A fintech firm called Paysharp, which is based in Chennai, has been granted the final approval to function as a Payment Aggregator (PA) by the Reserve Bank of India (RBI).
After receiving an in-principle license in December 2022, the company was awarded approval on August 30, 2024. This approval came after the company received the license.
Paysharp is now one of the 36 payment processors (PAs) that have been approved by the Reserve Bank of India (RBI). Other notable companies in this category include Razorpay, Cashfree, and Stripe.
Acquiring New Customers
After receiving approval from the Reserve Bank of India (RBI), Paysharp is now able to officially engage in India’s payment ecosystem and onboard merchants.
Non-card-based payment solutions are the primary emphasis of the startup company, which provides services such as the Unified Payments Interface (UPI) and virtual account-based collections for NEFT, IMPS, and RTGS transactions.
Among the many industries that Paysharp serves, the government, business-to-business (B2B) organizations, non-banking financial companies (NBFCs), small and medium-sized businesses (SMBs), and the rising eCommerce sector are among those that benefit from the company’s services.
Paysharp, in contrast to other aggregators, which charge fees based on a percentage, provides a flat price approach to provide a service that is more cost-effective for businesses, particularly those who engage in high-volume transactions.
New and Exciting Product Selections
Link Payment and Payment Pages are two of Paysharp’s groundbreaking UPI-powered technologies.
Quick and easy payments can be made by consumers using the Link Payment function, which lets retailers generate and transmit payment links using messaging apps like WhatsApp, text messages, or email.
Alternatively, businesses can use Payment Pages to set up a personalized page where clients can pay instantly.
Along with these services, Paysharp offers branded UPI handles, dynamic QR code generation, and solutions designed for the Bharat Bill Payment System (BBPS), which are ideal for business-to-business bill collections.
In his remarks after the final approval from the Reserve Bank of India (RBI), Krishna Kumar Mani, the co-founder and CEO of Paysharp, expressed that it is a source of tremendous pride to be a recipient of India’s payment system. The company recognizes the significance of the authorization as well as the responsibility that comes along with it, and it will continue to provide businesses with a straightforward and secure payment option that costs a flat rate rather than a percentage-based pricing structure.
In addition, Mani emphasized that the license will make it possible for the company to extend its operations and broaden its presence in the Indian fintech industry.
According to media reports, the GST Council might take into consideration a plan to charge payment aggregators (PAs) 18% GST for digital transactions with a minor value of up to INR 2,000 that are made through debit and credit cards during their upcoming meeting.
Following the overnight demonetization of 500 and 1,000 rupee notes in 2016, the government implemented measures to enhance digital payment systems. The service tax was not applied to debit and credit card transactions that were less than INR 2,000, which was a crucial step. To aid in the country’s transformation to a digitally empowered economy, this measure sought to encourage more individuals to switch from paying with cash to using cards. This occurred in December 2016, far before the Goods and Services Tax was implemented in July 2017.
Updated Plan: Goods and Services Tax for Payment Aggregators
Now, according to updated information circling, the GST Council is considering what amounts to a major shift. When it comes to fees charged by payment aggregators for debit and credit card transactions, they might think about implementing an 18% GST. Such costs for transactions below INR 2,000 have previously not been applied.
The standard range for payment gateway fees is 0.5% to 2% per transaction, with the majority charging approximately 1%. Payment aggregators will most likely charge merchants the new GST on top of these fees.
“If this tax is imposed, it will hurt small businesses which generally have low-value transactions…” said a prominent fintech executive in the payments field, speaking to a renowned media house. The payment processors will simply forward the information to the companies and vendors.
The Absence of the UPI
There may not be much of an effect on digital transactions as a whole because UPI is already the most used digital payment method, particularly for transactions with low values. The volume of transactions processed by UPI surpassed 131 billion in FY24, an increase of 57% year-over-year.
More than 80% of all digital payments made in India’s retail sector currently go through UPI. Keep in mind that this GST is exclusive to online purchases paid for using a credit or debit card. The fee will not impact Unified Payments Interface (UPI) transactions because there is currently no Merchant Discount Rate (MDR). As a result, UPI continues to be an appealing payment option for both customers and retailers for transactions up to INR 2,000, as it does not incur any fees.
Effects on Small Companies
The additional 18% tax on payment gateway fees would not be too much of a problem for retailers who deal in high-value transactions. However, this can have a more noticeable effect on small enterprises that deal in frequent low-value transactions.
Picture this: the merchant pays INR 10 for a 1% payment gateway fee, on top of the 1,000 transaction. This is how the present system works. This price would grow to INR 11.80 after the planned GST—a small increase, but one that can build up rapidly over hundreds of transactions.
Way Forward
The disparity in tax treatment between UPI and debit/credit cards can cause shoppers and businesses to reevaluate their preferences, especially as UPI transactions continue to grow in popularity owing to their zero-cost nature. To keep digital payments everywhere accessible and reasonable, we’ll need to strike a balance.
In the period from April to July of this year, the Unified Payments Interface (UPI), which is India’s very own digital payment system, handled transactions of INR 80.8 lakh crore, with July alone having the largest amount at INR 20.6 lakh crore.
UPI completed transactions totaling INR 19.64 lakh crore in April, followed by INR 20.44 lakh crore in May and INR 20.07 lakh crore in June. In April, UPI processed transactions worth INR 19.64 lakh crore.
Between January and July 2024, the Unified Payments Interface (UPI) handled a total of INR 137.28 lakh crore worth of transactions, which is about equivalent to roughly $1.636 trillion.
Growth in the Number of Transactions
The UPI was used to complete more than 55.6 billion transactions between April and July, with July alone registering the largest number of transactions at 14.43 billion.
From the beginning of this year until July, the nation witnessed a total of 93.4 billion transactions that were conducted through the use of the UPI.
After recording 12.2 billion transactions in January, the payment system then registered 13.10 billion in February, 13.44 billion in March, 13.30 billion in April, 14.03 billion in May, and 13.88 billion in June. In January, the system recorded 12.2 billion transactions.
Going Above and Beyond PayPal and Alipay in China
Recent data from Paysecure, a worldwide payments center, indicates that the Unified Payments Interface (UPI) managed an astonishing 3,729.1 transactions per second. This represents a 58% increase from the 2,348 transactions per second that were recorded in 2022.
Due to this spike, the United Payments Institution (UPI) has surpassed China’s Alipay, PayPal, and Brazil’s PIX in terms of the number of transactions.
These findings were realized as a result of Paysecure’s investigation, which looked at forty of the most popular alternative payment methods all across the world.
In addition, the survey stated that India is the leader in the world when it comes to digital transactions. More than forty percent of payments are made digitally, and the Unified Payments Interface (UPI) is utilized the majority of the time.
A report published by the consulting firm PwC India indicates that the number of transactions on the Unified Payments Interface (UPI) is anticipated to increase by more than thrice, from approximately 131 billion in 2023-24 to 439 billion by 2028-29. This represents 91% of the total retail digital transactions taking place.
About UPI
The Unified Payments Interface (UPI) is a system that integrates several bank accounts into a single mobile application (of any participating bank). This system brings together several banking features, including seamless fund routing and merchant payments, under one roof. Additionally, it accommodates “Peer to Peer” collect requests, which can be scheduled and paid according to the requirements and according to the convenience of the user.
In light of the information presented above, the National Payments Corporation of India (NPCI) carried out a trial launch with 21 member banks. Dr. Raghuram G. Rajan, Former Governor of the Reserve Bank of India, performed the pilot launch on April 11th, 2016, in Mumbai. Beginning on the 25th of August in 2016, financial institutions have begun uploading their UPI-enabled applications to the Google Play store.
A new feature called “Credit Line on UPI” has been introduced on PhonePe’s platform. This feature gives customers the ability to link their pre-approved credit lines to UPI, which enables them to make payments without any hassle. Users now have the ability to control their monthly costs using short-term financing while simultaneously making purchases from millions of different retailers thanks to this unique alternative.
The Reserve Bank of India (RBI) made the decision to broaden the scope of the Unified Payments Interface (UPI) to include pre-approved credit limits, which will result in an increase in the usefulness of UPI applications. Because users may now link their credit lines to UPI on PhonePe, they are able to make payments in a manner that is both more flexible and more efficient.
