What is UPI and How is it Different from NEFT, RTGS, IMPS?

In today's fast digital world, payment methods have evolved significantly, moving from traditional cash transactions to digital wallets and now, the Unified Payments Interface (UPI). UPI has emerged as a revolutionary payment system in India, transforming the way people send and receive money, pay bills, and make purchases. In this article, we'll dive deep into UPI and how it works, focusing on the technology behind this game-changing payment platform.

What is UPI?

Unified Payment Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI). It was launched in 2016 with the aim of simplifying digital transactions and migrating towards a 'less-cash' and more digital society. UPI allows users to link multiple bank accounts to a single mobile application and make seamless peer-to-peer (P2P) and peer-to-merchant (P2M) transactions. UPI allows a customer to pay directly from a bank account to different merchants without the hassle of typing credit card details, IFSC code, or net banking/wallet passwords.

How does UPI work?

It will completely simplify your financial transactions. In other words, it will just simplify your net-banking experience. As of now, you need to enter your credit/debit card number, expiry date and security code to be able to complete a transaction. Or in case of net-banking, you need to go through an equally longer process of confirming the payment.

UPI will just do away with the need to do all that hectic work. You will only need to share your UPI with your vendor and that's it. The vendor will then request your bank for the payment on receipt of which you will receive a confirmation message on your phone. You can either accept the transaction by providing your password, or reject it. Here's how UPI works:

1. Registration

To get started with UPI, users need to download a UPI-enabled mobile app provided by their respective banks or third-party financial institutions. They must then link their bank accounts to the app by providing necessary details and verifying their identity.

2. Virtual Payment Address (VPA)

Upon registration, users are assigned a unique Virtual Payment Address (VPA). This VPA acts as an alias for the user's bank account and eliminates the need to share sensitive information like bank account numbers and IFSC codes.

3. Transaction Initiation

To make a payment or transfer funds using UPI, users can follow these steps:

• Open the UPI-enabled app on their mobile device.
• Select the "Send Money" or "Transfer Funds" option.
• Enter the recipient's VPA or mobile number linked to their UPI account.
• Specify the amount to be transferred and add an optional note.
• Choose the bank account from which the money will be debited.
• Review the transaction details and confirm the payment using a secure PIN or biometric authentication.

4. Transaction Processing

Once the user initiates the transaction, UPI sends a request to the recipient's bank. The recipient's bank verifies the VPA and processes the transaction in real-time.

5. Immediate Confirmation

Both the sender and the recipient receive instant notifications confirming the success of the transaction. This real-time confirmation provides transparency and assurance to users.

6. Security Measures

UPI employs multiple layers of security to protect transactions. It uses two-factor authentication, including a unique UPI PIN or biometric verification, to ensure that only authorized users can initiate payments.

7. Wide Range of Use Cases

UPI supports a variety of transactions, including money transfers, bill payments, mobile recharge, online shopping, and more. Users can also set up recurring payments and schedule transactions for future dates.

How it is different from NEFT, RTGS, IMPS?

First up, NEFT and RTGS both involve a pretty significant delay, so you don't need to bother about that. UPI is based on IMPS, so in a basic sense, there's no big difference. UPI apps basically feature IMPS system designed for a mobile world - it's much more convenient to use, and easier to set up.

Right now, using IMPS, you'll have to go to your bank's app and go to the funds transfer section. Then you'll have to add a recipient; you have to authorise a recipient before you can send them money, and then until you manually remove them, you're stuck with them in the recipients list where you could accidentally select them at any time. Adding a recipient means entering a lot of details about them as well - you need to know their bank account number, and IFSC code, which are all long strings of numbers. It's confusing and painstaking.

With UPI, just open a UPI app that's linked to your account, enter the payee ID, the amount, and click transfer.

Conclusion

UPI has revolutionized digital payments in India, offering a secure, convenient, and efficient way to manage financial transactions. Its user-friendly interface and real-time processing make it an ideal choice for both urban and rural populations, contributing significantly to financial inclusion. As UPI continues to grow and evolve, it is expected to play a pivotal role in shaping the future of digital finance in India, and possibly beyond, by offering a robust and accessible payment ecosystem for all.