Chapter 1: INTRODUCTION

1.1 What is 'Payment'?

Payment

Payment is the voluntary transfer of money, equivalent, or other valuable items from
one person to another in exchange for goods or services received or to meet a legal
obligation. The person who gives the money is often called the payer, while the
person who gets the money is called the payee.

What is the payment?

Payment is the exchange of money, goods, or services for goods and services in an
acceptable amount to both parties and has been agreed upon in advance. You can pay
with cash, a check, a wire transfer, a credit card, a debit card, or even cryptocurrency.

Understanding Payment

The way money works now, you can pay for things with cash. Money is a convenient
way to pay for things and easy to store. It has made economic transactions easier.

Before, many people used money and other ways to make payments; people would
trade one good or service for another. For example, if an egg farmer had a lot of extra
eggs and wanted milk, he would have to find a dairy farmer who would trade eggs for
milk.

If a good dairy farmer couldn't be found in time, the egg farmer wouldn't get the milk,
and the eggs would go bad, making them useless. On the other hand, the money stays
worth what it is worth over time. But bartering is still used by businesses that want to
trade services.

Payment can be the exchange of something of value or use to both parties. Most of the
time, an invoice or bill comes before a payment. Payees can usually choose how they
want to be paid most of the time. However, several rules say that the payer must take
up to a certain amount of the country's legal cash. When a payment is made in a
foreign currency, there are often fees for the foreign exchange transaction. These fees
are usually between 2 and 3 percent of the total payment amount, but they can be
much higher depending on the bank, card issuer, and place of purchase.

What Are the Main Types of Payments?

Traditionally, cash, debit cards, credit cards, and checks were the main types of
payments. Now, more advanced forms of digital payments are becoming more
popular. This includes online payment services, digital currencies, and electronic
transfers.

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Different ways to pay

Payments can be made in several ways, some of which are listed below.

Cash

Cash is still used for many businesses, such as the retail industry. Coffee shops and
convenience stores, for example, still accept cash payments. Considering the fees
associated with debit and credit cards, many retail small businesses prefer cash
payments from their customers. Cash has its own disadvantages, as it can be lost,
stolen, or destroyed. Businesses dealing in large transactions must often incur
additional expenses to pay for related security measures such as secured transit or
fraud detection.

Credit Cards

Today, credit cards are widely used for purchases and payments. Credit cards work by
offering its user a line of where where an individual can draw credit up to a certain
limit. When you attempt to use your credit card, your account information is sent to
the merchant bank. The merchant bank then receives authorization from the credit
card network to process the transaction.

Many businesses accept credit cards, though many that accept cards charge a fee from
the merchant that provides the machine and payments infrastructure as well as their
financial institution. This fee is often a percentage of the transaction amount and/or a
flat fee for each payment.

Debit Cards

Debit cards may look similar to credit cards, but their underlying mechanism is
entirely different. When a debit card is used, funds are immediately withdrawn from
an individual's account. Instead of having a line of credit that you can pull from in
excess of what you have saved, debit card transactions can be declined if you do not
have enough money in your account.

Debit cards share many advantages as credit cards, as the small piece of plastic is easy
to carry, widely accepted by many merchants, and has varying levels of fraud
protection. However, debit cards often have less promotional opportunities and may
result in processing fees if you accidently attempt to overdraw your account.

Mobile Phones

The contactless payment technology that has emerged in recent years has made
payments easier than ever. The credit or debit card machine—called a point of sale
terminal (POS)—can read the customer's banking information through the software
application that's installed on the mobile device. Once the phone reads the information

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from the POS terminal, a signal is generated to inform the customer that the payment
has been made.

For mobile payments to work, the payer must have a higher-end mobile device with
near-field communication (NFC) capability. The user then needs to set up their
mobile wallet to contain their existing card information. The bank that issued your
credit card often has to approve the new payment platform, and the payee must have
capabilities to accept mobile payment.

Checks

Checks have fallen out of favor over the years due to advancements in technology,
allowing payments to be electronically submitted. However, there are instances when
checks might be helpful, such as when the seller wants a guaranteed payment. A bank
cashier's check or a certified check are two types of checks that banks offer to help
sellers receive the money owed from the buyer.

Checks are linked to a payer's bank account. Each check contains your bank's routing
number (a nine digit code to identify financial institution) as well as your account
number. When a check is written, the payee deposits the check, sending the
transaction to a clearing unit. The clearing unit makes the appropriate changes to each
party's account.

Electronic Funds Transfers

Wire transfers and ACH payments (Automatic Clearing House) are typically used for
larger or more frequent payments in which a check or credit card wouldn't be
appropriate. A payment from a manufacturer to a supplier, for example, would
typically be done via wire transfer, particularly if it was an international payment. An
ACH payment is often used for direct deposits of payroll for a company's employees.

Though both are transfers of electronic funds, ACHs and wire transfers are different.
ACHs only work domestically, and often take one or more business days to fully
process. Wires are most often processed same day but have location limitations. In
addition, ACHs can often be reversed, while wire payments are permanent once the
transaction is initiated.

Cryptocurrency

Digital currency or tokens are a more modern approach to facilitating transactions.

The premise is simple: one person in possession of digital currency can send coins or
tokens to any address on a blockchain. Blockchains with smart contract capabilities
can interject logic to automatically withdraw or transfer specific amounts based on
underlying conditions.

The widespread use of cryptocurrency is still in its infancy stage, especially when
compared with other payment systems above. However, cryptocurrency has the

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advantage in only needing an Internet connection to facilitate a payment; as long both
parties have a digital wallet on the same network, payments can be made.

Payment Credit Terms and Discounts

Every company that receives payments must set their payment terms. This payment
term dictates when payment is due and whether the company offers a discount for
early payment.

The most common form of payment term is called "net 30" where a payment is due 30
days from the receipt of the invoice. A company may set the number of days to
whatever they want; however, these terms must often be agreed to in the contract with
the payee. In addition, a payer may offer a discount (i.e. 1%) if payment is made
within a short period of time (i.e. 10 days). This is written as 1/10, net 30, and the
company may offer that discount if it is urgent they receive cash.

Installment Payments

In a very basic, transactional contract, a good or service is provided at the same time,
immediately proceeding, or immediately following payment. Consider buying an
apple at a grocery store; you must pay before you can take it out of the store. Consider
a haircut; you must pay immediately after the barber styles your hair.

For more complex agreements that may require delivery of a good or a service to be
performed over time, Consider a real estate developer that charges a 4% fee on a
building they are constructing. The agreement for the developer fee may call for
quarterly payments to the developer based on the percentage of completion of the
building. Another example may be keeping a lawyer on retainer; payment must be
made on a recurring basis in advance of any services being provided.

Advance Payments (Prepayments)

In some contractual situations, one party to the contract may require payment upfront
before service has been performed or the good has been delivered. More often for
service agreements, the payee that receives payment has an obligation to perform on
the contract after payment has been received. In addition, that payee must follow strict
accounting guidance that limits their ability to record revenue until the payment is
actually earned.

What are the three ways that you can pay?

Checks and cash are both ways to pay. Cash and checks are being used less and less
as ways to pay, but they are still legal and widely accepted.

