{"id":195190,"date":"2022-07-12T19:00:05","date_gmt":"2022-07-12T13:30:05","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=195190"},"modified":"2023-02-22T12:13:08","modified_gmt":"2023-02-22T06:43:08","slug":"upi-and-digital-payments-in-india","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/upi-and-digital-payments-in-india\/","title":{"rendered":"UPI and Digital Payments in India &#8211; Explained, pointwise"},"content":{"rendered":"\n<table style=\"width: 100%; border-collapse: collapse; background-color: #f7f2f2;\">\n<tbody>\n<tr>\n<td style=\"width: 100%;\">For\u00a0<strong>7PM Editorial<\/strong>\u00a0Archives click<strong>\u00a0<a href=\"https:\/\/forumias.com\/blog\/7-pm-editorials\/\" target=\"_blank\" rel=\"noopener\">HERE <\/a>\u2192<\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h5>Introduction<\/h5>\n<p><span style=\"font-weight: 400;\">The Unified Payments Interface (UPI) is a convenient way of transferring funds from one bank account to another. It has gained huge popularity since its launch in 2016. The popularity is testified<\/span><span style=\"font-weight: 400;\"> by its adoption from tiny roadside shops to large consumer brands. In May 2022, the UPI processed payments worth INR 10,41,520 Crore and <strong>crossed INR 10 Lakh Crore threshold in monthly transactions for the first time since its launch<\/strong><\/span><span style=\"font-weight: 400;\">. More than 40% of all retail digital payments (non-cash and non-paper payments) in India happen through UPI now.\u00a0<\/span><\/p>\n<h5>About the evolution of Digital Transactions in India<\/h5>\n<p><span style=\"font-weight: 400;\">In 1996, Industrial Credit and Investment Corporation of India (ICICI) introduced online banking services in India, by using electronic banking at its branches.\u00a0<\/span><span style=\"font-weight: 400;\">Later in 1999, banks such as HDFC, IndusInd, and Ci launched online banking facilities. The trend continued to grow with increasingly more banks launching net banking services in India. This marked the beginning of the digital transactions era in India \u2013 several new banks started offering services to users.<\/span><\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-195289 aligncenter\" src=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Digital-Payment-Systems-in-India-1.jpeg?resize=750%2C482&#038;ssl=1\" alt=\"Types of Digital Payments Systems in India UPSC\" width=\"750\" height=\"482\" srcset=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Digital-Payment-Systems-in-India-1.jpeg?resize=1024%2C658&amp;ssl=1 1024w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Digital-Payment-Systems-in-India-1.jpeg?resize=300%2C193&amp;ssl=1 300w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Digital-Payment-Systems-in-India-1.jpeg?resize=768%2C493&amp;ssl=1 768w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Digital-Payment-Systems-in-India-1.jpeg?w=1443&amp;ssl=1 1443w\" sizes=\"auto, (max-width: 750px) 100vw, 750px\" \/><\/p>\n<h5>About UPI<\/h5>\n<p><span style=\"font-weight: 400;\">The UPI was launched in 2016 and is operated by the National Payments Corporation of India (NPCI). It is a system that powers multiple bank accounts into a single mobile application. <\/span><span style=\"font-weight: 400;\">The NPCI was formed in 2009 as an initiative of the Reserve Bank of India (RBI) and the Indian Banks\u2019 Association (IBA) with the goal to create a robust payment and settlement infrastructure.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">UPI operates on top of the Immediate Payment Service (IMPS) which was created by the NPCI for immediate fund transfers.<\/span><\/p>\n<table>\n<tbody>\n<tr>\n<td><b>What is IMPS?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Immediate Payment Service (IMPS) is a service provided by banks to ensure real-time interbank funds transfer. In NEFT, transactions are cleared in batches, but in IMPS transactions are cleared instantaneously. In IMPS, the funds transfer is thus, instantaneous.<\/span><\/li>\n<li style=\"font-weight: 400;\">There is limit of INR 2 Lakh per transaction on IMPS. NEFT has no such limit.<\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The IMPS facility can be accessed through multiple channels, such as mobile phone, ATM, the internet, and SMS.