THE UNIFIED PAYMENT INTERFACE

The research proposal submitted in partial fulfilment of the course

Banking Law, for obtaining the degree of B.B.A.,LL.B.(Hons.) during
the Academic Year 2021- 2022.

SUBMITTED BY:
SAKSHI TIWARI
Roll No. – 2035

SUBMITTED TO:

Faculty for Banking Law

Dr. Abhishek Kumar

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 DECLARATION BY THE STUDENT

I hereby declare that the work reported in the B.B.A., LL.B. (Hons.) Project Report entitled

“THE UNIFIED PAYMENT INTERFACE” submitted at Chanakya National Law

University, Patna is an authentic record of my work carried out under the supervision of Dr.

Abhishek Kumar. I have not submitted this work elsewhere for any other degree or diploma.

I am fully responsible for the contents of my Project Report.

(Signature of the Candidate)

SAKSHI TIWARI

Chankaya National Law University, Patna

Date- 21/03/2022

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 ACKNOWLEDGEMENT

“IF YOU WANT TO WALK FAST GO ALONE

IF YOU WANT TO WALK FAR GO TOGETHER”

A project is a joint endeavor which is to be accomplished with utmost compassion, diligence

and with support of all. Gratitude is a noble response of one’s soul to kindness or help

generously rendered by another and its acknowledgement is the duty and joyance. I am

overwhelmed in all humbleness and gratefulness to acknowledge from the bottom of my heart

to all those who have helped me to put these ideas, well above the level of simplicity and into

something concrete effectively and moreover on time.

This project would not have been completed without combined effort of my revered faculty for

Banking Law, Dr. Abhishek Kumar whose support and guidance was the driving force to

successfully complete this project. I express my heartfelt gratitude to them. Gratitude is also

due to my parents, family, siblings, my dear friends and all those who helped me in this project

in any way. It was truly an endeavor which enabled me to embark on a journey which

redefined my intelligentsia, induced my mind to discover the various events which led to the

development of obscenity laws and their perception through this case.

Moreover, thanks to all those who helped me in any way be it words, presense.

Encouragement or blessings...

- Sakshi Tiwari

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Table of Contents
SUBMITTED BY: SAKSHI TIWARI.....................................................................................1

ACKNOWLEDGEMENT............................................................................................................2

1. Introduction............................................................................................................................6

Aim of Study................................................................................................................................6

HYPOTHESIS.............................................................................................................................7

Research Methodology................................................................................................................7

Research Question.......................................................................................................................7

Sources of study...........................................................................................................................7

Method of Writing.......................................................................................................................7

Mode of Citation..........................................................................................................................7

Limitations...................................................................................................................................7

2. Background............................................................................................................................8

MISSION.....................................................................................................................................9

VISION......................................................................................................................................10

3. Unified payment protocol, architechture and core features............................................12

CORE FEATURES...................................................................................................................12

ARCHITECTURE.....................................................................................................................13

4. Basic concepts.......................................................................................................................15

PAYMENT ADDRESS.............................................................................................................15

AUTHENTICATION................................................................................................................16

VALUE PROPOSITION...........................................................................................................17

5. SUPPORTING INFRASTRUCTURE...............................................................................19

ADHAAR SYSTEM.................................................................................................................19

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 Aadhaar Authentication.............................................................................................................19

Aadhaar e-KYC.........................................................................................................................19

Aadhaar Enabled Account.........................................................................................................20

Aadhaar Payment Bridge...........................................................................................................20

Aadhaar Enabled Payment System............................................................................................21

Virtual Payment Address.......................................................................................................22

Mobile number:.....................................................................................................................22

Account number & IFSC.......................................................................................................22

Aadhaar:.................................................................................................................................22

QR code:................................................................................................................................22

The UPI Ecosystem Payment....................................................................................................22

Virtual Payment Address...........................................................................................................23

NPCI Central Mapper................................................................................................................23

Transactions in UPI...................................................................................................................24

6. IMPACT OF UPI.................................................................................................................25

IMPACT ON PAYMENTS IN PHYSICAL WORLD.............................................................25

IMPACT ON ONLINE PAYMENTS.......................................................................................26

IMPACT OF UPI ON BUSINESSES.......................................................................................26

7. Conclusion............................................................................................................................28

Bibliography.................................................................................................................................29

Books.........................................................................................................................................29

Websites.....................................................................................................................................29

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 1. INTRODUCTION

The Unified Payments Interface (UPI) is a next-generation payments platform that facilitates
instant transfer of funds from person to person and person to merchant using a smartphone. It
powers multiple bank accounts into a single mobile application (of any participating bank),
merges several banking features, seamless fund routing and merchant payments under one
umbrella. It also caters to the ‘Peer-to-Peer’ collect request which can be scheduled and paid as
per requirement and convenience. Over decades, India has made slow but steady progress in the
field of electronic payments. The innovations in payments have leveraged major technological
innovations in each era. However, given the scale of our country, and that so many are unbanked,
we cannot rest on our laurels. Fundamentals of Unified Payment Interface (UPI) NPCI developed
Unified Payment Interface (UPI) as a common interface or a platform for all digital payment
systems in India. NPCI is the owner, network operator, service provider, and coordinator of the
UPI Network. The Unified Payment Interface enables architecture and a set of standard
Application Programming Interface (API) specifications to facilitate digital payments using a
mobile phone.1 UPI leverages high penetration of mobile phones and growing adoption of
smartphones, data and internet to enable mobile based instant payment system in India. UPI
allows users to send or request money instantly from their bank accounts using a mobile phone,
making mobile phone a primary payment device for the masses. UPI uses IMPS as the switching
mechanism to enable instant payments and settlement between different financial institutions.