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  Money Order. Money orders are going down in popularity, just like cash and
checks.
 Charges and credits.
 Mobile payments or digital wallets
 Bitcoin is a form of digital money.

What other ways can you pay for something?

Other ways to pay than cash are called alternative payment methods. Alternative
payment methods (AMOP) include paying with a credit or debit card, loyalty
programs points, virtual wallets like Google Pay and Apple Pay, and cryptocurrencies
like bitcoin. Another well-known AMOP is Venmo.

What's the point of making a payment?

Similar to the "Purpose of Payment" section of the check request form, the "Purpose
of Payment" area lets Cardholders explain why they made the purchase. Getting this
information for all purchases is very important for the auditing process.

What Is a Bank Payment?

A bank payment is a transfer from one bank account to another. It is a form of digital
payment that leverages technology to transfer currency. Instead of relying on
transferring physical currency or writing a paper check, a bank payment can be issued
for many reoccurring expenses (i.e. utility bills) or sporadic expenses (i.e. grocery
bills).

What Is the Best Form of Payment?

There is no single best form of payment, as each typically has its own advantages and
disadvantages. More traditional forms for payment like cash don't need technology
and are often universally accepted. More modern forms of payment have less risk of
theft and may be accompanied by payment rewards.

1.2 Evolution of payments in India.

Payment instruments and mechanisms have a very long history in India. The earliest
payment instruments known to have been used in India were coins, which were either
punch-marked or cast in silver and copper. While coins represented a physical
equivalent, credit systems involving bills of exchange facilitated inter-spatial
transfers.

In ancient India, loan deed forms called rnapatra or rnalekhya were in use. These
contained details such as the name of the debtor and the creditor, the amount of the
loan, the rate of interest, the condition of repayment, and the time of repayment. The
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deed was witnessed by a person of respectable means and endorsed by the loan-deed
writer. Execution of loan deeds continued during the Buddhist period when they were
called inapanna.

In the Mauryan period, an instrument called adesha was in use, which was an order on
a banker desiring him to pay the money of the note to a third person, which
corresponds to the definition of a bill of exchange as we understand it today. During
the Buddhist period, there was considerable use of these instruments. Merchants in
large towns gave letters of credit to one another. There are also numerous references
to promissory notes.
The loan deed continued into the Mughal period. The deeds were called dastawez and
were of two types: dastawez-e-indultalab which was payable on demand and
dastawez-e-miadi which was payable after a stipulated time.

In the Mughal period, we have the testimony of foreign travelers regarding the use of
bills of exchange in the then-great commercial centers. From their writings, it may be
noted that Indian bankers also issued bills of exchange on foreign countries, mainly
for financing sea-borne trade. These bills were widely accepted and were traded at
high discounts, as the discounts included the insurance premium covering the risk
representing the safe arrival of goods.

Another instrument in use during the Muslim period was the Pay order. Pay orders
were issued from the Royal Treasury on one of the District or Provincial treasuries.
They were called Barattes and were akin to present-day drafts or cheques.

The most important class of credit Instruments that evolved in India were termed
Hundis. Their use was most widespread in the twelfth century and has continued till
today. In a sense, they represent the oldest surviving form of credit instrument.
Hundis were used
* as remittance instruments (to transfer funds from one place to another)
* as credit instruments (to borrow money [IOUs])
* for trade transactions (as bills of exchange)

Hundis were of various kinds and each type had certain distinguishing features.
Darshani Hundi: This was a demand bill of exchange, payable on presentation
according to the usage and custom of the place. These were mainly of four types. A]
Sah-jog - was a hundi transferable by endorsement and delivery but payable only to a
Sah or to his order. A Sah was a respectable and responsible person, a man of worth
and substance who was known in the market.
B] Dhanni-jog - was a demand bill of exchange payable only to the dhanni, i.e. the
payee. This hundi was not negotiable.
C] Firman-jog - hundis came into existence during the Muslim period. Firman is a
Persian word meaning order and therefore, firman-jog hundis were payable to the
order of the person named. These hundis could be negotiated with a simple or
conditional endorsement.
D] Dekhavanhar - hundi was a bearer demand bill of exchange payable to the person
presenting it to the drawee. Thus it corresponded to a bearer cheque.

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Muddati Hundi : This is a usance bill and is payable after stipulated time or on a
given date or on a determinable future date or on the happening of a certain stipulated
event. Muddati hundis of Sah-jog, dhanni-jog and firman-jog types had the same
features as those attached to the same types of darshani hundis. However, the most
important type of muddati hundi was the jokhami hundi, which was a documentary
bill of exchange corresponding to the present day bill of lading. This had been in use
for centuries and payment was conditional on the safe arrival of goods.

The princely states of India had their own distinct coins. An example of this was the
Arcot Rupee coin struck by the Nawab of Arcot in the Madras Presidency. By 1740,
the Europeans had secured the privilege of coining this rupee, and the coins came to
be known as English, French and Dutch arcots. In 1835, the East India Company
introduced the Company's Rupee to bring about uniformity of coinage over British
India.

Paper money, in the modern sense, has its origin in the late 18th century with the note
issues of private banks as well as semi-government banks. Amongst the earliest issues
were those by the Bank of Hindoostan, the General Bank in Bengal and Behar, and
the Bengal Bank. Later, with the establishment of three Presidency Banks, the job of
issuing notes was taken over by them. Each Presidency Bank had the right to issue
notes within certain limits. The Bank of Bengal notes generally circulated within the
environs of Calcutta and were mainly used for effecting large transactions. The largest
proportion of the Bank of Bengal notes consisted of notes of Rs.100 and upwards. The
notes sometimes bore a small premium, so great was the public confidence in the
bank. The Paper Currency Act of 1861 conferred upon the Government of India the
monopoly of Note Issue bringing to an end note issues of private and Presidency
Banks.

The private banks and the Presidency Banks introduced other payment instruments in
the Indian money market. Cheques were introduced by the Bank of Hindoostan, the
first joint stock bank established in 1770.

Post Bills were introduced by the British in 1827. These were Inland Promissory notes
issued by the bank on a distant place, the holder of which would be paid on
acceptance after a specified number of days (seven days' sight or thirty days' sight)
and were similar to muddati hundis. These bills had a much smaller currency than
bank notes, mainly because the government refused to authorise their receipt in
payment of public dues. They were mainly used by European businessmen for
purposes of internal remittances.
In 1833, cash credit accounts were added to the Bank of Bengal's array of credit
instruments. The bank used to grant loans against the security of Company's paper,
bullion, plate, jewels or goods of non-perishable nature or goods not liable to great
alteration in their value up to a limit of 1 lakh sicca rupees.

Buying and selling bills of exchange became one of the items of business to be
conducted by the Bank of Bengal from 1839.

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In 1881, the Negotiable Instruments Act (NI Act) was enacted, formalising the usage
and characteristics of instruments like the cheque, the bill of exchange and promissory
note. The NI Act provided a legal framework for non-cash paper payment instruments
in India.