Win-Win Situation for Both Consumers and Merchants
Additionally, retailers who are using the PhonePe Payment Gateway (PG) are able to provide their clients with an additional payment option throughout the checkout process. This option is available to both consumers and merchants.
Both friction and cart abandonment are reduced as a result of this, which ultimately leads to an increase in sales. Simply integrating with PhonePe PG is all that is required for merchants to add ‘Credit Line on UPI’ as a payment option in order to make this offering available.
How does UPI’s Credit Line Work?
The ‘pre-sanctioned credit line at banks through UPI’ is an innovative financial solution that is aimed to alter the landscape of lending, as stated on the website of the National Payments Corporation of India (NPCI). With the use of this product, people and businesses are able to have access to pre-approved credit lines from financial institutions. Through the facilitation of the supply of low-ticket, high-volume retail loans, it promotes economic growth and enhances financial inclusion.
By utilising cutting-edge technology such as data analytics and artificial intelligence, financial institutions are able to recognise prospects for credit lines for clients and merchants who are engaged in major UPI-based digital payments.
According to the website of the National Payments Corporation of India (NPCI), “Since the customer is going to use UPI, which involves the customer being always connected and available in real time, the banks are able to begin with low-ticket credit lines and work their way up based on consumer behaviour and repayment patterns from there.”
How Can One Use UPI to Access His Credit Line?
Through the use of the same UPI wires that millions of Indians are already familiar with, the credit line on UPI operates. To access it, users can do the following:
1. Users are able to link their Credit Line on UPI by selecting the bank from whom they obtained the Credit Line and clicking on the profile area located in the upper left corner of the home page of the PhonePe app.
2. When the user clicks on the bank, the Credit Line that is related with their enrolled telephone number will be connected on UPI.
3. Once the user has successfully linked it, they will be needed to set a UPI PIN.
Following the completion of this step, the Credit Line option will be displayed as a payment instrument on the payment page while the user is in the process of making a payment.
Recently, Karnataka Bank and Navi Technologies, a business that provides financial services, made an announcement on the launch of a credit line on UPI. Karnataka Bank will be one of the early users of this next-generation credit product as a result of the private sector lender’s strategic agreement with Navi, which will allow them to extend credit lines to customers.
After a bilateral meeting with Malaysian Prime Minister Anwar Ibrahim in New Delhi on August 20, Prime Minister Narendra Modi of India announced intentions to link the Unified Payments Interface (UPI) with PayNet.
Modi announced the partnership at a joint news conference, where he also highlighted plans to connect the UPI and PayNet systems in India and Malaysia, respectively. The goal of this integration is to increase UPI’s global presence and strengthen financial connection. In an effort to expand its quick payment network globally, India has launched UPI in a number of countries, including Nepal, Bhutan, Singapore, the United Arab Emirates, France, Mauritius, and Sri Lanka.
The efforts of the Indian government and the Reserve Bank of India to expand UPI’s global reach were further underlined by Minister of State for Finance Pankaj Chaudhary.
Strengthening the Ties Between the Two Nations
Both Modi and Anwar Ibrahim had a fruitful discussion at Hyderabad House, which led to the statement being made about collaborating on the payment gateway. The two heads of state talked on a variety of issues, including the strengthening of bilateral ties and the cooperation between regional organisations. The Prime Minister of India, Narendra Modi, reaffirmed India’s dedication to the centrality of ASEAN. He also expressed his support for Malaysia’s chairmanship of ASEAN in 2025 and the timely review of the Free Trade Agreement (FTA) between India and ASEAN.
In addition to this, Modi highlighted efforts to improve educational and training possibilities for Malaysian students who are participating in Indian programs. There will be one hundred spots available for Malaysians to apply for scholarships under the Indian Technical and Economic Cooperation (ITEC) programme. These seats will be available in advanced disciplines such as artificial intelligence (AI) and cybersecurity. Not only did Modi announce the establishment of a Thiruvalluvar Chair at a Malaysian university, but he also announced the establishment of an Ayurveda Chair at the University of Tumko Abdul Rahman in Malaysia.
Enhancing Trade Through Mutual Agreement
A number of potential areas of collaboration were named by Modi, including semiconductors, financial technology, the military industry, and artificial intelligence. He also mentioned that Malaysia had made an investment of $5 billion in India over the course of the previous year.
In his statement, Anwar stated that his nation would revitalise its connections with India in every aspect, and that the potential of these relations had not been fully realised over the past few years.
At a press conference, an official from the Indian Ministry of Foreign Affairs named Jaideep Mazumdar announced that the country will issue a one-time export of 200,000 metric tonnes of non-basmati rice to Malaysia. This would be an exception to the embargo that prohibits such shipments.
According to Mazumdar, India is also interested in selling Malaysia aircraft built by Hindustan Aeronautics Ltd., as well as other types of military equipment.
Additionally, the two nations reached an agreement on a framework for the welfare of Indian workers who are going to be employed in Malaysia. Malaysia is a country that obtains labour from approximately 15 countries, including India, for its palm farms and other sectors.
With just over four months to go until the deadline, industry insiders have expressed doubts about the proposed 30% market share cap in the Unified Payments Interface (UPI) category, according to multiple media sources. Multiple newcomers to UPI have been informed, informally, that the limit is not going to be implemented. As a result, they have begun to reassess their growth and investment strategies, according to those briefed on the situation.
According to earlier media reports, new players in the UPI industry are holding off on making large expenditures until they have a better understanding of the market share rule. UPI payments are dominated by PhonePe and Google Pay.
Reportedly, the regulator is of the opinion that new entrants have not been able to reduce the dominance of the top two UPI services, therefore it is left with few choices regarding the implementation of the December 31st deadline.
In response to enquiries, neither NPCI nor the ministry of electronics and IT provided any information. Implementing this law (market cap) will require significant planning, according to several experts. It cannot be done in a day due to the disruptive nature of the process.
The Growth Trajectory
Both the government and NPCI are deeply committed to the expansion of UPI, which reached 14 billion monthly transactions in May. If people keep using the same two or three platforms, what options do we have? So many new entrants are able to set up shop, but they haven’t made a dent just yet.
In July, out of the 14.4 billion UPI transactions, more than 85% were processed through Walmart’s PhonePe and Google Pay. Google Wallet had 5.3 billion transactions, whereas PhonePe had 6.9 billion. With 1.1 billion UPI transactions, Paytm (One 97 Communications) came in third, and Cred (142 million payments) came in fourth.
The Reserve Bank of India (RBI) placed restrictions on Paytm Payments Bank in February, making arguments about the market share ceiling more prominent. Paytm is the third largest UPI operator. On February 5, a prominent media outlet said that Paytm’s problems will cause users and businesses to switch to the two most popular applications.
Why the Cap Cannot Be Implemented?
To prevent the UPI ecosystem from becoming overly dependent on only one or two platforms, NPCI first proposed a market share cap. In December 2022, NPCI delayed implementation for two years following multiple rounds of negotiations and requests from key corporations operating such apps.
Some industry executives and specialists in the field have voiced concerns that imposing a market share cap might cause systemic disruption and be technically challenging to achieve.
Conversely, NPCI has been facilitating the development of UPI solutions by numerous consumer internet platforms with huge user bases, enabling them to become third-party application providers.
Flipkart, the e-commerce platform that was once PhonePe’s parent company, Groww, Slice, and the Tata Neu superapp are all part of this group. Another company that has introduced its UPI offering through the plug-in channel is Swiggy, a food and grocery delivery firm that has partnered with banks. Similarly, Ola Consumer is in the process of planning a same system.
The UPI limit for tax payments has been suggested to be raised from INR 1 lakh to INR 5 lakh by the Reserve Bank of India (RBI). The increase in the cap will allow taxpayers to swiftly settle their increased tax obligations. In most cases, there are no extra fees associated with payments made using UPI. This does not apply when paying taxes using a debit or credit card. There has been a prior instance of the RBI raising the cap. The central bank increased the ceiling on some payments, like those to hospitals and schools, to 5 lakh rupees in December 2023.