AIM OF STUDY
 To understand the origin and concept of UPIs.
 To understand the effect of the same in present banking system and consumer behaviour.
 To study the various enabling infrastructure present in our banking and technologicall
framework.

1
National Payments Corporation of India (2016) Unified Payment Interface API and Technology Specifications.
National Payments Corporation of India, Mumbai.

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HYPOTHESIS

The researcher hypothesizes that UPI has brought a revolution and a greater sense of security and
convenience in the lives of general public.

RESEARCH METHODOLOGY

The study is collected from the various journals and books and publication from various websites
and legislations, recent articles, which give importance about the use of UPIs in current banking
system.

RESEARCH QUESTION
 What were the major issues that led to the development of the UPIs?
 How has the implications of this affected the banking system in Indian context?

SOURCES OF STUDY

The researcher has referred books, research articles, unpublished thesis and e-sources as a part of
secondary sources for the writing of the project.

METHOD OF WRITING
The method of writing followed in the course of this research is primarily analytical.

MODE OF CITATION
The researcher has followed uniform mode of citation.

LIMITATIONS

The researcher is unable to trace the primary sources needed to write about the topic as the topic
demands research in the archives which is not available to the research as admission to the
government archives is not allowed.

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 2. BACKGROUND

The Reserve Bank of India is the regulatory body with Payments and Settlements Systems Act
(2007)2 being the primary legislation governing payments systems in India. Making India “less
cash” dependent and promoting digital payments has been a focus area for RBI since last decade.
The five yearly RBI Vision Documents which sets the tone and vision for achieving key
objectives in the payments ecosystem aptly sums up the priority for RBI to transform the
payments landscape in India. “To proactively encourage electronic payment systems for ushering
in a less-cash society in India and to ensure payment and settlement systems in the country are
safe, efficient, interoperable, authorised, accessible, inclusive and compliant with international
standards.”3 The period 2016-17 has been the pivotal period for payments landscape in India, the
country witnessed profound changes in payments ecosystem with radical policy decisions,
introduction of new age payment systems and rapid changes in user behaviour. Demonetization
was introduced during this period whereby 86% of the currency notes were rendered worthless
overnight.4

During demonetization paper money became scarce and one could witness serpentine queues in
banks and ATMs to withdraw meagre currency that was available. Business and trade almost
came to a standstill and the GDP growth rate decreased in spite of rapid introduction of new
currency notes and use of digital forms of payment. The year preceding demonetization saw the
emergence of mobile based digital wallets which witnessed rapid adoption by a large smartphone
using population. Emergence of mobile based digital wallets was largely driven by new age
private technology companies. During the same period with the clear mandate from Reserve
Bank of India to drive next generation digital payments, National Payments Corporation of India
(NPCI) set out to create a new payment system called Unified Payment Interface (UPI). 5 Unified
Payment Interface (UPI) was formally inaugurated by then RBI Governor on 11 April 2016 and
2
Pradhan Mantri Jan-Dhan Yojana”, Ministry of Finance, August 2014,
http://www.pmjdy.gov.in/financial_literacy.aspx.
3
“Report of the Task Force on an Aadhaar-Enabled Unified Payment Infrastructure”, Finance Ministry, February
2012, http://finmin.nic.in/reports/Report_Task_Force_Aadhaar_PaymentInfra.pdf.
4
“Role of Biometric Technology in Aadhaar Authentication”, UIDAI, March 2012,
http://uidai.gov.in/images/role_of_biometric_technology_in_aadhaar_authentication_020412.pdf
5
“Micro-ATM Standards”, IBA, March 2013,
http://www.iba.org.in/upload/MicroATM_Standards_v1.5.1_Clean.pdf

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launched for public use on 25 August 2016. 6 Reserve Bank of India has been relentlessly
working in the direction of enabling a digital payments ecosystem in the country. In this
direction, RBI under its guidance and with support from Indian Banks Association (IBA) enabled
the formation of National Payments Corporation of India (NPCI) as an umbrella organization for
all retail payments system in India with all leading bank as stakeholders/shareholders.7 NPCI was
formed with the mandate to consolidate and integrate the disparate systems with varying service
levels into nation-wide uniform and standard business process for all digital payment systems.
The clear objective was to create a uniform and affordable payment system by leveraging
technology and enable financial inclusiveness in the country. UPI was a culmination of a series
of developments by NPCI over a period of 8 years since its inception in 2009. The first step
taken by NPCI in this direction was the standardization, simplification and implementation of
National Finance Switch (NFS) for all the banks of the country. NFS set the common standard
and enabled digital interoperability between all banks in the country. NFS is now the backbone
which powers the largest domestic ATM network in the country. The next revolutionary step for
NPCI was to enable Immediate Payment System (IMPS) riding the interoperable layer of NFS.
Prior to IMPS the modes for digital transactions in banks were Real time Gross Settlement
System (RTGS) and National Electronics Funds Transfer System (NEFT). RTGS and NEFT are
unsuitable for small ticket digital retail payments due inherent limitations of these systems like
high transaction limits, delayed settlement in batches and fixed operating time hours.