\u00a0<\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-195235 aligncenter\" src=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Working-of-UPI.png?resize=750%2C363&#038;ssl=1\" alt=\"Working of the UPI UPSC\" width=\"750\" height=\"363\" srcset=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Working-of-UPI.png?w=798&amp;ssl=1 798w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Working-of-UPI.png?resize=300%2C145&amp;ssl=1 300w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Working-of-UPI.png?resize=768%2C371&amp;ssl=1 768w\" sizes=\"auto, (max-width: 750px) 100vw, 750px\" \/><\/p>\n<p style=\"text-align: center;\"><em>Working of the UPI<\/em><\/p>\n<h5>What is the current status of UPI and Digital Transactions?<\/h5>\n<p><b>\u2018Prime Time For Real Time 2022\u2019<\/b><span style=\"font-weight: 400;\"> report states that India\u2019s real-time payments include the Immediate Payment Service (IMPS) and Unified Payments Interface (UPI). Both of them have seen increased usage in the last few years.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">India accounted for the largest number of real-time transactions in 2021 (48.6 billion). The next highest transactions were in China (18 billion transactions). Thus, transactions in India were 2.7 times that of China. The magnitude is even more contrasting when compared with other countries e.g., the number of transactions in India were<\/span><span style=\"font-weight: 400;\">\u00a0almost <strong>seven times greater than the combined real-time payments volume of the world\u2019s leading economies<\/strong>: the US, Canada, the UK, France and Germany (7.5 billion).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The report also forecasted that the share of all transactions occurring via real time instrument was expected to increase to 70.7% in 2026 from the present 31.3%.<\/span><\/p>\n<p><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" class=\"alignnone size-large wp-image-195248 aligncenter\" src=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Amount-of-Transactions.png?resize=750%2C392&#038;ssl=1\" alt=\"Amount of UPI Transactions UPSC\" width=\"750\" height=\"392\" srcset=\"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Amount-of-Transactions.png?resize=1024%2C535&amp;ssl=1 1024w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Amount-of-Transactions.png?resize=300%2C157&amp;ssl=1 300w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Amount-of-Transactions.png?resize=768%2C402&amp;ssl=1 768w, https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2022\/07\/Amount-of-Transactions.png?w=1226&amp;ssl=1 1226w\" sizes=\"auto, (max-width: 750px) 100vw, 750px\" \/><\/p>\n<p>The number of banks that are live on UPI has increased from 21 in April 2016 to 330 in June 2021. The number of transactions has reached historic high of 5.96 billion in May 2022 before falling to 5.86 billion in June 2022.<\/p>\n<h5>Why are the reasons for wide adoption of UPI?<\/h5>\n<p><b>First<\/b><span style=\"font-weight: 400;\">, there is no Merchant Discount Rate (MDR) charges for merchants that are levied on card based transactions. This incentivizes merchants to accept UPI transcations.<\/span><\/p>\n<p><strong>Second<\/strong>, the UPI is convenient to use. The users only require a smartphone connected to the internet. Users prefer <span style=\"font-weight: 400;\">UPI instead of using devices like the Point-of-Sale card-swiping machines.<\/span><\/p>\n<p><b>Third<\/b><span style=\"font-weight: 400;\">, the UPI is supported by a<\/span><b> robust ecosystem <\/b><span style=\"font-weight: 400;\">which makes funds transfer seamless and efficient. This includes the presence of high-speed internet in many parts of the country, technologies that power a smartphone, cloud computing and modern software engineering technologies that fulfill a transaction in a few seconds.<\/span><\/p>\n<p><b>Fourth<\/b><span style=\"font-weight: 400;\">, it offers a <\/span><b>significant degree of security<\/b><span style=\"font-weight: 400;\"> to avoid misuse. The security of a UPI transaction is tied to the user\u2019s authentication with the mobile phone. <\/span><span style=\"font-weight: 400;\">There is a mobile personal identification number (MPIN) for the UPI application and there is one more layer of security when the bank\u2019s online transaction PIN is to be keyed in as part of every UPI transaction. In case a mobile number is blocked due to theft, then the<\/span><span style=\"font-weight: 400;\">\u00a0UPI transactions on that mobile number will also be halted.