to follow India’s example and start its real-time payment system ‘FedNow’. Global acceptance of UPI payments will lead to a future wherein a consumer can travel internationally with a forex card and without having to pay high conversion charges to convert to the country’s currency. Countries such as Singapore, Hong Kong, UAE are willing to accept UPI payments making international payments more convenient for the customer.
The interoperable nature of the UPI system provides us with the freedom from being bound to any application. There is no reliance on any particular app to make a transaction. Cashless transactions have a scope of exponential growth in the coming few years. It helps us understand how evolution takes place and human beings can adapt to any situation. UPI system is the next financial revolution that will indeed, change the world we live in.