There is a limit of up to INR 1 lakh per transaction for conventional UPI, according to NPCI. The maximum transaction limit for certain UPI categories is 2 lakh, while for IPOs and the Retail Direct Scheme, it is 5 lakh. Other categories include Capital Markets, Collections, Insurance, and Foreign Inward Remittances.
The Statement on Development and Regulatory Policies states that UPI has become the most preferred payment method because of its user-friendly characteristics. At this time, INR 1 lakh is the maximum amount that may be transferred using UPI. Periodically, the Reserve Bank reviews and enhances the restrictions for a few categories based on the various use cases. These categories include capital markets, initial public offering subscriptions, loan collections, insurance, medical and educational services, and more. It has been determined to increase the ceiling for tax payments using UPI from INR 1 lakh to INR 5 lakh per transaction since both direct and indirect tax payments are frequent, high-value, and prevalent. “
The Impact of the New Limit on People’s Ability to Pay Taxes
During a fiscal year, a person must pay their income tax, property tax, advance tax, and other related taxes. Depending on one’s income, the tax amount can be higher. It will be easier to pay both direct and indirect taxes with the increased UPI limit.
This is because a user needs an active bank account, a mobile number associated with that account, and an app that supports UPI in order to make a transaction using UPI. After creating a UPI ID, users can pay using the app by inputting a 4- or 6-digit PIN.
Additional UPI Announcements
Not only has the RBI announced the implementation of delegated payments via UPI, but they have also raised the UPI ceiling for tax payments to INR 5 lakh. Delegated UPI payments would enable one user to authorise another user to use their bank account to establish a restriction on UPI transactions, according to the release.
Essentially, this means that one person can grant access to their bank account for UPI payments to another person, for example, a family member. It is believed that this product will increase the penetration and use of digital payments nationwide. Prompt and comprehensive instructions will be sent out soon.
The Indian government’s initiative to make eCommerce accessible to every pin code in the country has resulted in the Open Network for Digital Commerce. Since then, ONDC has been touted as the next UPI (Unified Payments Interface) for eCommerce transactions. A one-stop online shopping web for buyers and sellers to transact with complete price transparency. It has rightly created the buzz to take eCommerce to the next level in India.
Already, ONDC is showing signs of buzzing activity. In the festive week leading up to Diwali, ONDC recorded almost 1.2 million transactions across 600 cities! In November itself, transaction value spiked to 4.7 million.
The big question, however, is whether ONDC will have enough muscle power to replace the shopping experience on huge aggregator platforms such as Amazon and Flipkart.
ONDC has only taken baby steps, experts opine.
“ONDC is in its early growth stage. But we are hopeful that it will start peaking in the next 2–3 years,” said Aashish Guglani, senior policy associate at the Digital India Foundation.
In this article, we take a closer look at how ONDC is expected to transform the shopping experience and what room for improvement some participants see within the ONDC universe.
From the word go, ONDC’s potential has been promising, given the sharp rise in online transactions by Indians.
The open network protocol is expected to act as a force multiplier for various segments—businesses, consumers, application developers, governments, and other relevant participants—through the creation of an interoperable and open playground for various sections to function and compete, ONDC said in a note when it announced the launch.
According to ONDC, India has the third-largest online shopping market, with 14 crore eRetail shoppers in 2020. Despite the large base, the eRetail penetration level is only 4.3%, compared with 25% in China and 26% in South Korea. This goes to show the untapped potential for eCommerce in India.
The COVID-19 pandemic forced people to shop online. Slowly but surely, Indian shoppers have now started digging their heels into the online shopping experience. The sudden boom in UPI payments only made shopping a seamless experience.
ONDC is trying to replicate the UPI experience in the eCommerce space by offering a more transparent framework.
McKinsey expects India’s digital commerce with ONDC to surge five times to around $340 billion by 2030.
With aggregator platforms reportedly charging commissions of 23-25%, ONDC does look attractive as of now. According to media reports, ONDC could start charging a small fee from participating platforms going forward in the range of 2–3%. As of now, seller network participants on the ONDC network may charge a marginal fee to the buyer. Even with these charges, the buyer has the choice to pick a seller based on their pricing points.
Number of Digital Buyers in India in 2021, With Estimates Until 2025
ONDC Network
ONDC offers a network for buyers and sellers. Consider it to be a digital land parcel hosting a township of malls, where buyers and sellers meet and transact their goods and services. As of now, some of the sellers on the platform range from food delivery apps to retail giants, small retail stores, and electronic stores, among others.
When it comes to the ONDC platform, the more, the merrier. The higher the number of participants, the greater the price discovery. As of now, ONDC hinges on buyers’ and sellers’ apps to route customers onto the network.
Buyer Apps/Seller Apps: For example, Paytm, Mystore, Craftsvilla, and Yatri are some of the buyer applications that allow customers to access the ONDC network through their respective apps. Similarly, there are seller-side apps that allow the onboarding of customers, including Magicpin, Bitsila, Growth Falcons, uEngage, and Mystore.
Gateways: Gateways are applications that aid the discoverability of goods and services for the buyer based on his or her search request and location.
Retail Boom
As of now, a chunk of Indian shoppers prefer to buy products from offline outlets. The Kirana store, infamously termed a ‘mom-and-pop’ store, forms 80% of India’s retail sector. Getting smaller retailers onboard the ONDC network is vital for its success.
Realizing the massive potential of ONDC, retail giants are doing their bit to onboard smaller retail outlets. India’s largest retailer, Hindustan Unilever, reportedly plans to help onboard around 1.3 million Kirana stores, which directly purchase from the giant.
Meanwhile, some companies from other sectors, such as electronics, are in a wait-and-watch mode.
We will get onboarded when we see a large part of our customers themselves upgrading and taking up this platform. As of now, we are just waiting and watching how this pans out. It seems promising on paper, but let’s see how it gets picked up in our industry, said Ujjwal Sarin, founder of audio electronics company Nu Republic.
Increased traffic on the ONDC platform holds the key for participants to reach a fair price discovery. Placeorder.com founder and CEO Thomson Skariah says it’s important for businesses to be available on the ONDC network to begin with.
“It’s about businesses being available on the network to receive orders. You need to make sure that you know this is one more revenue channel for you,” Skariah said.
Digital India’s Guglani says, “If the stakeholder and the market ecosystem come in, ONDC will be able to reach $500 million as UPI did.”
In June of this year, ONDC launched the B2B trade on its platform, which allowed merchants to transact with other businesses and undertake wholesale transactions. This is likely to be a game-changer for businesses going forward.
With the launch of B2B on ONDC, brands can establish connections with retailers or facilitate their distributors’ entry into new markets. With “plug and play” capabilities (such as real-time ordering, swift delivery, and credit management) offered by eco-system participants, ONDC will enhance the experience for both brands and retailers, said Sathish Gopalaiah, President, Consulting, Deloitte South Asia, in a press release.
“Retailers (such as grocery stores and pharmacies) could access a wider distribution network, saving time and costs. Direct linkages between retailers and manufacturers would be likely to cut prices, improving margins in sectors such as agriculture and construction,” said a McKinsey report.
Some experts hope that the network could also provide the elusive answer to questions about access to credit. The Open Credit Enablement Network, like the ONDC, is part of the India Stack of digital infrastructure envisaged by the government of India.
“Right now, with open credit, because everything will be catalogued, you are digitized. I would like to know what kind of sale you have in a month; we would have that kind of information collateral. Therefore, it becomes easier, cheaper, and less risky for a bank to give you a loan,” Guglani said.
Room for Improvement
Although the advantages seem to outweigh the risks at the moment for ONDC, the scope for improvement has nevertheless been expressed by experts.
Customer Service
The Digital India Foundation has named three key risks to ONDC, namely: access and ownership of data, customer service, and evolving roles and responsibilities. It has pegged the risk of the absence of clarity over customer service at 74%.
“Most of those associated with ONDC claimed to have faced no problem while onboarding, though few wished the process could be faster and the customer care segment more responsive,” said a survey released by Shiprocket on ONDC in August.
