So, what is the Unique Payments
Interface or UPI?
Unified
payment interface is an online payments solution which will facilitate the
transfer of funds instantly between person and person (or peer to peer) using a
smartphone. UPI can be used both to send and receive funds. The system was
launched this April by the then RBI Governor Raghu ram Rajan, and it is now
operational. The National Payments Corporation of India (NPCI), the umbrella organization
for all retail payments systems in India, which was set up with the guidance
and support of the RBI and Indian Banks’ Association (IBA), is pushing the
solution.
And how does UPI work? How is it
different from other modes of electronic payment?
Popular
online payment services currently, the National Electronic Funds Transfer
(NEFT), Immediate Payment Service (IMPS), or Real-time Gross Settlement (RTGS)
require a user or customer to register on the bank’s web site, add a
beneficiary, and share details of bank accounts. In UPI, a user just needs to
download the UPI app — offered by several banks — from the Google Play Store on
an android phone, register details, and create a virtual address. This can be
your mobile number or any unique mail address. After that, you can send or
receive funds up to Rs 1 lakh to or from another person or establishment after
a request from a person on the other leg of the transaction who too has a
unique virtual address or ID. This is done instantly, with the bank authenticating
it.
This is how
it works: For instance, your local shopkeeper can send a request to pull funds
for the purchases you have made after sending a request on your unique virtual
address. You can confirm the payment by saying OK and the payment will be
carried out instantly after being validated at the back end by the bank. And
you can receive cash through this system in the same way.
The
difference between Unified payment interface and payment modes such as NEFT and
IMPS is that bank account details are not shared in the transaction, and
transactions can be made 24×7 all year round. NEFT transactions do not happen
on holidays and during non-banking hours, there are limitations in funds
transfer; in IMPS, account details and details like the 11-digit Indian
Financial System (IFS) Code, which indicates a bank’s branch code, have to be
entered.
The other
advantage is that it is possible to have multiple unique virtual addresses and
use multiple bank accounts, and without necessarily having to go through your
own bank for a variety of transactions. For the shopkeeper or other large
establishments, it also means not having to run the transaction through an
electronic machine such as a card reader.
Who offers this payments solution
now?
For now,
only banks — 29 of who have signed up. Biggies such as State Bank of India and
HDFC Bank are yet to come on board, but are expected to join soon. Restricting
the service to just banks could be because in the initial stages, the central
bank and NPCI would want to observe how the system works, and to gain a measure
of comfort before opening it up to other players too. Some see this as a move
to protect banks — which have been impacted by mobile wallets and other payment
modes, and which are faced with the imminent entry of more payment banks licensed
by the RBI. Besides, the NPCI has been promoted by banks, which may have an
interest in keeping other players out for now.
How cost effective is this solution
in comparison to other payment solutions?
Banks are
allowed to charge for each transaction, but they haven’t started doing so yet.
These are initial days and the 29 banks that have signed up are likely to take
a while to get into the groove. The volume of transactions too is bound to take
time to develop, as the popularity and sales of smartphones increase.
So what is the broader objective of
launching UPI?
The Unified
payment interface fits in
well with the move to migrate towards a cashless economy in the medium and long
term. By bringing person to person payments for even very small amounts online,
it would be possible to reduce the amount of cash in the system, create a trail
of all transactions, lower tax evasion and boost revenues. As Finance Minister
Arun Jaitley said last week, tax rates, including on the GST, could be lower if
tax evasion was lower. Bankers say that mapping this financial behavior could
also help those analyses and firm up approvals for credit to customers. And
with the growing use of smartphones in India and the number of mobile phone
subscribers — a billion — a large number of transactions are expected to be
carried out through phones or electronically. This is already reflected in the
rising number of transactions through the electronic mode rather than by cheques.
Source: [https://goo.gl/hnmnqV]
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