Digital Payment: UPI, Work, Challenges and Opportunities

The digital payments ecosystem in India is undergoing a transformation with the emergence of global tech giants such as the Google Pay app as an aggregator for retail transactions. The demonetization and adoption of the UPI platform by domestic and international players such as Google, WhatsApp, Paytm, and PhonePe have played a major role in allowing the widespread shift to digital payments in rural India’s economy.

UPI’s $187 billion in transactions came close to more than $83 billion in debit card transactions and $102 billion in credit card transactions, according to CLSA’s transaction estimates for the first half of FY22. UPI transactions recently increased to $16 billion per month, roughly the same as merchant payments via debit and credit cards combined. Fintech companies such as Paytm, Phonepe, and Google Pay dominate the UPI payments market, which is clearly growing and has outpaced other forms of payment such as credit and debit cards.

This means that you can make payments directly to a vendor or person in one step. There is no need to enter your bank details or other details every time you want to send a payment to UPI. Once you create a UPI account, you will be able to send payments in real-time with two-click authentication. Users can use any UPI app to link any bank account and transfer or receive payments.

What Is Digital Payment?

Digital Payments – Definitions The Payments and Settlement Act 2007 defines a digital payment as any “electronic funds transfer” or any funds transfer initiated by an individual at the direction, authority or direction of a bank to debit or credit held at that bank accounts, electronic funds, including bank transfers at retail outlets; automated transactions via ATMs, direct deposits or withdrawals, telephone transfers, internet, and card payments.

Any UPI application can use payments and transfer funds between UPI-enabled banks. Many applications support UPI payment every day, such as Google Pay, PhonePe, FreeCharge, Mobikwik, etc. The UPI interface is compatible with most banks, and many digital wallets and payment applications use UPI. Banks began uploading their UPI-compliant apps to the Google Play Store on August 25, 2016.

What is UPI?

Real-time interbank payments can be made using a mobile number or a virtual billing address (UPI ID). Unified Payments Interface (UPI) is a payment system that allows users to link multiple bank accounts and transfer funds within a single smartphone app without providing an IFSC code or account number.

NPCI, through UPI, has created a secure payment infrastructure for cashless and hassle-free payments. You can make payments between banks in real-time and even make transactions using your Aadhaar number, mobile phone number, or virtual billing address (UPI ID). UPI transactions can be made using global identifiers such as mobile phone numbers and account information, or using virtual billing addresses (VPAs).

How to Do a Successful Digital Payment?

Simply put, UPI is an extended version of IMPS, and UPI ID/VPA can be thought of as a unique payment email identifier used by banks to complete transactions through IMPS. Unified Payments Interface (UPI) is a mobile banking system primarily used in India, but can also be used to send and receive money internationally if both users have a UPI account in India. Simply put, UPI is used to transfer funds from one bank account to another using a mobile platform. Banks provide separate APIs to enable payment applications to create and manage UPIs. The National Payments Corporation of India (NPCI) website lists the banks that facilitate UPI.

Rs 41 trillion were traded on the UPI platform in fiscal 2021, which is 2.8 times the value of debit and credit card payments at POS terminals and 20 times the value of digital wallets and prepaid tools in India. Currently, up to INR 1 million can be transferred per UPI transaction.

 How Does UPI work?

UPI is an initiative of the National Payments Corporation of India (NPCI) in partnership with the Reserve Bank of India and the Indian Banks Association (IBA). The National Payments Corporation of India (NPCI), established in April 2009 with the main goal of expanding the adoption of digital payments, together with the Reserve Bank of India and the Indian Banks Association (IBA), has taken on the task of introducing a single payment interface to facilitate user transactions.

In this context, the National Payments Corporation of India (NPCI), was established in April 2009 with the main goal of consolidating and integrating multiple systems with different service levels into a single and standard business process at the national level for all retail payments. Systems have taken it upon themselves to implement UPI to simplify and provide a single interface for all systems. UPI’s main goal was to create an open payment system that was primarily mobile, fast, and interoperable across different banks.

UPI operates on a two-part, four-pillar interaction model that will have an external sender/recipient PSP (payment service provider) and an internal sender/recipient bank that settles money transactions for users. UPI is a single platform that brings together various banking services and functions under one roof.

Every customer who makes or receives a UPI payment interacts with three key entities: the UPI app on the phone, the payment service provider (PSP), and the bank. PSPs and banks themselves interact with the UPI API hosted and managed by the National Payments Corporation of India (NPCI). These banks not only allow payment applications to create and manage UPIs for their users but also act as interfaces to the UPI ecosystem.

Application of Digital Payment

Currently, users can transfer funds to those with bank accounts through the UPI system. But UPI 2.0 promises to make it easier to pay bills through the UPI app. Payments can be made online on e-commerce sites if the UPI option is available.

Pay for taxis, food delivery services, and shopping sites with UPI for instant transfers. Register your mobile number with your bank to link your UPI account to your smartphone. With UPI, a user’s bank account can be used as a wallet with simple two-factor authentication without having to store funds in any other wallet. Also, while prepaid wallets cannot trade more than Rs 10,000 in any given month without KYC (know your customer) rules, UPI-enabled platform bank accounts can transfer up to Rs 1 lakh instantly.

Marchant Payments

Merchant’s bank account information is linked to a QR code, enabling seamless real-time UPI payment. This means that you can send or receive money or scan a QR code (Quick Response) to pay an individual, merchant, or service provider for purchases, bill payments, or payment authorization.