MISSION

To ensure payment and settlement systems in the country are safe, efficient, interoperable,
authorised, accessible, inclusive and compliant with international standards. The Mission
statement indicates RBI’s renewed commitment towards providing a safe, efficient, accessible,
inclusive, interoperable and authorised payment and settlement systems for the country.
Payments systems will be driven by customer demands of convenience ease of use and access
that will impel the necessary convergence in innovative e-payment products and capabilities.
Regulation will channelize innovation and competition to meet these demands consistent with
international standards and best practises.8

6
“Immediate Payment System (IMPS)”, NPCI, http://www.npci.org.in/imps_product.aspx.
7
Aadhaar Authentication”, UIDAI, http://uidai.gov.in/auth.
8
Aadhaar e-KYC API Specification”, UIDAI, http://uidai.gov.in/images/aadhaar_kyc_api_1_0_final.pdf.

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VISION

The vision is to proactively encourage electronic payment systems for ushering in a less-cash
society in India. It also identifies in this regards NPCI has taken up new initiative of
implementing “Unified Payment Interface” to simplify and provide a single interface across all
systems.

Key drivers are:

 Simplicity - Paying and receiving payments should be as easy as swiping a phone book entry
and making a call on mobile phone. Everyone who has an account should be able to send and
receive money from their mobile phone with just an identifier without having any other
bank/account details. All they need to do is to "pay to" or "collect from" a “payment address”
(such as Aadhaar number, Mobile number, RuPay Card, virtual payment address, etc.) with a
single click.

 Innovation - Solution should be minimal, functional, and layerable so that innovations on both
payee and payer side can evolve without having to change the whole interface. This unified layer
should allow application providers to take advantage of enhancements in mobile devices, provide
integrated payments on new consumer devices, provide innovative user interface features, take
advantage of newer authentication services, etc.

 Adoption - Solution should be scalable to a billion users and large scale adoption. This
should allow gradual adoption across smartphone and feature phone users and provide full
interoperability across all payment players, phones, and use cases. People using smartphone
should be able to send money to others who are not yet using any mobile application and vice
versa. Similarly, it should allow full interoperability between multiple identifiers such as
Aadhaar number, mobile number, and new virtual payment addresses.

 Security - Solution should provide end to end strong security and data protection. Considering
self-service mobile applications, data capture must be strongly encrypted at capture. Similarly,
solution should allow a mechanism to pay and collect using true virtual addresses without having

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to reveal any bank/account details. While providing convenient, solution should offer 1-click 2-
factor authentication, protection from phishing, risk scoring, etc.9

 Cost - Considering the fact that about 150 million smartphone users exist today and that
number is expected to grow to 500 million in the next 5 years, solution should offer a mechanism
to take full advantage of that. Use of mobile phone as the authentication (credential capture)
device, use of virtual payment addresses, and use of 3rd party portable authentication schemes
such as Aadhaar should allow both acquiring side and issuing side cost to be driven down. This
allows banks and other payment players to focus on core business and allow half a billion phones
to be the primary payment device in conjunction with other 3rd party authentication.

3. UNIFIED PAYMENT PROTOCOL, ARCHITECHTURE AND CORE

FEATURES

9
“Aadhaar Enabled Payment Systems (AEPS)”, NPCI, http://www.npci.org.in/AEPSOverview.aspx

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The The Unified Payment Interface allows payments to be initiated by the payer, or by the payee.
In the basic payee initiated flows, the payment request is routed by the initiating application
through the NPCI switch to the payer for approval. However, in certain instances, where it is
possible to connect with the payer immediately, it is preferred that the payee sends a payment
request to the payer, who can then initiate the payment request with his credentials.10

This leads to a significantly smoother payment experience. Some examples of these include in-
app payments – where the merchant app, may send the request to the PSP app on the same
device, instead of a collect request via the PSP network. Another example may be for proximity
payments, where the payer and payee are using different devices, but are close enough for the
information to be transmitted locally. This chapter introduces the Unified Payment Interface and
its architecture. After introducing the core features, high level architecture, key concepts, and
overall value proposition, a list of possible use cases and real world usage examples are provided
to better understand the proposal. All technical details of the interface are covered in subsequent
chapters.

CORE FEATURES

Unified Payment Interface provide the following core features via a single payment API and a
set of supporting APIs.

1. Ability to use personal mobile as the primary device for all payments including person to
person, person to entity, and entity to person.

2. Ability to use personal mobile to "pay" someone (push) as well as "collect" from someone
(pull). 3. Ability to use Aadhaar number, mobile number, card number, and account number in a
unified way. In addition, ability to pay and collect using "virtual payment addresses" that are
"aliases" to accounts that may be payee/amount/time limited providing further security features.11

4. Make payments only by providing an address with others without having ever provide account
details or credentials on 3rd party applications or websites.

