UPI - Unified Payment Interface

The way we undertake money transactions in India is expected to change dramatically with the introduction of the Unified Payment Interface (UPI), which aims to move the country towards a more cashless model. Developed by The National Payment Corporation of India (NPCI), the payment interface is expected to be a game changer in mobile banking.

Shikha Sharma, managing director and CEO of Axis Bank, considers UPI the ‘WhatsApp moment’ for payments in India.

The Reserve Bank of India (RBI) in its Payment System Vision Document (2012-2015) had mentioned the use of UPI for achieving its goal of a lower cash-intensive society and financial inclusion using the latest technology.

Here’s a closer look at what the RBI is trying to achieve through UPI and how it will make our lives easier. But before that, let’s look at the current status of non-cash transactions in the country.

According to an NPCI document, the number of non-cash transactions per person stands at just 6 per year. Only a fraction of the 10 million-plus retailers in India have card payment acceptance infrastructure – presently this number stands at 0.6 million, or 6%. What these numbers reflect is the potential that exists as penetration of smart phones is projected to increase from the current level of 150 million to 500 million over the next few years.

What are the key drivers of UPI?

The NPCI document points out that the key goal of implementing UPI was to simplify and provide a single interface across all segments. The key drivers for this are:

Simplicity: The thinking behind the UPI was to make the application as simple as possible. Paying and receiving payments should be as easy as swiping a phonebook entry and making a call on mobile phone, says the document. An account holder should be able to send and receive money from their mobile phone with just an identifier without having any other bank/account details. All they need to do is to "pay to" or "collect from" a “payment address” (such as Aadhaar number, Mobile number, RuPay Card, virtual payment address, etc.) with a single click.

Innovation:  The idea here was to come up with a solution so that innovations on both payee and payer side can evolve without having to change the whole interface. It should allow application providers to take advantage of enhancements in mobile devices, provide integrated payments on new consumer devices provide innovative user interface features, take advantage of newer authentication services, etc.

Adoption:  Given the size of the potential user base, the key was to have a solution which should not crash and be scalable to a billion users and enable large scale adoption. It should allow gradual adoption across smartphone and feature phone users and provide full interoperability across all payment players, phones, and use cases. People using smartphone should be able to send money to others who are not yet using any mobile application and vice versa. Similarly, it should allow full interoperability between multiple identifiers such as Aadhaar number, mobile number, and new virtual payment addresses.

Security: One of the key areas of concern among users is security. The solution had to provide end-to-end strong security and data protection. The trick here was not to reveal too much data like banking or other personal details which could be misused. For convenience, the solution also had to offer 1-click 2-factor authentication, protection from phishing, risk scoring, etc.

Cost:  India is a cost-conscious country and any product with a high cost is likely to have a short life. Since mobile phone number is used as an authentication (credential capture) device, use of virtual payment addresses, and use of third party portable authentication schemes such as Aadhaar should allow both acquiring side and issuing side cost to be driven down.

What are the objectives of UPI?

The key objective of a unified system is to offer an architecture to facilitate next generation online immediate payments leveraging trends such as increasing smartphone adoption, Indian language interfaces, and universal access to Internet and data.

UPI is expected to further propel easy instant payments via mobile, web, and other applications. The payments can be both sender (payer) and receiver (payee) initiated and will be carried out in a secure, convenient, and integrated fashion. Virtual payment addresses, 1-click 2-factor authentication, Aadhaar integration, use of payer’s smartphone for secure credential capture, etc. are some of the core features. It supports the growth of e-commerce, while simultaneously meeting the target of financial inclusion.

Who can use UPI?

Anyone with a mobile phone and a bank account will be able to take benefit of UPI for either receiving or transferring money.

How is it different from the existing system?

In the present system, in order to make any transaction the account holder’s bank IFSC code is needed, which reveals bank account details. But using UPI, all one needs is a virtual address which is unique to you and it camouflages the bank and personal detail of the user or the receiver behind it.

What is the level of security in UPI?

UPI has a single click-two factor authentication system which means that with one click the transaction is authenticated at two levels. The user will need a mobile phone with a mobile pin called MPIN and a virtual ID offered by the provider. With a click the transaction is checked if the mobile pin matches with the virtual address only then does the transaction goes through.

Here is an example to explain the process.

Suppose you have bought some goods at a mall and need to make a payment for it. You have to inform your virtual address to the person at the counter who enters the address in his or her system. The mall’s system then sends an authentication message to the virtual address which is mapped to your mobile. Only after receiving the message and acknowledging it by entering your password is the transaction complete and the amount debited from your bank account or wallet.

Is virtual address unique to the user?

Virtual addresses offered by the provider need not be permanent. For example, a provider may offer “one time use” addresses or “amount/time limited” addresses to customers. In addition, innovative usage of virtual addresses such as "limit to specific payees" (e.g., a virtual address that is whitelisted only for transactions from IRCTC) can help increase security without sacrificing convenience. PSPs can allow their customers to create any number of virtual payment addresses and allow attaching various authorisation rules to them.

UPI is important for implementation of the JAM (Jhan Dhan Yojana, Aadhar and Mobile) trinity which Finance Minister Arun Jaitley spoke of during his Union Budget presentation. Raj Jain, chairman and managing director of RS Software, the company that helped NPCI launch UPI, said: “The launch of UPI will go down in history as amongst the most important initiatives to transform India.”