With the steady growth in volumes of trade and commerce and the growing
confidence of the public in the usage of cheques etc., transactions through the use of
these payment instruments grew at a rapid pace. Bank employees had to frequently
walk to other banks, collect cheques and drafts, and present them to drawee banks and
collect cash over the counter. There was danger of loss in transit of the instruments.
Besides, such methods could only serve for limited volumes of instruments. With the
development of the banking system and higher turnover in the volume of cheques, the
need for an organised cheque clearing process emerged amongst the banks. Clearing
associations were formed by the banks in the Presidency towns and the final
settlement between member banks was effected by means of cheques drawn upon the
Presidency Banks. With the setting up of the Imperial Bank in 1921, settlement was
done through cheques drawn on that bank.

The Calcutta Clearing Banks' Association, which was the largest bankers' association
at that time, adopted clearing house rules in 1938. The association had twenty-five
large banks as its members and eight sub-members. There were two ordinary
clearings on each business day, except on Saturday when there was one clearing.
However, the association did not cover many banks functioning in Calcutta. The
cheques, drafts etc. of such non-clearing banks were collected by the clearing banks
only on payment of charges. This affected their business prospects adversely, as the
public was not likely to maintain accounts with banks whose cheques suffered a
serious handicap of market acceptability. To overcome this problem, these banks
formed themselves into a group called the Metropolitan Banking Association with
fifty members, which conducted the Metropolitan Clearing House, in 1939. This
association arrived at an understanding with the Calcutta Clearing House in 1940. In
addition, two other clearings were conducted in Calcutta - the Pioneer clearing and the
Walks Clearing.

The Bombay Clearing House was the only association to conduct clearings in
Bombay. It had no parallel systems/institutions comparable to the Metropolitan
Clearing House of Calcutta. The uniform procedures and charges for collection of
non-clearing banks' cheques, drafts, dividend warrants etc. were adopted by the
Bombay Clearing House in 1941-42.

After the setting up of Reserve Bank of India under the RBI Act 1935, the Clearing
Houses in the Presidency towns were taken over by Reserve Bank of India.
India’s payment system has evolved by leaps and bounds over the years. We have
indeed come a long way, from exchanging goods for goods to cashless, one-click
transactions. However, India’s movement toward a faster, smoother, and safer
payment system wasn’t spontaneous. When credit and debit cards came into

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existence, they remained a majorly cash-driven economy, where people preferred to
keep, carry and exchange notes and coins until recently.

1.3 Evolution of Digital Payments in India

In recent years, India has moved to a leading position in digital payments and
developed an ecosystem that enables the uptake and usage of digital payments. Many
countries now seek to replicate India’s payments systems, particularly the Unified
Payments Interface (UPI). This blog highlights the evolution of India’s payments
landscape and looks into issues and ideas that contributed to this evolution. It briefly
discusses the controversial waiver of the merchant discount rate (MDR) to increase
the number of use cases in the person-to-merchant (P2M) category.

Digital payments in India have grown rapidly. Transactions increased from 23.4
billion in 2019 to 46.7 billion in July 2022, aided by several digital payment products,
such as UPI and Aadhaar-enabled Payment Systems (AePS). The number of first-time
digital payment users increased with these payments products, coupled with growing
apprehensions about handling cash during the COVID-19 pandemic. Improvements in
payments infrastructure, disruptions in information and communications technology, a
responsive regulatory framework, a conducive policy environment, and a greater
focus on customer-centricity have transformed India’s payments ecosystem.

Market offering or share of leading players—evolution over time

The major digital payment products available in India are Aadhaar-based payments
such as Aadhaar Enabled Payments System (AePS) and BHIM Aadhaar Pay (BAP),
contactless payments such as Unified Payments Interface (UPI) and Bharat Bill
Payments System (BBPS), and card-based payments such as RuPay and debit card:

i. Aadhaar Enabled Payments System (AePS)

 AePS transactions increased by 290 million from 113.8 million in 2018 to

404.45 million as of July 2022 as people withdrew more money, thanks to
increased domestic remittances and governments’ emergency cash transfer
programs. AePS has boosted DBT payments in rural geographies with 407
million average monthly transactions. More DBT payments have led to the
inclusion of users who do not own smartphones and need assisted services.

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ii. Unified Payments Interface (UPI)

 UPI transactions grew at a CAGR of 119% and 138% by volume and value in
the past five years, from FY 2017-18 to FY 2021-22. Today, UPI drives
India’s digital payments with 300 million active users and 57 billion average
monthly transactions. UPI offered one of the safest payment modes for person-
to-person (P2P) and P2M transfers and outstripped all other payment
platforms during the pandemic. In 2022, NPCI launched UPI123Pay, allowing
feature phone users to use the UPI platform via Interactive Voice Response
(IVR). UPI123Pay’s launch points toward the further adoption of digital
transactions in the countryside, where most citizens still do not own
smartphones.

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iii. BHIM Aadhaar Pay (BAP)

 BHIM Aadhaar Pay (BAP) is the merchant version of AePS. Unlike UPI, it
enables merchants to receive digital payments from customers through
Aadhaar authentication, whereas UPI requires customers to have a
smartphone, UPI ID, and PIN. The transaction volume for BAP increased by
91% in the past five years. The average transaction value has risen steadily
from INR 398 (~USD 5.38) in FY 2017-18 to INR 3,189 (~USD 39.92) in FY
2022-22, which indicates people are increasingly using BAP for large ticket-
size transactions. The push from the acquiring banks and the cashback rewards
available on transactions till December 2019, drove merchants and consumers
to adopt BAP widely across semi-urban and rural India.

iv. Bharat Bill Pay System (BBPS)

 Bharat Bill Pay System (BBPS) has consolidated India’s recurring bill
payments industry under one payment system. It provides the convenience of
round-the-clock bill payments to multiple billers from a single platform.
Transaction volumes have grown significantly by 62% over the past five
years, which indicates more customers now prefer BBPS for bill payments. By
integrating recurring payments, BBPS has added 19,500 unique billers across
19 additional categories besides utility bills and airtime top-ups, such as
education fees, loan repayments, insurance, fees for cooking gas, municipality
taxes, and subscription fees

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v. RuPay Debit Card

 RuPay is a homegrown card payment network. It offers low processing fees

and wide acceptance at ATMs, PoS devices, and e-commerce across India.
RuPay’s market share in total debit cards issued increased from 17% in 2017
to 60% in 2020. More than 1,224 banks have issued 94 billion RuPay debit
cards. Transaction volume grew by 388% over the past five years. Both offline
and online merchant payments remain significant use cases for consumers

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30% cap (of total volume) imposed by NPCI

The NPCI declared a 30% market cap on the total volume of UPI transactions for all
third-party app providers (TPAPs) on 5th November 2020. The cap is calculated on a
rolling basis per the total volume of UPI transactions during the preceding three
months, starting on 1st January 2021. NPCI will inform all TPAPs over email once
their total UPI transaction volume reaches 25% to 27%. Players will receive a second
alert upon crossing the threshold of 27%.

Once players cross the threshold of 30%, they must stop onboarding new customers
immediately. PhonePe, Paytm, and Google Pay continue to dominate the UPI market.
They collectively hold 94.8% of the total UPI transactional volumes and 93% of the
total value as of March 2022. This new policy on market cap was formulated and
implemented to ensure that the UPI infrastructure offers a positive customer
experience and discourages a handful of players from monopolizing the digital
payments landscape.