<\/span><\/p>\n<p><b>Fifth<\/b><span style=\"font-weight: 400;\">, the <\/span><b>COVID-19 pandemic<\/b><span style=\"font-weight: 400;\"> significantly boosted digital transactions in wake of SMS (Sanitize, Mask and Social Distance) protocols and lockdowns. This also made UPI more popular with the masses.<\/span><\/p>\n<h5>What recent innovations have been done in UPI?<\/h5>\n<p><span style=\"font-weight: 400;\">The NPCI has come up with multiple new innovations over the past few years: recurring payments for monthly bills, international payments, linking UPI to credit cards etc. <\/span><span style=\"font-weight: 400;\">Further it has introduced<\/span><b> 123PAY<\/b><span style=\"font-weight: 400;\"> that allows people without smartphones to use UPI using missed calls.<\/span><\/p>\n<p><b>Introduction of Dynamic QR codes<\/b><span style=\"font-weight: 400;\">. It allows one-time payment by letting a merchant generate a QR (Quick Response) code that is valid for just that specific transaction and many more features.\u00a0<\/span><span style=\"font-weight: 400;\">The dynamic QR code is a great boost to security and trust because there is no risk of someone tampering with a static QR code. <\/span><span style=\"font-weight: 400;\">A static QR code is widely prevalent.<\/span><\/p>\n<h5>What are the benefits associated with UPI?<\/h5>\n<p><b>First<\/b><span style=\"font-weight: 400;\">, widespread adoption of real-time payments helped Indian businesses and consumers save approximately US$ 12.6 billion in payment transaction cost. <\/span><span style=\"font-weight: 400;\">Digital payments <strong>improve the cash flow<\/strong> situation of the businesses as the payments are instantaneous. It helps increase the number of transactions and thus economic activity. It also <b>unlocked <\/b>US$ 16.4 billion or 0.56% of the <b>Indian Gross Domestic Product (GDP) output<\/b>. <\/span><\/p>\n<p><b>Second, <\/b><span style=\"font-weight: 400;\">with digitalization, <\/span><b>the amount of black money in the market can be reduced <\/b><span style=\"font-weight: 400;\">leading to greater compliance and more tax revenue.<\/span><\/p>\n<p><b>Third<\/b><span style=\"font-weight: 400;\">, it <\/span><b>enhanced consumer faith in digital transactions<\/b><span style=\"font-weight: 400;\"> and encouraged them to shun the usage of cash.<\/span><\/p>\n<p><b>Fourth<\/b><span style=\"font-weight: 400;\">, The UPI has had a<\/span><b> huge impact on the banks and the fintech industry<\/b><span style=\"font-weight: 400;\">. It provides banks with a low-cost alternative to cash and helps them save on merchant onboarding costs.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The data acquired through digital transactions also enables banks to market other services, have a better understanding of the spending pattern, and serve consumers better.\u00a0<\/span><span style=\"font-weight: 400;\">The <strong>open architecture helps fintech firms to drive innovation<\/strong> and develop newer products and unique services.<\/span><\/p>\n<h5>What are the challenges in further scaling-up UPI?<\/h5>\n<p><b>First<\/b><span style=\"font-weight: 400;\">, some experts fear it would be <\/span><b>difficult to sustain UPI in the long run <\/b><span style=\"font-weight: 400;\">without levy of MDR to fund its infrastructure. Currently, neither customer nor merchant pays any extra price.<\/span><\/p>\n<p><b>Second<\/b><span style=\"font-weight: 400;\">, although the use of cash has decreased since the advent of UPI, cash transactions are still significant<\/span><span style=\"font-weight: 400;\">. People <\/span><b>still prefer to use cash <\/b><span style=\"font-weight: 400;\">due fear of tax terrorism and its greater acceptance as a mode of payment.<\/span><\/p>\n<p><b>Third<\/b><span style=\"font-weight: 400;\">, still there is <\/span><b>not 100% penetration of internet and smartphones<\/b><span style=\"font-weight: 400;\"> amongst the population which makes it nearly impossible to do UPI transactions.