Babas Explainer Indias UPI Push
Babas Explainer Indias UPI Push
Babas Explainer Indias UPI Push
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Syllabus
Context: On January 10, the National Payments Corporation of India (NPCI) paved the
way for international (phone) numbers to be able to transact using UPI.
A day later, the Union Cabinet chaired by Prime Minister Narendra Modi approved
an incentive scheme for promotion of RuPay debit Cards and low-value BHIM-UPI
transactions (person-to-merchant) in FY 2022-23. The scheme has an outlay of Rs
2,600 crore.
These measures could prove significant for the UPI-based payment ecosystem
which has largely witnessed a sequential rise in the previous calendar year.
What is UPI?
Unified Payments Interface (UPI) is a common platform through which a person
can transfer money from his bank account to any other bank account in the country
instantly using nothing but his/her UPI ID.
It was launched in 2016 as Mobile First digital payments platform
It enables immediate money transfer through mobile device round the clock 24*7
and 365 days based on the Immediate Payment Service (IMPS) platform so as to
make cashless payments faster, easier and smoother.
UPI is completely interoperable and as such, it is unique in the world, where you
have an interoperable system on the ‘send’ and ‘receive’ side
It also caters to the “Peer to Peer” collect request which can be scheduled and
paid as per requirement and convenience.
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Developed by: National Payments Corporation of India (NPCI) under the
guidance from RBI.
NPCI, an umbrella organisation for operating retail payments and settlement
systems in India, is an initiative of Reserve Bank of India (RBI) and Indian
Banks’ Association (IBA) under the provisions of the Payment and Settlement
Systems Act, 2007.
It is a “Not for Profit” Company under the provisions of Section 25 of
Companies Act 1956 (now Section 8 of Companies Act 2013), with an
intention to provide infrastructure to the entire Banking system in India for
physical as well as electronic payment and settlement systems.
According to the Reserve Bank of India’s Payment Vision 2025, UPI is expected to
register an average annualised growth of 50 per cent
How is it unique?
Immediate money transfer through mobile device round the clock 24*7 and 365
days.
Single mobile application for accessing different bank accounts.
Single Click 2 Factor Authentication – Aligned with the Regulatory guidelines, yet
provides for a very strong feature of seamless single click payment.
Virtual address of the customer for Pull & Push provides for incremental security
with the customer not required to enter the details such as Card no, Account
number; IFSC etc.
QR Code
Best answer to Cash on Delivery hassle, running to an ATM or rendering exact
amount.
Utility Bill Payments, Over the Counter Payments, QR Code (Scan and Pay) based
payments.
Donations, Collections, Disbursements Scalable.
Raising Complaint from Mobile App directly.
The popularity of UPI is evident — from tiny roadside shops to large brands, many
merchants accept UPI-based payments. The primary reasons for this penetration are:
UPI accepts transactions as small as one rupee and for merchants, the absence of
Merchant Discount Rate that they have to pay to their banks that acts as a
significant incentive to accept UPI payments.
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 fulfil a transaction in a few seconds.
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Safer, Secured and Innovative
Payment basis Single/ Unique Identifier
Enable seamless merchant transactions
For Merchants
For Customers
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What is the significance of UPI?
Convenience to All stakeholders: It created interoperability between all sources
and recipients of funds (consumers, businesses, fintechs, wallets, 140 member
banks). It allows for instant settlement in fiat money – Convenience to consumers
and merchants.
Promotes Formalisation and Digital Banking: UPI has now become the most
dominant way to pay in the offline and online place especially for retail payments,
and has thus helped in driving the digital banking.
Move towards less-cash Economy: UPI manages to materially reduce the need
for the public to deal in cash. If the demand for paper currency diminishes, banks
would save on the logistics costs involved in safely storing and transporting paper
currency and regularly refilling their ATMs.
Increasing tax revenue: With digitalization, the market’s black money can be
diminished, increasing compliance and increasing tax revenue.
Strengthen Banking Health: UPI’s use prompts bank account holders to hold
larger balances in their savings accounts, providing banks with a low-cost source of
funds.
Blunted data monopolies – Big tech payment firms have strong autonomy but
weak fiduciary responsibilities over customer data. UPI which is based on open
framework thus enables any new startup to easily launch their payment solution.
Soft Power: It enables India to emerge as frontrunner in fintech & payment
solutions across world. In 2020, Google requested the U.S. Federal Reserve to
develop a solution similar to India’s UPI citing the thoughtful planning, design and
implementation behind it.
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Currently, all the internal systems as well as ecosystem players such as banks,
NPCI, etc only understand India-based mobile numbers for UPI transactions. With
this enablement, a significant number of systems will need to start understanding
the same. This might also require changes in integration with SMS service
providers and international telecom networks.
Main Practice Question: Do you think international on-boarding for UPI is going to
create more challenges than opportunities?
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