Data Privacy
Data privacy is also a concern shared by a few participants. At the very outset, ONDC has made it clear that it will not be storing or viewing any transaction data. Despite these assurances, data phishing continues to remain a risk.
“The government and ONDC are facilitating e-commerce. But, with so many people handling online transactions, their data could be misused by people with technical knowledge,” said Dr. Himanshu Talwar, executive board member of the Young Leaders Council (YLC) Executive Board Member – Young Leaders Council, under the All India Management Association.
User Experience
ONDC will have to put up an experience that remains on par with, if not exceeds, global standards.
“ONDC’s main challenge is to match the platform’s technological viability with the increasing number of transactions and clients. It needs to compete with some of the finest apps in the world, like Amazon, Flipkart, and Uber. There’s growing pressure on ONDC to keep up with the latest mobile apps and meet customer demand,” said the International Journal of Engineering & Technology in its research note.
Conclusion
Like any digital innovation, ONDC too may overcome its initial technical hiccups and upgrade with better versions going ahead. Going by the steady rise in the number of transactions on the platform, it’s only a matter of time before ONDC can become the big disruptor in India’s gargantuan eCommerce space.
UPI or Unified Payments Interface is an instant real-time payment system created by the National Payments Corporation of India, which likewise implies that the Reserve Bank of India controls it. It helps to instantly transfer funds between two bank accounts with the help of a mobile app. The most common ones you might have come across in recent times are Paytm, PhonePe, MobiKwik, iMobile, BHIM app, among many others. Even the banks that boast of their own UPI app include Airtel Money, Axis Pay, Baroda MPay, Pockets-ICICI Bank, SBI Pay, Yes Pay, and so many others.
UPI reported 6.28 bn transactions in July 2022 that amounted to Rs 10.62 trillion, which is the highest-ever transaction volume since 2016!
In the words of Indian economist Raghuram Rajan, UPI means the
“WhatsApp moment for banking”
What is UPI? | Unified Payments Interface Explained
If you’re new to UPI or want to learn more about how it works, this blog is for you. In this post, we’ll cover everything you need to know about UPI, including its features, services, advantges and disadvantages, and how to use it. We’ll also discuss different types of UPI apps and how to use them. By the end of this blog, you’ll have a clear understanding of UPI and how it can benefit you in your daily life.
The UPI payments or Unified payments interface is a payment mechanism that allows instant money transfer without bank details. The UPI is developed by the NPCI and rather than a bank account number and IFSC code, the virtual payment address is utilized to pay through the UPI. UPI offers a wide range of services that make it a convenient and efficient payment system.
Here are some of the key services offered by UPI:
The most cost-effective way of money transfer
Fund transfer via NEFT entails a minimum charge of Rs 2.5 per transaction while the IMPS charges Rs 2.5 per transaction. On the other hand, UPI only charges 50 paise or less per transaction through the Unified payments interface. As such it has the potential to promote non-cash transactions of small amounts throughout India, which it is currently taking up seriously.
Cash-free functioning
UPI payments have made it a possibility for you to transfer a small amount to your vegetable vendor in a matter of seconds. Think Paytm or BHIM cards hanging on the local grocery store replacing the trouble you went through earlier to get a proper change. Think of the lesser time spent in the ATM lines. Going cash-free removes many hassles from your life and makes everything smoother in the age of digital India.
Security
People have stuck with their cash payments because primarily they couldn’t rely on online transactions and card payments as they ask for bank account details. However, the UPI method of payment cracks the deal here. The payment through the UPI does not require card details or the details of a bank account. You just need to enter your virtual payment address this way (think about the mobile number linked to your UPI app).
Real-Time Fund Transfer
Everything about the UPI app is an instant formula. Traditionally, adding new pay for the online fund transfer takes some time. This time varies from half an hour to 24 hours. In UPI, you can add a new payee instantly and transfer funds. Also, the process of fund transfer takes a few seconds with the help of a good data connection, which is very accessible for everyone now!
Cheaper alternative to POS machine
It is difficult to pay with the help of a banking card (debit or credit) everywhere you go. Most of the merchants don’t have a card swiping machine or sometimes the machines fail to catch signals. The machine in question is known as the POS terminal, which is a costly affair for the billing party involved. They have to pay the service charge for each transaction, which varies from 1.25% to 2.5% of the transaction value. This is why the UPI apps for merchants were introduced. You would have also faced the situation when the vendor asks for the service charge from you. It happens in a competitive market. Keeping the POS terminal is not very beneficial for small traders. However, UPI would help you do the same job without any cost incurred. As UPI operates through the smartphone, anyone can collect money without spending time and money on such machines. Also, the transaction cost is a mere 50 paisa, which is very low compared to the POS terminal.
One UPI app works for all the bank accounts
One might think that Axis Pay only supports Axis Bank accounts but the user gets to choose the UPI app they want to use and link all their Axis and Non-Axis bank accounts with them without any limitation. Be careful to choose the app that gives you maximum ease and options.
One-Stop Solution
The digital wallet has eased online payments. Opting for mobile recharges, buying rail tickets, shopping online and more have become very smooth because of the emergence of digital wallets. However, the number of such wallets is increasing by the day. Paytm, Freecharge, Flipkart, and IRCTC want you to keep the digital wallet. Naturally, it becomes a hassle to maintain more than one wallet. The UPI ends this problem as well. The payments through the UPI are as simple as payments through wallets, and only one app is enough to pay anywhere. Also, the UPI does not ask for money in advance. Rather, your money remains in the bank account and keeps earning interest. Digital wallets, on the other hand, don’t give us any interest as well.
Overall, UPI offers a range of services that make it a versatile and convenient payment system for users in India. Its user-friendly interface, quick transaction times, and advanced security features have made it a popular choice for digital payments.
Unified Payments Interface is developed by the National Payments Corporation of India
Currently, UPI is a free of charge payment platform. However, there has been no official statement from the authorities regarding a permanent waiver of transaction fees. The reason why UPI is free to use is its simple and cost-effective design. NPCI has been instrumental in democratizing mobile payments in India, making UPI a preferred mode of payment for even small transactions.
Despite the lack of transaction fees, NPCI has indicated that they would keep the cost of UPI very low. They have proposed a range of charges from 0 to 50 paisa per transaction. This range of charges is intended to keep UPI cost-effective and accessible for all users, including those who make small transactions frequently.
The UPI system is hailed as one of the most successful real-time payment (RTP) systems in the world since it has been adopted in India. This innovative payment interface offers simplicity, safety, and security to P2P as well as P2M (person to merchant) transactions in India. According to 2021 reports, the UPI system of payments reinforced by the UPI bank apps helped in successfully materializing over 39 Bn financial transactions, which amounts to a business of around $940 Bn, which is again equivalent to around 31% of India’s GDP. The ease of use of the UPI apps and the interoperability between them are some of the prominent reasons driving the growth of the UPI industry. The total number of transactions in a month crossed an all-time high of the $100 billion mark in October 2021.
As per a recent report, UPI continues to be the primary platform for digital payments in India, as the total number of transactions surged by 70% in 2022, reaching a staggering count of 74 billion.
The growth of UPI has transformed the digital payments landscape in India, and its impact is being felt across various industries. With its user-friendly features, low transaction costs, and growing acceptance among consumers and merchants, UPI is poised to become the de facto standard for digital payments in India in the years to come.
Unified Payments Interface (UPI) has been integrated with credit cards to provide users with a convenient and secure payment option. With this integration, users can link their credit card to their UPI ID and make payments using their credit card balance.
This integration has several benefits for users. Firstly, it eliminates the need to carry multiple payment instruments, as users can now use their credit card for UPI transactions. Secondly, it enables users to make digital payments even if they do not have sufficient funds in their bank account, as they can use their credit card balance for UPI transactions.
To link a credit card to UPI, users need to follow a few simple steps. They need to open their UPI-enabled mobile banking app, go to the add payment option, and select credit card as the payment instrument. They will then need to enter the details of their credit card, such as the card number, expiry date, and CVV. Once the details are verified, the credit card will be linked to the user’s UPI ID.
Once the credit card is linked, users can make payments using their credit card balance by selecting the credit card option on the payment screen. The payment will be processed through the credit card network, and the user’s credit card balance will be debited accordingly. Users can also view their credit card transactions and balance on the UPI app.
