Unified Payment Interface (UPI), launched by National Payments Corporation of India (NPCI) in January 2016, is a server which holds mobile applications of various banks. At present, 29 payment applications are available on this server.
NPCI is a non-profit organisation set up by the consortium of banks, India Banks Association, with active support from the central banking regulator Reserve Bank of India. It is an apex organisation for all e-payment services in India.
Before the launch of UPI, customers used to make payment through smartphones using the Immediate Payment Service (IMPS) server. So a person could make payment to any other person using a mobile application of a bank which is available on IMPS server. The person could download the app from the Google Play Store on his smartphone.
The UPI is the updated and simplified version of IMPS. A person who was using an application from the IMPS server needed to enter details such as an account number, account holder’s name, and an IFSC code to transfer the money. For UPI-enabled application, these details are not required.
The most upgraded among all is UPI. Mobile applications on UPI server need either Aadhaar number or cell phone number or virtual payment address (VPA) to transfer money from one account to another. In the case of IMPS application, one application could perform functions of one bank only while in the case of UPI, one single application can transfer money from multiple accounts in multiple banks.
For instance, if a person holds two separate accounts – one in HDFC and another in ICICI, he doesn’t need to download two different applications of two banks.
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He only has to download one application irrespective of the bank in which he holds an account. He can download an application of Punjab National Bank and can connect all his multiple accounts from this application. He doesn’t need to have necessarily an account in PNB.
In the case of IMPS, the account holder had to download the application of the bank in which he holds an account. Also for multiple accounts, he needed to download various applications.
That’s the beauty of UPI due to which it has posed the biggest threat to the existence, survival, and growth of many financial technology companies in India.
UPI is the simplest of all e-payment mechanism
If you hold an account in any bank in India and if the bank is UPI-enabled, you have to download an application of any bank to enjoy digital payment facilities. Today, 29 banks are available on the UPI server so one can download any bank’s application.
Once the application can be found on your smartphone, you have to establish the link between the app and your bank account which is a one-time process. You have to enter your bank account details to create a link.
Suppose, you hold an account in three banks, let’s say – HDFC, ICICI, and Bank of Baroda. So once you download the application, you have to establish a link between all your accounts and the application one by one.
With one application, you can access all your multiple bank accounts and successfully transfers the money from one account to another or from any of your accounts to others’ accounts.
So once you establish a link between your bank account and the application, you get a virtual payment address (VPA) which is like your email id. All VPAs begin with the mobile number of users, for instance, your mobile number @ your bank’s website.
The unique feature of UPI is that once a user gets a VPA, he doesn’t need any bank or account details of any person to transfer money. You just need to tell your VPA to a merchant who will generate demand for money.
The order flashes on your application, and you can make the payment from any bank out of many that are linked to your applications by entering a four digit MPIN. You can share your VPA to anyone from whom you have to take money.
To make the process more secure, it is mandatory to enter the PIN to open the application and then use the PIN once again to transfer the money.
How UPI is different from mobile wallet
Each mobile wallet company owns an application, and a user has to download the application from the play store to get its service. The only different between your actual wallet and the mobile wallet is that you withdraw money in physical form and keep in your physical wallet, however, in a mobile wallet, you withdraw money from your account and hold it in your mobile wallet.
You can link your mobile wallet with your account, and whenever you need money, you can transfer the money from your account to the mobile wallet and then pay whosoever you want to.
To enjoy the services of different mobile wallet companies, you have to download each company’s application separately.
Does UPI kill FinTechs in India?
As far as financial technology companies are concerned, the UPI-enabled applications are expected to impact those businesses that are into digital payment and mobile wallets like PayTM, Freecharge, Mobikwik, Oxigen and Citrus Pay.
Industry experts say that once the UPI-enabled applications become popular and customers become aware of its benefits, they may not go for any other e-payment platform or mobile applications because UPI-enabled applications offer outstanding features.
It’s safe and secure because a person doesn’t need to share his account number. Instead, he shares his VPA to a merchant or anyone who he has to pay. Secondly, UPI-enabled applications directly transfer money from the account holder’s account whereas in the case of a mobile wallet, the user to first transfer money from his account to the wallet and then use it.
However, many experts are of the view that this new revolution in e-payment sector in India can benefit mobile wallets or other private e-payment firms if RBI allows them to join UPI sever.
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At present mobile applications of banks are on UPI server, and private financial technology companies dealing with digital payment are not part of it. If private firms dealing in financial transactions join UPI, this will enhance competition and benefit the consumers.
A lot of mobile wallet companies claim that instead of hampering their business, UPI will assist thrive their business as mobile wallet users will now find it cost efficient and easy to transfer cash from their bank account to the wallet.
Another argument that supports digital payment companies is that the success of any payment application depends on several factors such as its customer friendly user-interface, useful back-end functions and customer and merchant adoption.
Only saying that an app is UPI-enabled may not attract both clients and retailers. It has to be user-friendly and appealing for both categories of users.
The existence and operations of digital wallets among customers and merchants much before the arrival of UPI-enabled applications give them a first-mover advantage. At present PayTM has 120 million users, Mobikwik has 30 million users, and Oxigen has 20 million users. Banks will have to make a lot of efforts to beat these digital wallets companies.
In fact, some of the digital wallet companies are planning to collaborate with banks to help them get more merchants and consumers adopt UPI.
What makes a mobile wallet popular among users are a lot of offers and discounts, value-added services and various other attractive features. Banks application may not offer such discounts and promotional offers as they primarily focus on transfer and payment from the application.
There is no denying the fact that UPI has revolutionised the e-payment sector in India and has posed a significant threat to the existence and operation of digital payment companies, however, it’s tough and too early to say that UPI will wipe out all other digital payment platforms and have a monopoly in the sector.
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