QR code-based payments

India has approximately 750 million smartphone users, which is projected to reach 1
billion by 2026. The increasing affordability of smartphones, growth in the number of
users in rural India, and government initiatives have grown India’s smartphone user
base in recent years. Rural India has propelled this rise in smartphone use with a
projected CAGR of 6% from 2021 to 2026. QR code-based payments can potentially
create significant growth in digital payments, especially among customer segments
with low financial literacy across India. With low infrastructure requirements, two-
way transaction flows, secure transactions, and overall simplicity, QR codes offer an
easy on-ramp to digital payments.

The COVID-19 pandemic aided the acceptability and uptake of QR code-based

payments mainly due to their contactless nature, quick turnaround time, and ease of
usage. So far, QR codes offer multiple use cases in both P2P and P2M transactions.
Examples include toll tax payments, payments at grocery stores, mobile app
downloads, and utility bills. They present a broader opportunity to increase use cases
to allow more customers to pay using QR codes across various platforms.

Moreover, the regulatory environment in India is focused on open banking and

making all QR code-supporting platforms interoperable. This interoperability enables
customers to make payments across different FSPs, wallet players, and other
platforms.

MDR

Policy initiatives, such as the waiver of MDR charges for providing financial
incentives to promote digital payments, show the government’s intent to further
financial inclusion through digital pathways. This initiative was expected to make
onboarding merchants easier for businesses and influence more customers to adopt
digital payments. However, the zero MDR policy hurt the payments ecosystem as it

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threatened the survival of several payment gateway entities, hampered innovation
efforts, and slowed down India’s expansion of the digital payments infrastructure.
This is demonstrated by RuPay’s performance, even though it commands 60% of the
Indian debit card market, its monthly average transaction volume was less than 50%
as against other debit cards in FY 2021.

Banks now hesitate to invest in improving their technology stack to smoothen the
flow of digital payments due to the lack of incentives. The MDR may discourage
players in the payments ecosystem from promoting digital payments. Therefore, some
reimbursement or reconsideration may be needed to prevent this.

Future opportunities

India’s payments ecosystem is in good health. With the boost that COVID-19
provided, it is poised for further growth. The following blog in this series examines
the future and opportunities to further turbo-charge the growth of digital payments in
the country.

1.4 Traditional Payments Vs E Payment Systems

Known to be a highly cash-dependent economy, India has opened doors to digital

payments and cashless transactions only recently. But the switch has been rather
quick with more and more businesses as well as consumers preferring to transact
through e-payment systems.

India is set to become a digital payment economy as the source of payments invert
with 65 per cent of transactions being done digitally by 2026, as opposed to 40 per
cent of transactions in 2022.

Nevertheless, businesses still rely on traditional methods for vendor payments, bills
and other purchases. They may seem easier to manage but e-payments are certainly
more beneficial for the business. This article talks about traditional payments vs e
payment systems and the impact of their implementation on a business.

What are traditional payments?

Traditional payments are those where transactions primarily happen with the help of
cash. The other instruments include cheques, demand drafts and letters of credit.

What are e payment systems?

Electronic payment systems refer to transactions done through digital processes.
Some of the methods of e-payments include credit/debit cards, net banking and
mobile wallets.

Traditional payments vs e payment systems

Let’s look at the main features that differentiate traditional and e payment systems

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 1. Security

If your business requires a significant amount of cash disbursements on a daily basis

there is a potential risk of theft or even physical attacks. You need to be constantly
cautious about safely storing the huge amount of cash as well as transferring from one
location to another.

Additionally, Section 269ST of the income tax allows no more than 2 lakh worth of
cash transactions per day – no person can receive more than the stated amount (with
defined exceptions).

Electronic payments are also vulnerable to cyber-attacks and online threats. But there
is a consistent emphasis on multiple security measures to prevent fraud. Mandatory
authorisations, cross-verifications and OTPs are a part of these safety measures.

Being cautious can go a long way in averting losses. Here’s a look at some of the
important practices to follow for digital payments:

Avoid public networks: Transacting with the use of open wifi connections can make
your account vulnerable to thefts

Do not open suspicious links: Clicking on mail links or advertisements from

unknown sources can allow hackers access to your data

Don’t save/share account details: Never give your OTPs, personal details or
passwords to anyone and avoid saving bank details on your phone

Take precautionary steps: Install the latest security updates, create passwords for
apps and wallets, and use a remote lock/data wipe system for your mobile devices.

2. Convenience

Traditional payments can be inconvenient to manage for businesses. Because most of

the trading is carried out through cash, it has to be regularly withdrawn, stored and
transferred.

Bank visits also need to be regularly done to clear cheques, renew documents and so
on. This requires additional resources as well as manual maintenance of finances and
accounts.

With e payment solutions, all of the above hassles are eliminated and money can be
managed at any time of the hour and from any location with instant withdrawals and
deposits.

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Most importantly, digital payments enable speedy transfers and ensure timely
availability of funds which is extremely important for any business that depends on
capital reinvestment.

3. Multiple options

One of the major incentives for businesses when adopting digital payments is the
flexibility they get with multiple options of payments. Your vendors or partners can
transact through their preferred option and receive or send money instantly.

From credit/debit cards to mobile wallets and net banking to Buy Now Pay Later
(BNPL) e payment systems simplify the process of transactions.

Traditional payments on the other hand do have cheques and demand drafts and entail
several steps before the funds finally reach your bank account.

4. Ease of use

Having remained dependent on cash for a long time, most businesses might find it
easier to transact through the exchange of cash. On the contrary, it can be rather
complicated because you need to keep a track of all the payments, note every entry
and maintain a revenue and expense report.

Online payments are easier because they can be executed even with a mobile phone
and without having to note down the expenses manually. There is also a lesser
possibility of receiving or transferring the wrong amount since you are notified about
each transaction through a message.

5. Tracking and transparency

One of the best features of digital payments is its real-time tracking. You know about
the status of every payment resulting in greater clarity and transparency in the
transactions. For businesses, such access is especially helpful in planning and
budgeting.

With traditional methods of payment, businesses cannot obtain clarity and have to
follow up for updates on deposits. Since the process is manual, there can be
unnecessary delays that hamper the smooth functioning of a business.

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 Traditional payments vs e payment systems

E payments Traditional payments

Direct transactions through internet
Use technology for communication
Have advanced security measures in
place
Can be instantly withdrawn and
deposited online
Multiple options for payments
Low operational costs
Easy to track transaction status
Automated payment reconciliation
Cannot transact without human
intervention
Require humans to enable
communication and processes
Are risky to manage and prone to theft
Withdrawal and deposits take time and
are done manually
Limited payment options
High operational costs
Less transparency on status and tracking
Manual reconciliation with sizable
documentation

1.5 Post-Demonetization period

In India, demonetization was one of the key events that marked the beginning of a
cashless economy. And now, as we enter the third decade of the 21st century, cutting-
edge technologies are helping us embrace digital payments, making this cultural-
economic transition possible.
So, let’s take a quick look at the – the good, the better, and the best of our ever-
evolving payments landscape.