10
National Payment Corporation of India”, NPCI, http://www.npci.org.in/home.aspx.
11
Supra 9.

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5. Ability for sending collect requests to others (person to person or entity to person) with "pay
by" date to allow payment requests to be “snoozed” and paid later before expiry date without
having to block the money in the account until customer is ready to pay.12

6. Ability to pre-authorize multiple recurring payments similar to ECS (utilities, school fees,
subscriptions, etc.) with a one-time secure authentication and rule based access.

7. Ability for all payment system players to use a standard set of APIs for any-to-any push and
pull payments.

8. Ability to have PSP provided mobile applications that allow paying from any account using
any number of virtual addresses using credentials such as passwords, PINs, or biometrics (on
phone).

ARCHITECTURE

Following diagram shows the overall architecture of the unified interface allowing USSD,
smartphone, Internet banking, and other channel integration onto a common layer at NPCI. This
common layer uses existing systems such as IMPS, AEPS, etc. to orchestrate these transactions
and ensure settlement across accounts. Usage of existing systems ensures reliability of payment
transactions across various channels and also takes full advantage of all the investments so far.
This unified layer offers next generation peer-to-peer immediate payment just by using personal
phone. The 3rd party API integration (merchant sites, etc.) can "collect" payment from “an
address” avoiding the need to share account details or credentials on 3rd party applications or
websites. Within this solution, payment authentication and authorization are always done using
personal phone. Since this layer offers a unified interface, any-to-any (Aadhaar number, mobile,
account, virtual addresses) payments to be done using standard set of APIs.13

“Aadhaar Payment Bridge (APB)”, NPCI, http://www.npci.org.in/apbs.aspx.

12

13
National Payments Corporation of India (2017) BHIM Analytics.National Payments Corporation of India,
Mumbai.

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 4. BASIC CONCEPTS

Every payment has the following core elements:

1. Payer and payee account and institution details for routing and authorization

2. Authentication credentials (password, PIN, biometrics, etc. as required for debit, can be bank
provided or 3rd party provided such as UIDAI)

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3. Transaction amount

4. Transaction reference

5. Timestamp

6. Other metadata attributes such as location, product code, mobile number, device details, etc. as
required.

Out of the above, items 1 and 2 are critical to be abstracted so that single architecture can handle
current and futuristic scenarios of “any payment address” using “any trusted authentication
scheme”.14

PAYMENT ADDRESS

Every payment transaction must have source (payer) account details (for debit) and destination
(payee) account details (for credit). At the end, before the transaction can be completed, these
must be resolved to an actual account number/ID. “Payment Address" is an abstract form to
represent a handle that uniquely identify an account details in a “normalized" notation. In this
architecture, all payment addresses are denoted as “account@provider" form. Address translation
may happen at provider/gateway level or at NPCI level.15

AUTHENTICATION

Authentication is typically done at the account provider domain. Authentication schemes

separately evolved as new payment channels evolved. While numeric or alpha-numeric
PIN/Passwords is the dominant authentication factor, different PINs were issued for different
channels (Internet PIN, ATM PIN, Mobile PIN, etc.).

In addition, OTP based authentication is used heavily these days to offer 2-FA authentication
schemes. One authentication is required to be performed by the Payment Service Provider - for

14
Shubha (25 May 2015) Comprehensive, 2015, U.S. Market Analysis of POS Terminals and EMV & NFC Status
Review. Lets Talk Payments. https://letstalkpayments.com/comprehensive-2015-u-s-market-analysis-ofpos-ter
minals-and-emv-nfc-status-review/
15
5Banking Panorama in India, Anil Kumar Upadhyaya, Chapter National Payments Corporation of India, p. 88.

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instance, the use of the correct mobile phone, while the other is performed within the domain of
the account provider.

Traditionally, payment account provider themselves provided the authentication scheme.

Account management (KYC, opening account, managing transactions, etc.) were tightly coupled
with internal authentication schemes. But, conceptually, account management including KYC
etc. should be loosely coupled with authentication. Aadhaar authentication via NPCI which, in
turn, is trusted by banks to conduct payment transactions.16

Digital Signatures, especially proposed Aadhaar enabled DSCs, can also play an important role
to identify the authenticity of the request and bring out new ways of issuing e-Cheques, ECS
mandates, and other payment instruments.

In this unified architecture, objective is to enable multiple authentication schemes (account

provider as well as trusted 3rd party like UIDAI’s Aadhaar authentication) without tightly
coupling with account provisioning and management. This allows future one or multi-factor
authentication schemes to be plugged into the architecture as long as account providers allow
such trusted external authentications.

Today, authentication and authorization are part of the same transaction flow and inline. But, in
newer systems such as AEPS, use of third party authentication is followed where authorization
was still done within the banking system. Adopting 3rd party authentication and using token less
payment scheme allows banks to reduce the overall issuance (card, PIN, etc.) cost while still
keeping authorization and account management within its control.17

VALUE PROPOSITION

The proposed Unified Payment Interface provides the following values.

