UPI- The birth of a cashless society
Unified Payments Interface (UPI) is a payment system that transfers money between two users via mobile phones.
Think of going from Destination A to Destination B. You would not be able to reach your destination without a means of transport like a car, bus, or bike. UPI is this transport that helps transfer money from Destination A to B.
It is an adhesive that brings together several bank accounts on a single mobile application. Users need to use their bank registered mobile number for creating a UPI ID. Once the UPI ID is set, the user can start making and receiving payments.
How did it start?
India is mostly a cash-dependent society but is fast transitioning to a cashless society. Everything from cheques to demand drafts, people were comfortable with physical evidence of their payments. An online alternative simply carried too much risk in a digitally vulnerable society like India.
This narrowed one’s options to NEFT, RTGS, and other choices that required a physical presence at the bank. However, they were no better as these methods had a time limit and slots that led to delayed payments and missed business opportunities.
This resulted in a situation where there was a dire need for a real-time transaction system that processed payments faster.
National Payments Corporation of India (NCPI) understood this need and brought forth the concept of UPI. NPCI was formed by the Reserve Bank of India (RBI) and the Indian Banks Association (IBA). These entities control the governance and sharing of information, respectively.
UPI was launched on 11th April 2016 with the intent of making people embrace digital payments. Besides, the demonetization spur encouraged people to use cards, and in turn, lessening their dependency on cash.
Implications of UPI:
A large part of the Indian population felt and still somewhat feels uncomfortable with digital transactions. However, the changes UPI brought forward resonated with the audience for several reasons.
You could link several of your bank accounts in one ID and pay in a matter of seconds. As it works 24/7, it allows for immediate payments, and you need not carry hard cash all the time. You pay exactly the amount required, and there are fewer chances of Merchants getting cheated in business.
Affordable internet and mobile phones further stimulated the growth of UPI as a popular tool for payments.
Applications:
Taxi services, food delivery apps, and online grocery delivery apps are some industries that use UPI for payments. Users can also use a hyperlink or QR code to conduct transactions as well. E-commerce websites usually generate hyperlinks that redirect the customer to finish the payment. QR payments are when the merchant and customer are in proximity to each other, for example, in a local store.
The primary users of UPI are:
- Merchants — A person or entity who is expected to receive payments from customers.
- Bank Account Holders — The primary user of a credit/debit card account of a bank.
- NPCI — the organization responsible for payments and settlement systems in India.
- Remitter Banks — The account is linked to the bank, which sends the payment to the beneficiary bank.
- Beneficiary Banks — The account linked to the bank which received the payment.
What is the future of UPI?
According to The Hindu Business Line, India and China are currently the leaders of digital innovation today.
Singapore has also been added to the list of countries introduced to UPI. It is also possible that UPI Payments might even be merged with Artificial Intelligence in the future. It sure has endless possibilities in the entire financial eco-system.
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