A Look into the Past: From First Documented Coinage to Electronic Payments
According to Archaeologists, around the 7th-6th century BC and 1stcentury AD,
'Punch Marked' coins, made in silver and bronze, were issued in India, making us one
of the earliest adopters of the currency system. Sher Shah Suri, who took control of
the Mughal Empire in 1540, introduced Rupiyaa, the predecessor of today’s rupee,
which later became the official currency of India, and later during the first world war,
paper notes become popular due to an acute shortage of silver.
Then in 1980, the Central Bank of India introduced the first credit card while HSBC
opened the first ATM in Bombay. In 2005, NEFT was introduced, and then, the
country’s first e-wallet, Oxigen Wallet, was launched in July 2004. Around the mid to
late 2000s, debit cards became increasingly popular among Indians with more than
150 million people having one or more cards at their disposal.

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Payments through the decade
In the last decade, India witnessed a burgeoning growth in digital payments, including
the introduction of innovative payment systems, the entry of non-bank players, and a
gradual shift in customer behavior from cash to digital payments. The decade of 2010-
20 can be termed as the decade of payments in India as quoted by RBI in their booklet
– payments systems in India.
In 2016, RBI and the government jointly rolled out the Unified Payments Interface
(UPI), a uniquely secure and interoperable interface for retail payments, biometric-
based as well as QR code-based payments. By 2018, total UPI transactions hit the $7
billion mark and by 2019, it surpassed wallet and card-based and transactions,
becoming India’s most preferred payment method.

Digital Payments Gets a Boost

In 2016, demonetization paved the way towards a cashless economy. Four years later,
the COVID-19 pandemic further pushed the adoption of digital payment methods.
People, wary of coming in contact with others, refrained from using cash. The ATMs
started to look deserted and the use of cards, UPI, wallets, and e-banking soared. In
November, UPI transactions hit an all-time high at 221 crore transactions worth Rs
3.9-lakh crore. The preference shifted from cash to contactless transactions. The big
question is, will this shift outlast the pandemic?

Charting the next phase of growth in payments

As we enter 2021, it seems people have grown more comfortable with using digital
payment methods. While COVID-19 has indeed accelerated the adoption of digital
solutions in every aspect of our lives, including how we shop and pay for things, the
shift didn’t happen solely because of the pandemic. New technologies have made
digital payments clean, easy to use, and much more convenient to users.
On top of that, attractive offers, including cashback and coupons are providing an
added incentive to use alternative payment methods. People have come to trust and
use non-bank financial services, creating a level playing field in the financial sector.
With personalization, customer convenience, and security becoming prime drivers of
success in the digital era, both banks, and non-banking financial services institutions
are rapidly adopting fintech offerings. New trends in the payments sector include
voice-based payments, wearables payments, which allow the user to check balance,
transfer money while they’re engaged in other activities. There is also a new range of
services such as Request to Pay and Pay Later, which are offering ease, control, and
flexibility in making purchases or paying bills. With people showing a growing
appetite for digital payment solutions, even newer technologies such as Blockchain,
DLT, and NUE are becoming mainstream in India.
As coronavirus continues to spread, cash usage has been declining sharply. With both
the public and private sectors pushing digital payments, it is becoming mandatory in
the post-COVID world. The future is digital and with payment solutions becoming
faster, smoother, and more secure, India’s payment system won’t be an exception.
Impact of Online Payments on the Indian Economy

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The start of online payments has given considerable scope to various banks. Going
cashless will save many resources also such as time, labor, paper, etc. The online
payment system has acted as a catalyst in the growth of the Indian Economy.

Pros of Online Payments

• Easy to use: The online payment system method is simple to use. People with
knowledge of computers find it easy to complete the transaction steps.
• Extremely Fast: As compared to payments in cash, online transactions are
quick and convenient. Every transaction is a simple tap or a click away.
• Budget-Friendly: It helps you watch your expenses and be within your budget.
Online transactions give all the information about how much you’ve spent and how
much balance is left in your account. It is a good way to manage your finances.
• One Tap Payment: Online payments had made transactions easy. Now there’s
no need to carry cash along with you. Payments are just a single tap away.
Cons of Online Payments
• Fraudulent Activities: Online payments are vulnerable to fraudulent activities.
Many measures are taken to keep the information safe. Still, it is prone to hacking and
other unethical activities.
• Technical Problems: Technical problems such as slow internet, server
problem, poorly built website, etc may interrupt the transaction. For safety purposes,
many banks block the transaction. This problem can be rectified by contacting your
concerned bank.
• Threat to sensitive information: Banks giving online payment facilities will
have to install the software. It will protect their information from manipulation.

Future of Online Payment System

There has been a significant increase in digital payments. As per reports, the Indian
digital payment industry is expected to witness a great boom. The demonetization and
COVID-19 pandemic has influenced the growth of online transactions.
There is still a lot of promise in the Indian finance sector, with financial technologies
or Fintech expanding at an inconceivable rate. As banks and consumers discover the
convenience of digital payments, the number of digital transactions will increase. It is
a potential market in India that should be tapped strategically.

1.6 NPCI

An introduction to NPCI and its various products

National Payments Corporation of India (NPCI), an umbrella organisation for

operating retail payments and settlement systems in India, is an initiative of Reserve
Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the
Payment and Settlement Systems Act, 2007, for creating a robust Payment &
Settlement Infrastructure in India.

19
Considering the utility nature of the objects of NPCI, it has been incorporated as a
“Not for Profit” Company under the provisions of Section 25 of Companies Act 1956
(now Section 8 of Companies Act 2013), with an intention to provide infrastructure to
the entire Banking system in India for physical as well as electronic payment and
settlement systems. The Company is focused on bringing innovations in the retail
payment systems through the use of technology for achieving greater efficiency in
operations and widening the reach of payment systems.

The ten core promoter banks are State Bank of India, Punjab National Bank, Canara
Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank Limited,
HDFC Bank Limited, Citibank N. A. and HSBC. In 2016 the shareholding was broad-
based to 56 member banks to include more banks representing all sectors. In 2020,
new entities regulated by RBI were inducted, consisting of Payment Service
Operators, payment banks, Small Finance Banks, etc. The shares were allotted
pursuant to issuance of equity shares on private placement basis in compliance to the
applicable provisions of the Companies Act, 2013.

Journey of NPCI

NPCI, during its journey, has made a significant impact on the retail payment systems
in the country. Dedicated to the nation by our former President, Shri Pranab
Mukherjee, endorsed by the Hon’ble Prime Minister, Shri Narendra Modi and later
made the card of choice for the ambitious Pradhan Mantri Jan Dhan Yojana, RuPay is
now a known name.

Last Seven Years Journey

NPCI during its journey for last six years, has made a significant impact on the retail
payment systems in the country. Dedicated to the nation by our Honble President,
Shri Pranab Mukherjee, endorsed by the Hon'ble Prime Minister, Shri Narendra Modi
and later made the card of choice for the ambitious Pradhan Mantri Jan Dhan Yojana,
RuPay is now a known name. With Immediate Payment Service (IMPS), India has
become the leading country in the world in real time payments in retail sector.
National Financial Switch (NFS) and Cheque Truncation System (CTS) continues to
be the flagship products of NPCI. Unified Payments Interface (UPI) and Bharat
Interface for Money (BHIM) has been termed as the revolutionary products in the
payment system. Bharat Bill Payment System (BBPS) has also been launched in pilot
mode. The other products in pipeline include RuPay Credit Card, National Common
Mobility Card - Tap & Go and Electronic Toll Collection.