1. Simplifying Authentication - India is the only country in the world to offer trusted 3rd
party biometric authentication as a utility service. With universal coverage of Aadhaar

16
“Report of the Technical Committee on Mobile Banking”, RBI, February 2014,
http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=760#8
17
Reserve Bank of India (2016) Reserve Bank of India Annual Report 2014-15. Reserve Bank of India, Chapter 9,
p. 115.

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 expected in 2015, PSPs can take advantage of this utility to provide secure, convenient
authentication service to a billion people without having the need to do card/PIN issuance
lifecycle. Similarly NPCI offered centralized MPIN management options via USSD can
allow banking customers with registered mobile to easily set and change MPIN without
having any explicit issuance mechanisms. Unified interface provides significant
advantage from current systems to take mobile payments to next level. Its value lies in
using customer’s mobile phone as the primary device for all authentication and
authorization for both “Direct Pay” (push) and “Collect Pay” (pull) transactions.
2. Simplifying Issuance Infrastructure - Usage of virtual addresses and payment addresses
in conjunction with mobile as the "what you have" factor helps banks to create token-less
infrastructure reducing the costs.
3. Simplifying Acquiring Infrastructure - Use of mobile as the primary device for payment
authorization can completely transform the issuance infrastructure to be easy, low cost,
and universal. Considering the fact that India has nearly a billion phones and 150 million
smartphones (expected to be at 500 million in next 4-5 years), massive scale can be
achieved if effective use of mobile is made compared to creating costly physical
acquiring infrastructure.
4. 4. Flexibility for PSPs - Payment system players (RBI regulated entities such as banks,
payment banks, PPIs, and their technology service providers) can offer superior mobile
experience to their customers. In addition, this unified interface still allows a fully on-us
scheme if both payer and payee are on their network.
5. Flexibility for Users - Customers get the ability to make payments securely to their
friends, relatives, pay to merchants, pay bills, etc. all using their mobile phones without
having to share any account details or credentials with others. In addition, innovations
such as reminders, using multiple accounts via single mobile applications, using special
purpose virtual addresses, etc. allow users to enjoy superior experience.
6. Stimulating Innovation - This interface provide a very simple API that is minimalistic,
fully functional, and allowing innovations in various aspects such as user interface,
convenience features, authentication schemes, and mobile devices to be brought in
without having to change the core API structure.18
18
Reserve Bank of India (2016) Reserve Bank of India Annual Report 2015-16. Reserve Bank of India, Chapter 9,
p. 95.

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 7. Embracing Mobile Adoption- This interface truly embraces mobile and low cost
smartphone adoption in India allowing phones to be the primary device for all payments
and integrating mobile numbers by allowing paying to/from a mobile number.
8. Embracing Aadhaar Adoption - Universal digital identity is fast becoming a reality with
Aadhaar adoption crossing 730 million. With Aadhaar e-KYC allowing paperless,
anytime anywhere e-KYC services, Aadhaar now a payment destination using APB,
usage of Aadhaar authentication as a trusted 3rd party authentication, large scale
electronic payments can be achieved unlike ever before.
9. Creating National Interoperability - With introduction of new payment service players
such as payment banks, PPIs, and others, it is necessary that India adopt an interoperable
mobile payment strategy to allow customers to send and receive from any other customer
within the PSP or across PSPs in a seamless fashion. Proactively creating this unified
interoperable interface allows all players to innovate and provide superior customer
experience and still provide a secure, standard based, interoperable payment scheme.

5. SUPPORTING INFRASTRUCTURE

Following are the supporting infrastructure that make the use of UPIs even more convenient anfd
useful.

ADHAAR SYSTEM

One of the key considerations is to keep the Aadhaar system purely focused on identity and
nothing else. The Aadhaar system only collects minimal data just enough to provide unique
identity, issue the Aadhaar number after biometric de- duplication, manage lifecycle changes of
that identity record, and provide a secure Application Programming Interface (API) for verifying
the identity (online authentication) for various applications requiring identity verification.
Designing the Aadhaar system as pure identity platform allows clear separation of duties and

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leaves usage of identity to other partners, and their various applications which may be built on
top of the Aadhaar platform.19

AADHAAR AUTHENTICATION

Aadhaar authentication is the process wherein Aadhaar number, along with other attributes,
including biometrics, are submitted online via an API to the UIDAI system for its verification on
the basis of information or data or documents available with it. Authentication module handles
online resident authentication from various Authentication User Agencies (AUA). 20 Combination
of Aadhaar number and biometrics deliver online authentication without needing a token (such
as a smartcard). During biometric authentication, agency collects the Aadhaar number along with
one or more biometric impressions (e.g., one or more fingerprints, or iris impression alone, or iris
impression along with fingerprints) which then encrypted and sent to Aadhaar authentication
server for authenticating the resident.21

AADHAAR E-KYC

Verification of the Proof of Identity and Proof of Address is a key requirement for access to
financial products (payment products, bank accounts, insurance products, market products, etc.),
SIM cards for mobile telephony, and access to various Central, State, and Local Government
services. The Aadhaar e-KYC service provides a convenient mechanism for agencies to offer an
electronic, paperless KYC experience to Aadhaar holders. The e-KYC service provides
simplicity to the resident, while providing cost-savings from processing paper documents and
eliminating the risk of forged documents to the service agencies. This service is offered via an
Application Programming Interface (API) that allows organizations to integrate Aadhaar e-KYC
within their applications.22