UPI to Reduce Declined Payment and Payment Timeouts
Users of UPI have frequently reported issues related to payment timeouts and declined payments, which poses a significant challenge for UPI transactions. To address these issues, the National Payments Corporation of India (NPCI) has set its sights on reducing declined or timed-out payments through a new feature.
The NPCI aims to minimize these issues in real-time by enabling banks to take action within 30 seconds to unblock funds that may have been caught due to failed UPI transactions. Currently, this process can take up to 24 hours, causing inconvenience and frustration for users.
This move by NPCI is expected to significantly improve the user experience of UPI transactions and further strengthen the position of UPI as the preferred digital payments platform in India. By reducing the number of declined or timed-out payments, UPI will become even more reliable and convenient for users, boosting its adoption across the country.
Growth of UPI outside of India
The UPI, which has been strictly an Indian concept, prevalent across the nation will now be also adopted by Nepal. This has made Nepal the first country to adopt the Indian UPI system, as of February 2022. The deployment of the UPI system in Nepal would be overseen by NPCI International Payments Ltd. (NIPL), the international arm of NPCI with a partnership with Gateway Payments Service (GPS) and Manam Infotech. Here GPS serves as the authorized payment system operator in Nepal whereas Manam Infotech will further aid in the deployment of the services in Nepal.
The UPI transactions have been accepted by many other countries too, after Nepal. These mobile-based fast, real-time payments, are now already happening in the UAE, Singapore, and Bhutan. France will be the latest addition to this list of countries. According to the National Payments Corporation of India (NPCI) announcement on June 17, 2022, the UPI and RuPay cards will be accepted in France soon. The NPCI’s international wing has already signed a memorandum of understanding (MoU) with the Lyra network of France for the acceptance of the UPI and RuPay across the country.
The Tata Group will soon be joining the league of the UPI apps, as per the news dated March 16, 2022. The multinational conglomerate is currently seeking clearance from the NPCI as per the reports. The Tata Group might also partner with ICICI Bank, as a private lender, via its digital commerce vertical Tata Digital, to power its UPI infrastructure. Tata Group has already applied to the NPCI to operate as TPAP (Third Party Application Providers) and is hoping it can go live soon.
According to the latest updates dated July 12, 2022, NPCI stated all of the UPI-based applications should first obtain the authorisation of the customers before they start recording their location and geographic coordinates. This system shall be followed without exception even for the customers who have already agreed to reveal their location originally while using the services, mentioned NPCI. In addition, the National Payments Corporation of India also mentioned that the UPI services of the apps shall continue even after the customers have revoked their consent for “sharing the location or geographical details for the app”.
Some major growth highlights of UPI are listed below:
The UPI transactions touched new heights when they crossed Rs 5 lakh crore mark in value in March 2021.
NPCI has mentioned that it will ban all gaming transactions via UPI on April 20, 2021.
Unified Payments Interface (UPI) crossed the 4 billion mark of transactions for the first time ever in October. These transactions concluded 2021 at a record high, where it recorded Rs 456 crore worth of transactions at Rs 8.26 lakh crore ($111.2 Bn).
The UPI payments recorded around 4.53 billion transactions, which is worth Rs 8.26 trillion in February 2022. It has almost doubled since the same time last year. Besides, the total value of UPI transactions was measured to be at Rs 41 trillion.
UPI recorded 6+ billion transactions in July 2022, which is the highest ever volume since it was founded in 2016. The 6.28 bn transactions that UPI platforms have seen amounted to Rs 10.62 trillion.
UPI boasts of a network of 330+ banks and an average ticket size of INR 1,730 per transaction. This makes UPI the most popular digital payment system in India.
The MoM Growth of UPI Transactions
The UPI transactions have been growing month on month. Though the UPI transactions declined slightly in June 2022, where there were Rs 586 crore transactions in contradiction with the Rs 595 crore transactions noticed in May 2022, the UPI payments have largely been quite unaffected by the RBI guidelines and the global economic scenario.
Among the duopoly that we always witness in the UPI ecosystem, of PhonePe and Google Pay, Whatsapp has risen to a record high in June 2022 with its UPI payment feature. Though WhatsApp Pay accounts for only 0.4% of the total UPI ecosystem of India, it has registered 2.3 crore transactions worth Rs 4,290.6 crore, thereby rising by 45% MoM in transaction volume and jumping 6.5X MoM in transaction count. The transaction count of Whatsapp Pay in May 2022, was only 34.8 lakhs, which were worth around Rs 294.98 crore.
Here is a table showing the MoM growth of UPI transactions in India:
Year
Total Number of Transactions
MoM Growth
2016
0.32 million
N/A
2017
915 million
2,746%
2018
17.9 billion
1,857%
2019
10.8 billion
-40.3%
2020
22.3 billion
106%
2021
43.5 billion
95.2%
2022
74 billion
70%
Crypto Payments Stopped through UPI
Some of the platforms including Mobikwik, the wallet firm of India, and the international crypto exchange, Coinbase, have been using the UPI platforms for cryptocurrency transactions. However, as per the NPCI statement, it wasn’t aware of any such happenings.
“We are not aware of any crypto exchange using UPI,” said NPCI
in a statement on April 7, 2022, which indirectly meant a warning to all the platforms doing so and an urge to stop them from doing so.
UPI – Milestones
UPI transactions concluded 2021 at a record high, where it recorded Rs 456 crore transactions at Rs 8.26 lakh crore ($111.2 Bn). The UPI transactions crossed the 6 bn mark in July 2022. PhonePe, GPay and Paytm are leading the UPI game in India with 96.47% of transactions being conducted via these UPI platforms.
PhonePe has been leading the UPI space since the beginning of the year. The Bengaluru-based digital payments app witnessed an 85.5% increase in its revenue from operations, which is recorded at Rs 690 crore in FY21 from Rs 372 crore in FY20. Google Payis the next in line among the other UPI apps, as per the reports dated 15th October 2021.
A month after the launch of UPI123Pay, the UPI transactions surged by over 19% (19.6%), thereby becoming 540 cr transactions, when compared with February 2022’s 452 cr transactions. Furthermore, the transaction value also witnessed a record rise of 16.17%, which was recorded at Rs 9.60 Tn in March from the previous month’s Rs 8.26 Tn.
The real-time payment system, which was commonly referred to as the UPI, recorded 558 cr transactions, worth Rs 9.8 lakh crore in April 2022. The total transactions seen in March 2022 were 540 crores and valued at Rs 9.60 lakh crore. With total transactions for the month worth Rs 4.86 lakh crore, PhonePe stood as the UPI leader, followed by GPay, which materialised Rs 3.39 lakh crore worth of transactions. Paytm, Amazon Pay, and Whatsapp Pay, with Rs 101.65K crore, Rs 6699 crore, and Rs 242 crore, made up the league of 5 of the largest UPI apps that recorded the highest individual transaction values also in April 2022, along with being the most popular UPI apps of the month.
Fast forward to August 8, 2022 reports, PhonePe, Google Pay and Paytm command a whoping 96.47% of the UPI transactions done in the month of July 2022. Here, PhonePe led the other UPI platforms with 47.67% of transactions, followed by Google Pay’s 33.9% and Paytm’s 14.87% shares of the UPI market in transaction count.
UPI Transaction Count in July 2022
Launch of UPI123Pay for the Feature Phone Users
As per the recent surveys, 74 crore mobile users have smartphones while the others out of 118 crore mobile users have feature phones, which are designed for voice calling and texting. This reveals that a significant portion of Indian mobile users uses feature phones. The UPI facility has certainly extended a whole new era of convenient bank account transactions merging multiple banks under one phone number so much so that the RBI thinks that the UPI should also be extended to feature phone users. This is the reason why the Reserve Bank of India governor Shaktikanta Das, has launched UPI for feature phone users, who can use the UPI facility without the need for the internet, which will help over 400 mn feature phone users use the homegrown payments network of India.
UPI, which was easily available to date for smartphone owners and the users of smartphones, was available only via the complicated method of USSD for the others will now be easily accessible with the launch of UPI123Pay on March 8, 2022.