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RuPay
RuPay is an Indigenously developed Payment System – designed to meet the
expectation and needs of the Indian consumer, banks and merchant eco-system.
RuPay supports the issuance of debit, credit and prepaid cards by banks in India and
thereby supporting the growth of retail electronic payments in India.

RuPay is well poised to explore innovative payment opportunities such as Contactless

– offline and online to drive adoption of low value payments. All RuPay Cards will
now have the functionality of NCMC which can enable low value contactless
payments (like transit, toll, parking, retail) using Offline technology.

The alliances with international network partners (Discover Financial Services, Japan
Credit Bureau and China Union Pay) provides valuable access to global acceptance
footprint and offer world class payment solutions to RuPay cardholders.

IMPS
With Immediate Payment Service (IMPS), India has become the leading country in
the world in real time payments in retail sector.

NACH
National Automated Clearing House (NACH), an offline web based system for bulk
push and pull transactions. NACH provides electronic mandate platform to register
mandates facilitating paper less collection process for the corporates and banks. It
provides for both account based and Aadhaar based transactions.

APBS
Aadhaar Payment Bridge (APB) System is helping the Government and Government
agencies in making the Direct Benefit Transfers for various Central as well as State
sponsored schemes.

AePS
To access these funds at door step & drive the financial inclusion in India, Aadhaar
enabled Payment System (AePS) has been introduced. Since inception it has become
instrumental to increase accessibility of basic banking services in underserved areas.
To extend the convenience of biometric to merchant payments, BHIM Aadhaar has
been launched by Hon'ble Prime Minister Narendra Modi.

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NFS
National Financial Switch (NFS) is the largest network of shared Automated Teller
Machines (ATMs) in India facilitating interoperable cash withdrawal, card to card
funds transfer and interoperable cash deposit transactions among other value added
services in the country.

UPI

Unified Payments Interface (UPI) has been termed as the revolutionary product in the
payment system.

Bharat Bill Payment System

Bharat Bill Payment System is offering one-stop bill payment solution for all
recurring payments with 200+ Billers in the categories Viz. Electricity, Gas, Water,
Telecom, DTH, Loan Repayments, Insurance, FASTag Recharge, Cable etc. across
India.

NETC
National Payments Corporation of India (NPCI) has developed the National
Electronic Toll Collection (NETC) program to meet the electronic tolling
requirements of the Indian market.

It provides an electronic payment facility to customer to make the payments at

national, state and city toll plazas by identifying the vehicle uniquely through a
FASTag. FASTag are Radio-Frequency Identification (RFID) stickers which are
affixed on the vehicle windshield and enable the driver to make toll payments
electronically while the vehicle is in motion without stopping at the Toll plazas by
saving Fuel and Time.

With these products the aim is to transform India into a ‘less-cash’ society by
touching every Indian with one or other payment services. With each passing year we
are moving towards our vision to be the best payments network globally.

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 1.8 Introduction to UPI

1. Background
The genesis of India’s unified payment solution Prior to 2016, India used a number of
different systems to transfer money between banks. The traditional forms included
RTGS, IMPS and NEFT. With the plethora of systems, rules and growing paper
burden, there was a need for a unified system that could automate and standardise
India’s payment platforms. In 2016, NPCI set out with a mandate to change the face
of India’s payment systems. It developed the Unified Payments Interface (UPI) as an
architecture framework with a set of standard Application Programming Interface
(API) specifications to facilitate online payments. The aim was to simplify and
provide a single interface across all NPCI systems, thereby creating interoperability
and a superior customer experience. The pilot program, with 21 member banks, was
launched on 11th April, 2016, by Dr. Raghuram G. Rajan, Governor, RBI, in
Mumbai. From 25th August, 2016, a growing number of banks started to upload their
UPI enabled apps to the Google Play store.

2. Introduction
Real-time payments with the Unified Payments Interface (UPI) The Unified Payments
Interface (UPI) is a revolutionary, user-friendly, real time payment solution that
facilitates inter-bank transactions, and enables greater digital payments adoption in
the country. Developed and launched by the National Payments Corporation of India
in 2016, UPI is now one of the most preferred payment solutions in India, with over a
billion transactions every month. UPI’s core function is to support easy and secure
money transfers between bank accounts. It does this by adding multiple bank accounts
into a single mobile application, allowing for seamless fund transfers and merchant
payments from one place. It also enables ‘peer to peer’ and ‘peer to merchant’
collection requests, which can be scheduled and paid as requested. Payments can be
made using a UPI ID, UPI Number, Account number, and an Indian Financial System
Code (IFSC). Payment security is as per applicable RBI guidelines using a 1-click 2-
factor authentication where the second factor of authentication is the UPI PIN. UPI is
also available through the Unstructured Supplementary Services Data (USSD)
channel to enable UPI members to cater to users of feature phones.

Types of transactions supported by UPI

A. Financial transactions
UPI supports the following financial transactions:

Pay Request: A transaction where the initiating customer ‘pushes’ funds to the
intended beneficiary. Payment address includes mobile number and MMID, account
number with IFSC, and Virtual ID.

23
Collect Request: A transaction where the customer is ‘pulling’ funds from the
intended remitter by using a Virtual ID.

B. Non-financial transactions
UPI will support the following types of non-financial transactions on any PSP app.
Registration for mobile banking * One Time Password (OTP) generation Set/change
PIN Transaction status check Raising disputes/queries *Mobile banking registration is
only possible if the mobile number (which is to be registered) is already registered
with the issuer bank for SMS /mobile alerts. UPI can be accessed on all major
platforms such as Android and iOS with apps developed by members for versions of
Android 4.2.2 and iOS 8.1 and above.

3. Business Uses
What are the business uses of UPI?

Universal uses
UPI provides the following capabilities through a set of Application Programming
Interfaces (APIs).
 Using a personal mobile as the primary device for all payments, including
person to person, person to entity, and entity to person.
 Using a personal mobile to ‘Pay’ someone (push) as well as ‘Collect’ from
someone (pull).
 Using a mobile number, card number, and account number in a unified way. In
addition, the ability to pay and collect using ‘UPI IDs’ that are ‘aliases’ to the
VPA.
 Making payments by providing an address without having to ever provide
account details or credentials on third party applications or websites.
 Sending ‘collect’ requests to others (person to person or entity to person) with
a ‘pay by’ date, which allows customers to pay at a later date without blocking
the money in the account.
 Pre-authorising multiple recurring payments (utilities, school fees,
subscriptions, etc.) with a one-time secure authentication and rule-based
access, similar to ECS.
 Enabling all PSPs to use a standard set of APIs for any-to-any push and pull
payments. Using PSP bank’s sponsored UPI applications, which enable
payments from any account using a UPI ID by entering the UPI PIN.
 Using a fully interoperable system across all PSPs without having silos and
closed systems.
 Making payments with one-click two-factor authentication, using a personal
phone, and without any acquiring devices or physical tokens.