Aadhaar e-KYC service is now approved by the RBI as a valid KYC process. PSPs can become
authentication and e-KYC user agencies (AUA/KUA) by signing up with UIDAI and can easily

19
“Aadhaar Authentication”, UIDAI, http://uidai.gov.in/auth.
20
Ibid.
21
“Aadhaar Enabled Payment Systems (AEPS)”, NPCI, http://www.npci.org.in/AEPSOverview.aspx
22
2 Reserve Bank of India (2009) Payment Systems In India Vision 2009-12. Department of Payment and
Settlement Systems. Reserve Bank of India, Part 6, Section 6.4.1, p. 8.

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integrate these services within their application to provide low cost, paperless, and convenient
KYC and authentication services to their customers.

AADHAAR ENABLED ACCOUNT

In order to facilitate disbursements, remittances or any financial transaction using Aadhaar as

the financial address, a resident is required to link their Aadhaar number with his/her bank
account number. Customers have the option of either linking their existing bank account or
opening a new bank account.

AADHAAR PAYMENT BRIDGE

The Aadhaar Payments Bridge (APB) offers a simplified payment mechanism to Government
user departments to electronically transfer subsidies and benefit payments to individuals on the
basis of their Aadhaar number. APB system enables payments to be credited to end
beneficiaries’ Aadhaar-enabled accounts (AEA) on the basis of Aadhaar number being unique
identifier.23

The Aadhaar Payments Bridge will facilitate the processing of payments file from the
Government departments received via the sponsor banks (assigned bank), and subsequently
routing of the payments file to the beneficiaries bank. The beneficiary’s bank has the Aadhaar
number mapping to the beneficiary’s bank account number to credit the amount in the end
beneficiary’s account. Aadhaar Payments Bridge (APB) is a payments service offered by
National Payments Corporation of India and the process for on-boarding of banks has also been
defined by NPCI.

Currently APB system has about 120 million Aadhaar to bank mappings in its database. 24 As part
of large scale adoption of Direct Benefits Transfer (DBT) across all subsidy systems, it
isexpected that APB mapping database will have about 200-250 million Aadhaar mappings
within next 12-18 months.

23
Reserve Bank of India.https://rbidocs.rbi.org.in/rdocs/ATM/PDFs/ATM072017B116CE3C8542429A8252F
4C42D717773.PDF.
24
Supra 19.

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AADHAAR ENABLED PAYMENT SYSTEM

Aadhaar Enabled Payments System (AEPS) enables banks to route the financial transactions
through a switching and clearing agency to empower the resident to use Aadhaar as his identity
to authenticate and subsequently operate his respective Aadhaar enabled account and perform
basic financial transactions. A vital building block in this endeavour is developing a standard
platform that will become cost effective with scale and provide real time authentication, even in
remote areas. For this, standards for on-line, interoperable devices termed microATMs were
finalized by a committee consisting of members from RBI, Indian Banks Association (IBA),
Banks, Institute for Development and Research in Banking Technology (IDRBT), and UIDAI.

A Proof of Concept was done in Jharkhand in partnership with Bank of India, Union Bank of
India and ICICI Bank for these microATM-based transactions in early 2011. The pilot project for
payments started in December 2011 in Jharkhand. 25 MicroATMs allow customers to perform
basic financial transactions (Deposit, Withdrawal, Funds Transfer, Balance Enquiry and Mini
Statement) using the Aadhaar number and their fingerprint as identity proof (along with a Bank
Identification Number for inter-bank transactions).

The cash-in / cash-out functions of the micro ATMs are performed by an agent of the bank. This
would not only offer convenience to the resident but would also reduce credit and operational
risks for the banking system apart from reducing transaction costs. The interoperable Aadhaar-
enabled payments architecture is an overlay on the existing payment architecture, where
authentication information is routed to UIDAI. UPI is a real time inter-bank payment system
with send or request money. Any UPI client app may be used and multiple bank account may be
linked to single app. Money can be sent or requested with following methods

Virtual Payment Address- Send or request money from/to bank account mapped using VPA.

Mobile number: Send or request money from/to bank account mapped using mobile number.

Account number & IFSC: Send money to bank account.

25
“Committee on Comprehensive Financial Services for Small Businesses and Low Income Households”, RBI,
January 2014, http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=727.

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Aadhaar: Send money to bank account mapped using Aadhaar number.

QR code: Send money by QR code which has enclosed VPA, Account number and IFSC or
Mobile number.

With UPI everyone with a bank account in India can create their Virtual Payment Address (VPA
or UPI ID) and start transacting using a mobile phone. This Virtual Payment Address for e.g.
abc@xyzbank becomes a person’s unique payment identity and abstracts the need to share bank
details while transacting. UPI considerably simplifies digital payments, instead of issuing cards
to a large population which is costly and time consuming UPI enables mobile phone a primary
device for authorizing and making payments. Also a mobile phone combined with a unique
payment ID makes it a low cost payment acceptance device thus making digital payments
universal, easy and low cost.