While with the earlier Unstructured Supplementary Service Data (USSD) mode, the feature phone users had to dial *99#, which brought a set of menus before and initiated transactions, the new method will be easier and more cost-effective than the USSD method, which involved numerous chargeable messages.
There are 4 different technologies that will be used in this newly christened method of UPI123Pay. These are:
IVR – The Interactive Voice Response or IVR numbers stand at the core of this process where the users can dial a number and start a secured call from their feature phones. After registering themselves, they can then start their financial transactions without the internet.
Apps – The users can also use apps on their feature phones where they can avail of a wide range of UPI functions, which will help them proceed with the kind of UPI transactions they like, excluding the scan and pay transaction, the work for which is currently in progress.
Proximity Sound-based – Another method that the feature phone users can use involves proximity sound-based technology. This technology relies on sound waves to enable networking. This eventually helps them perform contactless offline and proximity data communication on any device.
Missed calls – The final method that the feature phone users can avail of is the Indian missed call approach. In this method, the users will receive a callback from a standard number, which will let them authenticate and make their transactions smoothly.
Since the launch of UPI123Pay on March 8, 2022, more than 37K users have joined the new initiative and 21,833 successful transactions have happened via the same, as per the written reply received from the Minister of State for Finance, Bhagwat K Karad.
Real-Time Payment Dispute Resolution System
NPCI is planning to launch a real-time payment dispute resolution system for the UPI ecosystem. While announcing the upcoming rollout of the feature, NPCI MD and CEO Dilip Asbe mentioned that the all-new dispute resolution system would remove 80-90% of payment failures in real-time. This feature is all set to be rolled out in September 2022.
DigiSaathi
NPCI or the National Payments Commission of India launched DigiSaathi in India along with UPI123Pay, which is the phone’s feature for real-time payments through UPI. DigiSaathi was brought in as a 24×7 helpline for the UPI123Pay, which will provide them with information on digital payments products and services. This DigiSaathi has been further made available by the NPCI for the users on Whatsapp. DigiSaathi, when it was launched in March 2021, was only available for the users via calling at 14431 and 1800-891-3333, but now they can simply text +91-892-891-3333 to access the same helpline.
The UPI apps are the apps that are designed to follow the UPI mode transactions and are primarily designed to focus on the same. There are several UPI apps that have gained popularity in India due to their ease of use, security, and convenience.
Here are some of the most prominent UPI apps:
PhonePe – This UPI app is owned by Flipkart and has gained popularity due to its ease of use and seamless transactions. It also offers cashback and discounts on various transactions.
Google Pay – This app was formerly known as Google Tez and is one of the most popular UPI apps in India. It allows users to transfer money directly from their bank accounts and has several features such as bill payments, mobile recharges, and more.
BharatPe – BharatPe was founded in 2018 in India. The company offers a range of digital payment solutions for small and medium-sized businesses (SMBs) to accept payments from customers using UPI, debit/credit cards, and more.
BHIM – BHIM is a UPI app developed by the National Payments Corporation of India (NPCI). It allows users to transfer money between bank accounts and has features such as bill payments, balance inquiry, and more.
Amazon Pay – Amazon Pay is a digital wallet service offered by Amazon that allows users to make UPI payments, recharge their mobile phones, pay bills, and more. It also offers cashback and discounts on various transactions.
Whatsapp Pay – WhatsApp Pay was launched in India in 2020. The service allows WhatsApp users in India to send and receive money from their contacts directly within the app.
If you haven’t already started using a UPI app or a Unified Payments Portal (UPI), then it is not something really difficult.
So, if you are wondering about “how to pay using UPI?” then you need not worry!
Here first, you will be needing to register yourself and create a unique UPI ID/VPA. You can register for UPI before using the payments system with the help of any UPI-enabled bank mobile application or third-party application. After the registration is done, you can then start using UPI to send and receive payments. Here are some easy steps to guide you with the process:
Step 1: You need to install either the UPI app or your banking UPI app from Google Play Store or Apple App Store.
Step 2: Then, you need to choose your preferred language, verify your mobile number and eventually select your bank account.
Step 3: Now, you need to create your profile by typing in the basic details like your name, virtual ID, password, and more. This virtual ID that you will create here will stand as your payment address.
Step 4: Next, you will need to go to the option that says Add/Link/Manage Bank Account on the app, and proceed with linking your bank and account number with the virtual ID that you have created in the previous step.
Step 5: After that, you need to create your MPIN (Mobile Personal Identification Number), which is a security code that will be asked every single time you want to continue with a UPI transaction.
Step 6: You would now be successfully registered.
UPI – UPI App Transaction Limit
The NPCI has maintained that while there is no daily limit on the number of transactions, the maximum amount of fund transfer that is possible per day is 1 lac Rupees only. This means that you can pay multiple times to different payees every day, which makes going cash-free a reality. However, when it comes to the BHIM app money transfer limit, then the app allows you to send/receive Rs 40,000 per transaction and Rs 40,000 per day.
Some UPI apps like SBI Pay and WhatsApp Money only allow 20 transactions per day which are also enough for regular use in the everyday life of the users.
UPI – Upcoming Features
UPI Features | Authorized Transactions | Authentication
In the digital world, everyday people are solving new problems through online methods. UPI has identified the opportunities to relieve the users even further and will most likely come up with these improvements in their newer versions.
Pre-Authorized Transactions
Forgetting to pay your bills can be penalized at times and cause you unnecessary trouble. In the UPI, one can pre-authorize the app to draw money for the selected items directly from the bank account before the due dates. This system would also work for EMIs and other bill payments. One would have the ease to customize as per the needs and also put a monthly cap on the automatic payments.
Biometric Authentication
Just like your smartphone unlocks itself through your fingerprint, the UPI app is set to be ‘smarter’. This technology would work on phones which can capture fingerprints or high-quality iris images. The biometric authentication would end the need for MPIN during UPI money transfers.
Error Resolve
As of now, the UPI gives an error if the same mobile number is linked to multiple people’s bank accounts. Commonly, the same mobile number is registered to the account of the husband and wife. The UPI would resolve this problem in the next version of UPI.
UPI – Advantages
UPI (Unified Payments Interface) has several advantages that make it a popular mode of digital payments in India. Here are some of the key advantages of using UPI:
One of the major advantages of UPI is that it is fast, hassle-free, and the cheapest way of money transfer.
UPI is also very fast and a safe medium, while you only need a UPI ID for carrying out a transaction.
It is easy to use as it only requires a single click authentication that involves only two factors.
The user can easily link all their accounts to one ID on the UPI app.
You also have an option of scanning with a QR code to make online and offline purchases.
If the user owns a business, he/she can get payments from clients through this app’s option of collecting payments.
While making payments on UPI, the user does not have to pay any charges as it is free by the Government.
You also get exciting cashback offers.
UPI – Disadvantages
While UPI has several advantages, there are also a few potential disadvantages of UPI system. Here are some of the key drawbacks of UPI:
Sometimes, there can be delays in payments, it takes up to 48 hours for the money to get back to your bank account.
The UPI money transfer limit is currently Rs 100,000, which you can send to anyone through the mobile app.
The UPI pin only consists of four to six digits, which should be elongated for more security.
Another major disadvantage of UPI is that it is very slow in making payments sometimes, but that can be avoided by using faster internet services.
While UPI is gaining popularity in India, it may not be accessible to everyone. Users need to have a bank account and a smartphone with a compatible UPI app to use the service.
Overall, while UPI has several advantages, it is important to be aware of these potential disadvantages of UPI before using the system. By understanding the limitations of UPI, users can make informed decisions about when and how to use this payment system.
UPI – Challenges
The UPI apps and the sector, as a whole, have faced many challenges already overcoming which it is treading on the path of glory. One of the major challenges of the UPI industry was when the world witnessed one of the most dreadful diseases of modern times in the form of the coronavirus pandemic.
Due to the lockdown imposed to contain the spread of COVID-19, UPI has recorded transactions of less than one billion for the month of April after 12 months of constant growth. This is the first time in the past seven months that UPI volume went below the one billion mark. According to the National Payments Corporation of India (NPCI), UPI has registered 0.99 billion transactions amounting to Rs 1,51,140 crore(Rs 1.51 trillion).
Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI-regulated entity. UPI can be used through various apps like Google Pay and PhonePe to make direct payments from one bank account to another.
The lockdown imposed by the government due to COVID-19 has caused everything to shut down or be just semi-operational. The coronavirus outbreak has devasted many sectors of human life, let it be the financial sector, industrial sector, etc. resulting in an economic crisis. Yet, India’s success with a unified payments interface (UPI) has continued to bring essential services to consumers amid the lockdown as well.
Though the government was able to transfer the relief money through UPI in the bank accounts of crores of Indians, UPI witnessed a 20.8% drop in volume and a 26.7% fall in value as compared to the month before. As corona effect, UPI had registered a little drop in payments volume in March resulting from 1.25 billion transactions worth Rs 2,06,462 crore or Rs 2.06 trillion.
Moreover, along with UPI, NPCI’s real-time payments service IMPS has also registered a sharp fall in volume as well as the value of transactions. In April, IMPS processed 122.47 million payments worth Rs 1,21,140.79 crore which is almost half of the previous month. In the previous month i.e. March, the figure was 216.82 million transactions worth Rs 2,01,961.70 crore.
The decline is shocking as in February 2020, the RBI governor, Shaktikanta Das, highlighted that digital payments accounted for almost 97% of the daily payment system transactions in terms of volume. He also mentioned that digital payments had accelerated by 50% in terms of volume in the last five years.
However, UPI body NPCI’s CEO Dilip Asbe said, “For the last five years, the number of transactions of UPI has been growing continuously month-on-month. But now there has been a slight drop in the volume due to the lockdown. The drop in volumes is due to near-zero restricted spends such as on e-commerce, travel, and similar online platforms. We expect volumes to pick up soon.”
Reasons behind the drop in transactions
It was anticipated that a nationwide lockdown to curb the spread of the Covid-19 pandemic would affect the digital payment volumes. However, financial experts were assured that digital payments will not get affected adversely but rather continue to grow as people would rely on digital transactions to avoid physical contact.
During the initial days of the lockdown, e-commerce, food tech, grocery as well as other online platforms were unable to operate. This led to a gradual fall in transactions but later the government allowed essential services to continue. Moreover, payments to PM-CARES via UPI have been the driving force behind UPI’s growth, which is still a 20.8% drop and these numbers are only in a few million.
Yet, transactions did not come back to normal as the government only allowed transactions on essentials. Hence, a majority of e-commerce services are still waiting for government orders. Soon, the government is likely to relax the norms for e-commerce platforms and allow them to deliver non-essential goods as well.
According to payment gateway Razorpay’s digital transaction report, for the month of April, the transactions in logistics have dropped by 96%, the travel sector has declined by 87%, food, and beverage by 68%, and groceries by 54%. In the last 30 days, transactions in cities like Ahmedabad, Mumbai, and Chennai took a hit of 43%, 32%, and 25% respectively. The report recorded transactions between when the lockdown was announced.
Razorpay’s report also stated that UPI emerged as the most popular digital payment method from March 24 to April 23, with 43% of the total transactions during the period. It was followed by card payments with 39% and net banking with 10%. However, compared to the previous month, transactions through UPI declined by 37%, cards by 30%, and net banking by 28%.
Steps taken to deal with the drop
Though the situation worsened throughout the lockdown, NPCI seemed prepared to handle the lockdown. CEO Dilip Asbe said that NPCI can have multiple sessions and had a spare capacity to handle the demand. In order to ensure that everything keeps running smoothly, around 5% of the NPCI’s workforce travelled to the office.
NPCI has already devised a plan for the situation with due consideration of all the factors. Asbe said that NPCI has received complaints from some businesses about delays in cheque clearing. He added that there could be issues on the last mile. “While we are in touch with banks, there might be some issues with uploading because of the lockdown. These issues might be hard to resolve now as most of the workforce isn’t available now,” said he. However, Asbe also mentioned that the main objective there was to keep employees safe. If they are safe, the operations can be managed. “There are things we cannot disclose, but there is enough backup in case something goes wrong,” he added,
The government also used the UPI technology for facilitating the transfer of money in the bank accounts of beneficiaries within a day under the Pradhan Mantri Garib Kalyan Yojana (PMGKY). He further noted that besides this transfer of relief funds, the government has been using UPI for transferring monetary perks in various schemes such as Ujwala and MNREGA.
After the success of the implementation of UPI in these schemes, many state governments then relied on UPI technology to transfer funds under various schemes. Madhya Pradesh government recently transferred some relief money to the accounts of lakhs of construction workers. PM Narendra Modi had also urged people to go for digital payment to ensure safety from the infection.
Major Challenge for the Stakeholders
India’s free payments system, UPI is not actually free for all. It is simply free for the users and merchants but the stakeholders have to pay a price for it. As per RBI, the costs incurred by the stakeholders in a peer-to-merchant (P2M) UPI transaction with an average order value of ₹800 is nearly ₹2 i.e, 0.25% of the transaction value. So, for example, if 16 lakh crore INR worth of transactions have occurred in the previous year on the UPI that means it costs roughly 4,000 crore INR ($500 million) to banks, NPCI, and the payment service provider.
UPI – Transaction Rules from January 2021
The Reserve Bank of India (RBI) has come up with the ”positive pay system” for cheque payments. This system is introduced in order to keep a check on banking fraud. According to the positive pay system, the user is required to re-confirm their key details for payments that go beyond 50,000. The user, however, has a choice to use this system.
UPI offers several benefits over other payment systems such as NEFT, RTGS, and IMPS. Here are some of the key advantages of UPI:
UPI vs NEFT
Both the platforms are known to have pros and cons. UPI facilitates instant transfer for free, whereas it can only transfer Rs 1 Lakh per day. NEFT on the other hand allows the user to transfer funds from any bank branch to any individual having an account with any other bank branch in India. A disadvantage of NEFT is that the cost is higher than UPI and it takes about 12 hours for one NEFT transfer.
UPI vs RTGS
UPI transactions are fast, simple to use, and free of charge, and are ideal for future payments, loan repayment, or credit card payments. Whereas the Real Time Gross Settlement (RTGS), is said to be of high value and needs to be processed in real-time, and is ideal for the transfer of Rs 2 lakhs and above.
UPI vs IMPS
The Immediate Payments Service (IMPS), is an instant interbank electronic fund transfer service that helps the user to access your bank account and transfer funds immediately and securely. However, with UPI the user can pay directly from a bank account to different merchants, both online and offline, without the hassle of typing your credit card details, IFSC code, or wallet passcodes.
Conclusion
UPI is a game-changing payment system that has made digital payments accessible and affordable for millions of people in India. Its ease of use, low cost, and instant transfer capabilities have made it the preferred payment option for individuals and businesses alike, and it is set to revolutionize the way people make payments in India for years to come.
With all the knowledge of UPIs, it is safe to say that people are encouraged to take a step toward going cash-free. Many other improvements are expected in the newer updates so it would not hurt to make the shift and keep up with the new digital times of managing funds.
FAQs
What is the use of UPI?
UPI or Unified Payments Interface is an instant real-time payment system created by National Payments Corporation India, which likewise implies that the Reserve Bank of India controls it.
What are the services of UPI?
The services of UPI are Cash-free functioning, Security, Real-Time Fund Transfer, a Cheaper Alternative to POS machines, and One UPI app that works for all bank accounts.
What is the Unified Payment Interface meaning?
Unified Payment Interface refers to a system that empowers the users with multiple bank accounts under a single mobile application for effective transactions. It is an all-in-one interface for payments, hence “unified”.
What are the charges for UPI?
UPI is free of charge at present. However, at the meeting of banks with NPCI on February 14, 2020, it has been decided that UPI transactions are free for up to 20 transactions per person.
What is the current UPI transfer limit?
Currently, the UPI transfer limit is set to Rs 1 lakh, as decided by the NPCI.
Can the UPI app for the current account be used?
The UPI app for current accounts can easily be used both by merchants and consumers and they work just as well as the UPI for savings accounts.