UPI Autopay
UPI autopay allows customers to set recurring payments for their UPI transactions.
Recurring payments up to INR 2,000 can be set at the frequency desired. A one-time
authorisation needs to be provided by the customer.

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RuPay card
A first-of-its-kind global card payment network was developed by NPCI in India and
enabled by UPI for wide acceptance at shops, ATMs, and online.

Bharat Interface for Money (BHIM) app

BHIM is a UPI enabled app that lets customers make simple payment transactions
quickly and easily. Customers can make instant bank-to-bank payments, pay and
collect money using just a mobile number or UPI ID, or scan and pay using a QR
code.

UPI Lite
Based on current trends, it is estimated that a large percentage of future digital
payment transactions will be of low-value transactions below Rs. 200. UPI Lite is a
new customer-friendly pre-approved payment solution that utilises existing protocols
to enable these low value transactions without placing transaction traffic loads on core
banking systems in real-time. Issuing banks can allocate a refillable ‘on-device stored
value’ for their existing UPI app using customers who opt for UPI Lite. As per current
mandates, a ‘stored value’ balance limit of Rs. 2,000 is available, which the customer
can use for offline transactions below Rs. 200 and replenish as necessary from a UPI
linked bank account.

For transactions and on-device store value refills, UPI PIN is required.
a. For UPI Lite services, customer opt-in consent is required.
b. Key features:
c. Balance available on home screen
d. Top-up when prompted
e. 1FA transactions (device biometric/pattern validation for transaction
authentication to be provided)
f. Disable UPI Lite services (Residual balances are credited back to the
customer)
g. Daily SMS notifications for UPI Lite transactions.

Bank enabled Pay Requests

A customer can make a pay request by ‘pushing’ funds to the beneficiary using their
Account Number/IFS Code, Mobile Number/MMID, and UPI ID, which is also
known as a Virtual Address.

Bank enabled Collect Requests

A customer can make a Collect Request transaction where the customer can ‘pull’
funds from the remitter by using their UPI ID, which is known as a Virtual Address.
In case of Pull transactions, the customer will have the option to define the expiry
time of the Collect Request (up to 45 days). In case the customer has not defined the
expiry time, the default time of 30 minutes will apply. The Payment System Provider
(PSP) has to provide a customer with the option of defining a minimum validity of 1
minute, in case the customer is selecting an expiry time.

25
UPI Intent based payments
For UPI Intent based transactions, UPI users have the flexibility to make payments at
the time of online checkout by selecting from any of the UPI certified apps installed
on their mobile phones. The customer can conveniently make payments without
switching between applications. The moment a customer selects ‘Pay by UPI’ during
the check-out stage on a merchant app, all the UPI apps linked to the embedded
merchant app, or other UPI enabled apps that intend to initiate the payment, are
displayed. The customer can then select a preferred UPI enabled app, which opens
with the merchant’s payment details. The customer will then need to authenticate with
their UPI PIN to complete a secure transaction, or the payment will be declined.

UPI 123 Pay

This service is designed to be more inclusive and reach over 400 million feature
phone users in the country. The service uses an account number and phone number
while leveraging Dual Tone Multi-Frequency (DTMF) signalling technology and
follows the UPI two-factor authentication protocol for transactions.

UPI for ASBA (IPO)

Customers can provide their UPI ID as a payment option while subscribing to IPOs on
the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). All they
need to do is tell their brokers to provide their UPI ID as the payment option while
making the IPO application.
Customers can enjoy the instant fund transfer experience of UPI while subscribing to
an IPO
Instant mandate creation ensures real-time application submission Customer support
for transaction-related issues

4. Business Benefits

What are the business benefits of UPI?

Universal benefits

Mobile-first customisable design

Developed to embrace the smartphone boom in India and customers shifting to digital
and mobile-based solutions, the mobile phone has been defined as the primary device
for payment authorization. This transforms the acquiring infrastructure requirements
to make them simple, low-cost, and universal.

Push and pull payments for innovative use-cases

 Payments can be initiated by either the sender (payer) or the receiver (payee).
 For pay requests: the initiating customer ‘pushes’ funds to the intended
beneficiary.

26
  For collect requests: the customer ‘pulls’ funds from the intended sender using
the UPI ID.

User-friendly, single-click, two-factor authentication

 UPI follows the one-click, two-factor authentication protocol.
 When a transfer transaction is initiated using a smart phone, the device
fingerprint (IMEI number or other technical detail unique to the device) is
passed as the first factor of authentication.
 The second factor is the UPI PIN number, which has to be physically keyed in
by the user/ sender on their initiating device - usually a mobile phone.

Easily identified across payment options

 The UPI ID creates a common identifier for the customer to send or receive
money from anyone.
 It provides the user with a single, unified interface for all payment
transactions, across all UPI linked accounts.

Interoperability from authentication to payment institutions

 UPI allows for full interoperability between multiple identifiers such as a
mobile number and new UPI ID across all UPI-based payment apps and the
institutions that participate in the UPI ecosystem.
 It allows money to be transferred instantly across UPI linked bank accounts in
the ecosystem.

Flexibility for Third Party/Merchant/Developer

Based on the business requirements, UPI offers 3rd party/merchants/developers
options ranging from simple integration options such as intent or web collect, to
complex and detail oriented designs through SDK and API models.

Exponential innovation
UPI offers Application Programming Interfaces (APIs) that are minimalistic, fully
functional, and allow for innovations in user interface, convenience features,
authentication schemes, and mobile devices to be incorporated without having to
change the core API structure.

Available on feature phones and voice-based payments

UPI functionality enables feature phone and voice-based payments. In essence, a user
does not need to have a smartphone and internet connectivity to make a UPI payment.

For Banks
 High-security high speed payment transactions
 Single-click, two-factor authentication
 Universal application for transactions
 Low cost by leveraging existing infrastructure
 Safer, secured and innovative
 Payment basis Single/ Unique Identifier
 Enables seamless merchant transactions

27
  Scalable collections and disbursements

For merchants
 Seamless fund collection from customers - single identifiers
 No risk of storing customer’s virtual address like in cards
 Ability to accept payments from customers not having credit/debit cards
 Suitable for e-com and m-com transactions
 Resolves the challenges of exact change cash payments,
cash security/portability, or Cash on Delivery issues
 Single-click 2FA facility for the customer - seamless
 Pull In-App Payments (IAP)

For customers
 Round-the-clock availability
 Single application for accessing different bank accounts.
 Conveniently make utility bill payments, over-the-counter (OTC) payments,
and QR Code (Scan and Pay) payments.
 Make merchant payments with a single application or in-app payments
 Use of Virtual ID is more secure, no credential sharing
 Single-click authentication
 Ability to raise complaints from mobile apps directly

Support for non-financial transactions

 UPI also enables non-financial transactions such as: Mobile Banking
Registration
 One Time Password (OTP) generation UPI PIN Set/Change
 UPI transaction status check

5. Participants

Who are the participants in the UPI ecosystem?

NPCI
NPCI is the owner, network operator, service provider, and coordinator of the UPI
Network.