THE UPI ECOSYSTEM PAYMENT

Service Players Customers can access UPI payment facilities through UPI Apps provided by
Payment Service Players (PSP). These PSPs consist of Banks, Payments Banks and other third
party software providers of banks which acquire customers and provide UPI payment services
through their UPI PSP mobile apps. These PSP UPI apps use UPI libraries and utilities to
facilitate customer registration, creation of Virtual Payment Address (UPI ID) and provide
payment services to the customers. Customers are not bound to use the PSP UPI App of their
own bank and can chose to use PSP UPI App of any bank. Moreover, the Payer and Payee PSP
UPI app can be different. PSP UPI App enable following type of transactions for users;

1) Non-Financial Transactions include customer registration on UPI platform, Virtual Payment

Address creation, Set and Change MPIN, OTP requests and bank balance check. Customers can
also raise dispute or check status of a transaction from the PSP UPI App incase of any issue.

2) Financial Transactions include Push and Collect payments based on Virtual Payment Address,
Push transactions based on Account Number and IFSC Code and Push transactions based on
Aadhaar Number.

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VIRTUAL PAYMENT ADDRESS

Every payment transaction requires source (remitter) account details to make the debit and
destination (beneficiary) bank details to make the credit. UPI enables the users to create their
Virtual Payment Address (UPI ID) for their bank accounts. This Virtual Payment Address is an
abstract form to represent and uniquely identify the bank account details in a normalized
notation. Thus for any transaction to take place it is vital to resolve the Virtual Payment Address
into the actual bank accounts to make the debit and credit transactions. In current UPI
architecture the Virtual Payment Address is denoted as “xyz@psp” form where xyz can be any
unique name and psp is the name of the Payment Service Player whose application the user uses
to create the VPA. The Virtual Payment Address is created by the PSP UPI App and is stored in
the PSP database while the bank account number and IFSC Code (Global Address) is stored in
the NPCI Mapper. PSPs expose their Address translation algorithms with NPCI to enable it to
decode the VPA into valid bank account details. Thus, The Virtual Payment Address is resolved
by the respective PSP UPI Apps while the Account Number and IFSC Code is resolved against
the Virtual Payment Address by the NPCI Central Mapper. This is a unique feature in UPI since
it removes the need to know the full bank details of parties making a transaction. Users can
exchange their Payment Address which is sufficient to make the transaction.26

NPCI CENTRAL MAPPER

NPCI is the central repository and maintains a central mapper of association between customers
Mobile Number, Bank Accounts, Aadhaar number and Virtual Payment Address. This central
repository is used to route payment instructions based on mobile number. Thus, central mapper
allows anyone to send/receive money from a mobile number without knowing the destination
account details. Apart from UPI, Aadhaar Payments, National USSD Platform (NUUP) and
IMPS also use this central repository for routing payments. In fact, Aadhaar Payments Bridge
System (APBS) uses this NPCI central mapper to transfer direct benefit transfers to individuals
on the basis of their Aadhaar number. With linkage of Aadhaar number with Bank Account in
the central mapper allows Aadhaar Number to become a payment address in itself.27

26
Ibid.
27
www.npci.org.in.

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TRANSACTIONS IN UPI

As mentioned above UPI allows a set of Non-Financial and Financial Transactions. Financial
transactions include two types of transactions:

1) Pay Request (Push Payment): This transaction is initiated by the user in which money is
pushed into the bank account of the beneficiary. This Push Payment can be done using the
Account Number and IFSC Code, Aadhaar Number or the Virtual Payment Address of the
beneficiary.

2) Collect Request (Pull Payment): A Collect Request transaction is initiated by the beneficiary
to pull funds from the payer by using Virtual Address. The user can also define an expiry time
limit of the Collect Request. The payer will receive the collect request on his PSP UPI App
which is to be authenticated using 4 - 6 digit MPIN to complete the transaction.

6. IMPACT OF UPI

UPI has witness rapid growth since its launch in August, 2016 in terms of number of users,
volume and value of transactions. Currently 55 banks are live on UPI platform with more than 60
PSP UPI apps available on app discovery platforms.28 Within 12 months of launch of UPI, more
than 20 million users have downloaded various UPI PSP apps. Total value of transactions on UPI
has grown 82% month on month since its launch with total transacted amount of Rs. 227 billion

28
Reserve Bank of India (2017) Electronic Payment Systems—Data Dissemination.Reserve Bank of India.

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till August 2017.29The monthly value of transactions on UPI has already overtaken monthly
transactions of all e-wallets put together in India. The value of transactions on UPI is currently is
less as compared to value of credit and debit cards transactions which constitute about Rs. 2700
billion per month but UPI is growing at a much faster rate. 30 Currently person-to-person money
transfers constitute majority of UPI transactions while person-to-merchant transactions are
currently very less. This is due to lack of merchant acceptance infrastructure at merchant
payment points to accept UPI payments. UPI usage for merchant payments is expected to
increase with more businesses enabling UPI payments for their customers. Current POS
machines accepting payments through debit and credit cards need to be reconfigured and updated
to accept UPI payments.

