HOW UPI WORKS?

UPI has become the most easy and efficient method for online payment in this modern age of technology. Here is an overview of what it is, and how it works,

What is UPI?

UPI stands for Unified Payment Interface (UPI). It allows transfer of money from one bank account to another instantly via one’s mobile phone. Payments can be made via app on mobile device only. The money transfer via UPI works on 24x7 basis.

How does it work?

The Unified Payments Interface (UPI) offers an architecture and a set of standard Application Programming Interface (API) specifications to facilitate online payments. It aims to simplify and provide a single interface across all NPCI systems besides creating interoperability and superior customer experience. Instant “Pay” (push) and “Collect” (pull) using single click two factor authentication where mobile is first factor (what you have) and MPIN/Biometrics (what you know/are) as second factor. Ability to use Virtual Payment Addresses(VPA), thus eliminating the need to provide sensitive account information to merchants or other individuals.

People who build the UPI switch. A switch handles authentication and communication between the issuing and acquiring banks. ‘Generation Two’ switches were card machines on the merchants’ premises; authentication was handled by the machine and the bank customers’ private PIN was keyed into the merchant’s machine, and needed an expensive leased line to operate. ‘Generation Three’ switches are UPI ones—they enable customers to key in PIN/OTP (one-time password) on his/her smartphone, while authentication happens centrally. One big worry is how to get banks to agree to connect to the switch.

Those who connect to the switch. In UPI’s case, they are called PSPs. (Old players were called Payment Gateways but these are now passed.) There will be many PSP builders—some inside banks, many outside as start-ups and merchants.

Benefits of using UPI:

Now, one can use virtual/disposable accounts to do transactions generated right from the bank app. Through this, the merchant or the payee will not know your details and even if his system is hacked, you needn’t worry about losing money.

This was a short blog on UPI systems. Hope it was helpful. If any corrections please let me know.