<\/span><\/p>\n<p><b>Fourth<\/b><span style=\"font-weight: 400;\">, there is a<\/span><b> lack of digital literacy<\/b><span style=\"font-weight: 400;\"> in masses due to which they are unable to use the UPI system. Further, <\/span><b>use of mainly english language<\/b><span style=\"font-weight: 400;\"> in UPI apps reduces their adoption.<\/span><\/p>\n<h5>What steps can be taken going ahead?<\/h5>\n<p><b>First<\/b><span style=\"font-weight: 400;\">, it is time to accelerate efforts and expand UPI\u2019s impact <\/span><b>beyond the top-tier metropolitan areas<\/b><span style=\"font-weight: 400;\">, and replicate its success for the benefit of the entire country, especially rural areas.<\/span><\/p>\n<p><b>Second<\/b><span style=\"font-weight: 400;\">, cost savings from the reduction in hassles and overheads for banks (by supporting UPI) can be used to bear the cost of operating UPI in the long run.<\/span><\/p>\n<p><b>Third, <\/b><span style=\"font-weight: 400;\">initiatives like<\/span><b><em> Bharat<\/em> Net project<\/b><span style=\"font-weight: 400;\"> (for internet connection) and <\/span><b>PMGDisha<\/b><span style=\"font-weight: 400;\"> (for digital literacy) should be implemented with full vigor and support.<\/span><\/p>\n<p><b>Fourth<\/b><span style=\"font-weight: 400;\">, India <\/span><b>must share this technology with fellow countries<\/b><span style=\"font-weight: 400;\"> in order to earn additional forex and also to enhance its soft power across the globe. UPI has already been rolled out in UAE, Singapore and Nepal.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In 2019, Google requested the U.S. Federal Reserve to develop a solution similar to India\u2019s UPI citing the thoughtful planning, design and implementation behind it. India can support the U.S in this regard.<\/span><\/p>\n<h5>Conclusion<\/h5>\n<p><span style=\"font-weight: 400;\">India is the poster child for real-time payments and a shining example of how a coordinated, collective, nationwide effort can unlock huge economic and social potential. Keeping this in mind, the reach and acceptability of UPI need to be enhanced further to further unlock economic value.<\/span><\/p>\n<p>Source: <a href=\"https:\/\/www.thehindu.com\/business\/upi-the-dawn-of-digital-fintech-nirvana\/article65599052.ece\" target=\"_blank\" rel=\"noopener\">The Hindu<\/a>, <a href=\"https:\/\/www.business-standard.com\/budget\/article\/economic-survey-upi-is-single-largest-retail-payment-system-in-the-country-122013100968_1.html\" target=\"_blank\" rel=\"noopener\">Business Standard<\/a>, <a href=\"https:\/\/www.fortuneindia.com\/enterprise\/how-upi-is-making-indias-digital-economy-boom\/105433\" target=\"_blank\" rel=\"noopener\">Fortune India<\/a>, <a href=\"https:\/\/www.outlookindia.com\/business\/india-s-upi-far-advanced-than-similar-system-in-use-in-developed-nations-says-report-news-196701\" target=\"_blank\" rel=\"noopener\">Outlook<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>For\u00a07PM Editorial\u00a0Archives click\u00a0HERE \u2192 Introduction The Unified Payments Interface (UPI) is a convenient way of transferring funds from one bank account to another. It has gained huge popularity since its launch in 2016. The popularity is testified by its adoption from tiny roadside shops to large consumer brands. In May 2022, the UPI processed payments&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/upi-and-digital-payments-in-india\/\">Continue reading <span class=\"screen-reader-text\">UPI and Digital Payments in India &#8211; Explained, pointwise<\/span><\/a><\/p>\n","protected":false},"author":10322,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[11297,11296],"class_list":["post-195190","post","type-post","status-publish","format-standard","hentry","category-7-pm","category-public","tag-unified-payments-interface","tag-upi","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/195190","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10322"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=195190"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/195190\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=195190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=195190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=195190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}