Also, POS machines should be able to get the confirmation status of UPI transactions. As a
payment mode, UPI has the potential to make debit cards redundant since with UPI there will be
no need to carry your debit card as your mobile phone will work as your debit card. However,
UPI in the current form does not support credit cards hence UPI as a product does not compete
with the credit cards. For online payments UPI clearly offers better user experience vis-à-vis
debit cards or net banking payments.

IMPACT ON PAYMENTS IN PHYSICAL WORLD

Payments in the physical world include cash and debit or credit card transactions. UPI has the
potential to transform payments in the offline world as it offers a cost effective alternative to
both cash and cards transactions. With UPI merchants do not require expensive POS machines to
collect digital payments through cards, a merchant will be able to display a unique UPI QR Code
which the customer can scan with mobile phone and make the payment with the amount being
credited instantly into merchant’s bank account. Merchant can receive payment confirmation
over their mobile phones. Most cash transactions at merchant point happen due to lack of digital
acceptance mechanisms with merchants. The customers can also directly pay the merchant at
merchant’s UPI ID and merchant will receive payment confirmation on the mobile phone.

29
National Payments Corporation of India (2017) BHIM Analytics.National Payments Corporation of India,
Mumbai.
30
Reserve Bank of India. https://rbidocs.rbi.org.in/rdocs/ATM/PDFs/ATM072017B116CE3C8542429A8252F
4C42D717773.PDF.

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IMPACT ON ONLINE PAYMENTS:

Currently majority of online transactions are enabled by payment gateways with Debit/Credit
Cards and Net-banking being the primary modes of payments. Users are required to input all the
sensitive details including Card Numbers, Card Verification Value, Net-banking usernames and
passwords etc. This makes digital payments vulnerable to data leaks and frauds. Also, there are a
number of network hops between card networks, issuer and acquiring bank to enable a
transaction which leads to high failure rates of transactions. With UPI customers need not
provide any information, a customer can simply scan a QR code displayed on the website using a
mobile phone and payment can be completed in seconds with a few network hops. This can not
only avoid data leaks of any sensitive data but also increases transaction success rates.

IMPACT OF UPI ON BUSINESSES

Apart from being the most cost effective, fast and seamless payment method UPI enables digital
payments for an entire spectrum of businesses both for brick and mortar and online merchants.
For physical businesses, each employee can be enabled to collect digital payments since there is
no need of any POS machine, each employee can be provided a unique UPI ID and QR Code
which the employees can present to the customer to collect payments. Apart from proximate
payments where the customers is physically present at the billing counters, UPI opens unique
opportunities for businesses to collect payments where customers are not physically present for
example. Insurance premium collection, school fee and electricity bill payments etc. where
payment request can be sent to the customer and customer can pay remotely using mobile
phones. Another important use case for businesses can be to enable payment at the time of
delivery. In India there is a large prevalence of cash on delivery, almost 60% of ecommerce sales
happen with cash payment being made at the time of delivery. 31 Such payment at time of delivery
can be converted into digital payment at the time of delivery using UPI whereby a customer can
easily pay through UPI at the time of delivery.

National Payments Corporation of India (NPCI) (2016) NPCI Presents Unified Payments Interface (UPI) System,
31

NPCI Press Release. 11 April 2016, National Payments Corporation of India (NPCI), Mumbai.

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 7. CONCLUSION

UPI has enabled mobile phone to be used as a primary payment device for making and accepting
payments. UPI leverages high tele-industry in India to enable every bank account holder to make
digital transactions using a mobile phone. India, which has a poor merchant payment acceptance
infrastructure UPI, enables even the smallest merchant to start accepting digital payments
without the need for any POS machine.

UPI has done away with the need to know the complicated payment details of the transacting
parties, which makes payments easy and seamless for transacting parties. Compared to all other

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payment systems it would not be misplaced to say that UPI is the most advanced payment system
in the world.

With its standard set of APIs, UPI has allowed different banks to communicate with each other
and has enabled inter-operability between disparate bank payment systems. In UPI there are no
intermediaries like in card networks, which allows for low transaction costs and instant
settlement. While all other digital modes of payments like cards etc. take days to complete the
transaction and settlement process, UPI allows payment to be completed in seconds.

UPI works on a safe, secure and robust platform with ample security features to make it more
secure than any extant payment systems. Introduction of biometric authentication in UPI will not
only make payments more secure but will also take a huge leap towards integrating next
generation technology with current payments system. UPI can be a great enabler for financial
inclusion in India and allow a huge set of population to be a part of digital economy.

BIBLIOGRAPHY

BOOKS

 Electronic Payment Systems—Data Dissemination. Reserve Bank of India.

 BHIM Analytics. National Payments Corporation of India.
 Committee on Digital Payments, Ministry of Finance—Government of India

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  Committee on Comprehensive Financial Services for Small Businesses and Low
Income Households
 Aadhaar Authentication -UIDAI,
 Reserve Bank of India (2009) Payment Systems In India Vision 2009-12.
Department of Payment and Settlement Systems. Reserve Bank of India.

WEBSITES

 www.rbi.org.in
 www.npci.org.in
 www.wikipedia.org
 www.cashlessindia.gov.in
 http://uidai.gov.in/auth

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