In the case of a UPI payment, the money is transferred from the account of the issuing bank/sender to the account of the acquiring bank (merchant/recipient). This prevents anyone else from using the app on your phone to make a payment from your account since the MPIN is known only to you. After the verification process, your UPI ID will be registered in the application, after which you can use this ID for banking services, and funds can also be transferred through a mobile phone number in your contact list. Your mobile phone number must be registered as part of your information with the bank.

Digital Payment App

The BHIM app allows users to transfer via the mobile phone number, UPI ID and account number, and IFSC code. Through BHIM, you can change or set your UPI PIN, check your account balance, and view all your UPI transactions, regardless of the application you use. NPCI has facilitated mobile phone-free payments aimed at social and financial inclusion as well as support for non-smartphones with the Aadhaar Pay Bharat Interface for Money (BHIM) feature.

Digital Payment Market

Within a year, it more than doubled to Rs 7 million. The widespread use of cheap internet data, smartphones, and biometric ID cards in India has contributed to the rapid adoption of online payment systems on mobile platforms, the report said. Currently, 250 banks are active members of UPI, which means they allow interbank fund transfers through UPI. Much of the growth in transactions to date have come from peer-to-peer (P2P) payments, which were previously done with cash; now, this is largely the result of apps like Google Pay, Paytm, and PhonePe.

This huge growth is mainly due to mobile transactions based on Unified Payments Interface (UPI), which recorded more than 3 billion transactions last year, with 620 million transactions worth INR 1 billion in December alone. According to NITI AYOG, the digital payments market in India will grow to $1 trillion by 2023, driven by growth in mobile payments, and is expected to grow from $10 billion in 2017-2018 to $190 billion by 2023.

Mobile payments are expected to increase from $10 billion in FY2018 to $190 billion in FY23. According to NITI AYOG, India’s digital payment market will grow to $1 trillion by 2023 driven by the growth of mobile payments, which is expected to increase from $10 billion in 2017-2018 to $190 billion by 2023. New global trends are expected to impact the digital payments ecosystem in India and give impetus to the growth of digital payments.

Oppertunities Digital Payment

Digital payments offer unique opportunities. Global trends indicate higher customer expectations for value-added services, increased competition due to the emergence of fintech, new technologies, and a changing regulatory environment.

Eco-Friendly Digital Payment Gateway

These new global trends are expected to impact the digital payments ecosystem in India and drive the growth of digital payments. As the growth of digital payments depends largely on the increase in the number of rural residents connected to high-speed internet and smartphones, digital startups must focus on safe and consumer-friendly methods to build trust and drive adoption.

Therefore, for a country like India, the transition to the digital payments paradigm means a huge need and need to bring all players in the payments value chain onto the digital superhighway. Also, when the Indian economy is primarily based on mobility; this means that a huge effort is being made to move all stakeholders in the payments value chain to a digital paradigm.

Less Time Consuming

Now that almost everyone in developed countries has a bank account or access to credit and debit cards, plus the majority of merchants with POS terminals in their establishments, means that it is much easier to work with digital payments than in developing countries where such an infrastructure or not. or in basic form. These methods are not only expensive but also time-consuming, while there are many technologies available that offer real-time funds transfer.

 Online Banking

This means that to make a digital payment, the sender of the payment must have a bank account, an online banking method, a device he or she can use to make the payment, and a means of transmission, which means he or she must communicate with the provider or an intermediary to sign a contract. such as banks or service providers. This means that there must be a transfer method between the sender and the receiver, the former pays the latter not in cash and in-kind, but digitally, which means that the transaction is a transfer mode through e-commerce or m-commerce.

This means that more and more people are comfortable shopping online, investing digitally, and transferring funds electronically. Customers make more online transactions when they see the simplicity, convenience, and security of online payments.

Financial Literacy Increase

As everyone thinks about financial literacy and affordability, online payments will grow exponentially. The Government of India has been actively promoting and distributing online payments since demonetization in 2016. In India, demonetization has paved the way for mobile wallets such as Paytm and hence the development of NPCI’s UPI (Unified Payments Interface) – National. Payments Corporation of India in 2016. With the launch of UPI 2.0 last year, the platform is attracting a significant share of merchants and helping to digitize the entire payment ecosystem, enabling low-cost, high-frequency transactions.

UPI is already putting a huge emphasis on onboarding and including first-time merchants, and when we say the first time we are referring to those stores that primarily use cash to accept payments from consumers. While point-of-sale (PoS) terminals have doubled since demonetization, the infrastructure for attracting merchants (this is a mechanism for providing the necessary infrastructure and facilitating payment for goods and services purchased with a card) in India remains weak, as banks have failed to achieve adoption. Due to health concerns, some e-commerce and retail websites severely restrict digital payment options.

Digital Payment Challenges

In the coming years, we will see many new entrants exploring innovations in offline payments, voice recognition payments, etc. In addition, the ongoing efforts of governments to build the right awareness, build the necessary trust, and put in place a concrete cybersecurity system and infrastructure are likely to increase people’s receptivity to digital payment systems, which is now combined in combination with the constant growth in the number of smartphone users and the penetration of the Internet in both urban and rural areas.

Acting as a bridge for the consolidation of India’s digital payment systems, these intermediaries include subsequent advances made in strengthening internet connectivity on smartphones, non-banking financial institutions accelerating digital funds for transactions, the emergence of fintech sectors, and the government’s gradual advancement through various tax incentives.

Conclusion

Unified Payments Interface (UPI) Unified Payments Interface (UPI) is a system that integrates multiple bank accounts into one (any participating bank’s) mobile application, integrating various banking functions, seamless routing of funds, and merchant payments into a device.

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