What are UPI transaction charges?
At present, the UPI transfer limit per UPI transaction is ₹1 Lakh.
Is UPI safe?
Yes, UPI is safe and secure as it has a number of measures that ensure its safety.
Is a debit card necessary for UPI?
Yes, the debit card is mandatory to set the UPI pin.
How to use UPI to transfer money?
UPI can easily be used to transfer money, in which a user needs to have his/her bank account connected along with a working UPI ID and a phone number that is linked with the bank account.
No, UPI is a domestic payment system and can only be used to transfer money within India.
Which banks support UPI?
Most major banks in India support UPI, including State Bank of India, HDFC Bank, ICICI Bank, Axis Bank, and others.
How does UPI work?
UPI allows users to link their bank accounts to a mobile app and make payments directly from their account. Users can transfer money to other bank accounts by using the recipient’s UPI ID or mobile number.
What should I do if my UPI transaction fails?
If your UPI transaction fails, you can try again after a few minutes. If the problem persists, you can contact your bank’s customer service for assistance.
Can I link multiple bank accounts to UPI?
Yes, you can link multiple bank accounts to UPI. You can switch between accounts while making payments or choose a default account for transactions.
Is there any disadvantages of UPI?
Yes, there are some disadvantages of UPI. It requires a stable internet connection and a smartphone to make transactions, and it may not be widely accepted in all merchants and stores.
The National Payments Corporation of India was formed in 2008 with the objective of integrating all payment mechanisms existing in the country and making them uniform for retail payments. However, the majority of the population was opting for cash payments as retailers encouraged this method. There was also the problem of almost half the population that had no access to any form of banking service. This also precipitated the issue of black or illegal money and corruption within the country.
By 2012, the RBI had envisioned building an authorized payment and settlement system that was safe, efficient, accessible, inclusive, and interoperable. This was done as a part of the Green Initiative and to encourage the lesser use of paper in the domestic payment market. UPI was officially launched in 2016 for public use.
The CEO of Netmagic Solutions says UPI has become one of the most successful deep-tech innovations coming out of India. It works on an interoperable four-pillar push-pull model. There is a beneficiary at the front end, the payment service provider, and a beneficiary back end bank that settles the monetary transaction for the users.
As it began to gain traction and prominence in 2019, the Ministry of Finance nullified the Merchant Discount Rate (MDR) on UPI which catapulted the number of low-value transactions, making huge gains on real-time transaction volume data.
From 1st January 2019, UPI became a popular payment option for IPOs. By March 2020, the transaction limit was increased from INR 1 lakh to INR 2 lakhs, which was again increased to INR 5 lakhs in December 2021 for Retail Direct Scheme and IPO applications.
In its first monetary policy of FY 2022-2023, RBI has proposed using a UPI-based QR code for a cardless cash withdrawal facility from ATMs. ToneTag launched VoiceSE, in partnership with NSDL Payments Bank and NPCI, which will enable users to make UPI payments using voice in Hindi, Tamil, Telugu, Malayalam, Kannada and Bengali language. In 2021, the value of UPI transactions was more than INR 73 lakh crores, recording a 110% rise from INR 33.87 lakh crores in 2020.
The Volume of UPI-Based Digital Payments Across India from FY17 to FY22
Within two years of its launch, by 16th August 2018, UPI 2.0 was launched enabling their users to link Overdraft accounts to a UPI handle. There was an added feature of the AutoPay facility for recurring payments, and users were able to pre-authorize transactions by issuing a mandate for a specific merchant. The newer version also included a feature to view and store the invoice for transactions.
By August 2021, Bank of Baroda, Paytm Payments Bank and State Bank of India were live on UPI AutoPay and registered 204,000, 186,000 and 660,000 mandates respectively. Plans were in place for NCPI to expand AutoPay to international markets and operationalize real-time payment dispute resolution covering 90% of complaints by September 2022.
RuPay credit cards were allowed to be linked with UPI from 8th June 2022. Currently, NPCI is working on a real-time feature that will reduce the time period taken by banks to unblock funds over time-out or transaction from 24 hours to 30 seconds.
Continuing the growth of UPI and its features, the RBI Governor launched UPI 123PAY on 8th March 2022, offering 4 payment options to UPI users:
App-based functionality where a mobile phone manufacturer can install a UPI app through over-the-programming that can be used for payment.
Missed calls through which customers can use a dedicated merchant payment number by giving a missed call. The incoming authentication call will ask for PIN verification to complete the transaction.
Interactive Voice Response (IVR) based where the payment transaction will complete using pre-defined phone numbers.
Payment in offline mode through sound-based proximity data communication.
On 17th November 2021, NPCI International Payments Limited signed an MoU with PPRO Financial, a UK-based financial services firm, to expand the acceptance of UPI into foreign markets, specifically in China and the US, which accounts for half of all transactions from India.
Onboarding of NRI/NRE Accounts
Earlier this month, the National Payments Corporation of India (NPCI) released a notice stating that Non-resident accounts like NRI/NRE accounts attached to international mobile numbers will be permitted to transact with UPI. To begin with, mobile numbers of ten countries will be enabled. These countries are Singapore, Australia, Canada, Hongkong, Oman, Qatar, United States of America, Saudi Arabia, United Arab Emirates and United Kingdom.
The NPCI, in its notice, has clarified that these accounts will be permitted to transact as long as the member banks ensure strict adherence to FEMA (Foreign Exchange Management Act) regulations and the guidelines issued by the RBI (Reserve Bank of India). All the UPI members including banks and payment platforms have been instructed by the NPCI to ensure that they are completely compliant to all the legalities by April 30, 2023.
Lauding this move, Rajsri Regan, Head of Development – Banking and Payments, India & Philippines, FIS said – “NPCI has been working to expand and boost the use of UPI across the world and this move will widen the use of digital payments as Indians living overseas will also be able to make instant transactions.” This facility will soon be extended to mobile numbers of other countries as well.
Will UPI Become a Paid Service?
The Ministry of Finance’s Tweet About UPI Services
The government had made transactions over UPI free of cost to encourage faster and deeper penetration of digital payments post demonetisation and especially, the pandemic. This is the government’s zero MDR (Merchant Discount Rate) framework in which neither the customers nor the merchants pay for utilizing UPI services.
However, in a discussion paper that RBI released in early August 2022, it said that as a fund transfer system bears a resemblance to the IMPS (Immediate Payment Service), the charges in UPI need to be similar to the charges that are applicable in IMPS for fund transfer transactions.
Furthermore, UPI service providers like PhonePe, Google Pay and Paytm Payments Bank have not earned any revenue for the last couple of years for their services. Industry executives are debating that with the setup and adoption of a robust digital payment infrastructure the time has come for them to earn revenue from these transactions so that more players are enticed to enter the UPI service space to build further financial inclusion.
The Finance Ministry has stepped in very recently and has tweeted – “UPI is a digital public good with immense convenience for the public and productivity gains for the economy. There is no consideration in Govt to levy any charges for UPI services. The concerns of the service providers for cost recovery have to be met through other means.”
UPI payment platforms like Google Pay and Paytm have amassed millions of active users and have a deep data mine to access to fine-tune their products. Also, they have other avenues for revenue building. The payment platforms earn a commission from the service provider whenever there is a bill payment for utilities like electricity and water as well as mobile recharges and DTH recharge payments. To these payment platforms data substitutes for revenue to a certain extent.
In the immediate future, it remains unlikely that UPI will become a paid service.
Conclusion
The penetration and adoption of UPI continues to grow as the service itself seeks to grow and expand to include more and more features. While the future is bright for the UPI platform, it will be a wait-and-watch game to see whether the service in the future might attract charges or not.
FAQs
What is UPI?
UPI stands for Unified Payments System. It is a system developed by the National Payments Corporation of India that supports multiple bank accounts in a single mobile application. It facilitates inter-bank, peer-to-peer, and person-to-merchant transactions.
Will UPI become a paid service?
There has been suspicion among the people that there may be the possibility of UPI transactions carrying a service charge. However, to clear people’s suspicion, the Finance Ministry recently made a tweet saying that there is no consideration in Govt to levy any charges for UPI services.
Ashwini