Banks
Banks and payment banks with an RBI-approved mobile banking license and IMPS
capability are eligible for UPI. Banks or PPIs should broadly perform the
functions/roles mentioned below:

 Payer PSP - Member bank as a Payer PSP can onboard a customer into a UPI
app, allowing the customer to register for UPI services and provide options to
approve a financial transaction or non-financial request wherever necessary.

28
  Payee PSP - A bank in the role of Payee PSP can onboard a
customer/merchant to receive money or raise a collect request. This is also
known as a beneficiary/resolving PSP.

 Remitter Bank - All UPI users need to have a banking account with a UPI
enabled bank. While performing a transaction, the user’s bank account will be
debited. The remitting bank also holds the responsibility of authenticating the
UPI PIN set by the customer.

 Beneficiary Bank - Any credit going to a UPI user will be credited to a

beneficiary’s bank account. The bank receiving the funds in UPI transactions
will be acting as a beneficiary bank.

Bank Account holders / Customers

Any customer who is on-boarded by a bank with a UPI enabled account and a UPI ID
can utilise the services.

Merchants
Participating merchants are those who are on-boarded by their banks to accept UPI
enabled payments from customers.

Corporates
UPI also provides the ability for large technology companies, 3rd party processors,
and aggregators to connect to banks and provide extensive services to end
consumers.

Roles and Responsibilities Of NPCI Regarding UPI.

1) NPCI is the owner, network operator, service provider, and coordinator of the
UPI Network.

2) NPCI reserves the right to either operate and maintain the UPI network on its
own or provide or operate necessary services through third party service providers.

3) NPCI will provide and maintain the network infrastructure relevant to the
operation of the UPI platform, maintain uptime, and ensure timely settlements to
banks.

29
4) NPCI may revise the UPI architecture and its procedural guidelines as and when
required.

5) NPCI has the right to call for documents relating to the architecture, operating
model, and other technology related aspects of the UPI solution which the
bank/PPI/PSP is planning to develop or has developed.

6) All certification stages will require sign-off from the concerned UPI team.

7) NPCI may notify PSP and TPAP of any problems encountered in the UPI
platform, that are attributable to the telecommunication network, as well as any
complaints received from customers from time to time.

8) NPCI issues circulars from time to time, to disclose major decisions, to relevant
stakeholders, which all banks/PPIs/ PSPs will have to adhere to.

On-boarding

The Payment Service Provider/member should be a regulated entity by RBI under

the Banking Regulations Act 1949, should be authorised by RBI for providing
mobile banking service.

The member should comply with the Procedural Guidelines, certification

requirements operating and risk guidelines and circulars issued by NPCI from time
to time.

The bank should be live on IMPS. (PPI is not required to be part of IMPS)

Additionally, any bank which intends to participate in UPI as a PSP, should ensure
that while the bank’s technology platform can be outsourced, its functions ‘as a
PSP’ cannot be outsourced.

This implies that the PSP Bank has an equal ownership of other banks’ customers’
data as its own customer base. Furthermore, the PSP has to provide an audit report
for the data centre and PSP App by a CISA equivalent auditor.

Qualified Security Assessors (QSAs) empanelled by the PCI Council will conduct
audits at least once annually. The QSA will verify the app and the following:

30
a. System level Security

b. Network / Data Centre Security

c. Risk tools to be adequate

d. Procedures and Policies

e. Annual Certification process

In addition, the member has to provide a declaration in writing to abide by:

 All the terms and conditions of the Unified Payments Interface Procedural
Guidelines and Circulars, notifications, and directions are issued by NPCI
from time to time.

 All the guidelines issued by relevant authorities from time to time with
respect to payment system operations.

User on-boarding in UPI:

Customers can be on-boarded onto UPI through the platforms mentioned below:

1) The BHIM Mobile Application

2) UPI Bank PSP Apps

3) Third Party UPI Compliant Apps

4) *99# (USSD)
5) Each bank’s mobile banking apps that support UPI

6) 123Pay – Unified Payment Interface (UPI) for feature phone and voice-based
payments The tools listed above cover the complete gamut of mobile devices in India
and also cover both the data base of customers connected to mobile data and
customers not connected to mobile data.

De-boarding

Relevant documents need to be shared by the TPAP and the bank, as detailed below,
for de- boarding from UPI

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TPAP will share the set of confirmations and clearances for de-boarding as given
below:
a. Request letter to the sponsor bank/ NPCI regarding their interest in de-boarding as
an UPI TPAP, stating reasons or issues with certain timelines.
b. Request letter to the sponsor bank/ NPCI stating whether they would want to
continue as a merchant app in the ecosystem.
c. Confirmation on dispute handling for 180 days even after de-boarding the TPAP
on UPI payment for customer convenience. After the completion of 180 days, data
will be purged and confirmation shall be provided to NPCI regarding no
storage of payment data with the application system.
d. TPAP to confirm the data elements that will be available with them for customer
dispute handling for the time period.
e. TPAP must notify their UPI users about the suspension of UPI services via push
notifications/ email or SMS.
f. TPAP to confirm that only a new version of their app (which will not act as a
TPAP) will be available on play store/ appstore and the same will not have UPI CL in
it.

From sponsor banks:

a. Request letter from sponsor banks stating the TPAP’s request of de-boarding
themselves as a TPAP.
b. Request letter from the sponsor bank stating whether the TPAP would want to
continue as a merchant app in the ecosystem, if any.

6. Use Cases

How is the UPI service used?

Fulfilling a money request

Shom receives a notification on his phone. It is a message from a UPI ID asking him
if he wishes to send Rs. 5000. He recognises that the message is from his younger
brother, who is studying in another city. After calling his brother and checking with
him, Shom then uses his own UPI app to accept the fund request and authenticate the
transaction with his M-PIN. In a few seconds, he gets a successful transaction
notification SMS on his phone from his bank. His brother calls to thank him for the
instant fund transfer.

In-app payment within the same mobile of the customer.

Ashok’ is a student who uses a personal MyStar app video application to select, pay
for and watch a movie for, Rs. 25 on his Android enabled phone. He banks with
DiBank (the PSP in this case) and uses their UPI-enabled mobile application.

The MyStar application creates a UPI payment link with all the necessary parameters
populated. As DiBank PSP app is registered for UPI link, it starts the app and takes
Ashok straight to the pay screen with all the relevant values pre-populated. Ashok
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verifies the information shown on the screen and clicks ‘pay’ to complete the payment
and enjoy the movie he selected.

DTH payment from home

‘Nadeem’ is a DTH subscriber who wishes to pay his on-demand subscription fee. He
selects the channel and clicks ‘Buy Now’. The DTH program shows the details along
with a QR code for UPI payment. Nadeem opens the UPI application on his mobile
and scans the QR code given on his TV screen, which takes him straight to the pay
screen with all values pre-populated from the QR code, which contains the standard

UPI link. Nadeem verifies the information on the pay screen and clicks ‘pay’ to
complete the payment. He gets a confirmation on his mobile and the TV channel is
automatically turned on for his viewing pleasure.

UPI Autopay
Reshma uses this capability to automatically pay her OTT content platform’s monthly
subscription fees of Rs. 500. She sets a UPI recurring mandate at ‘check out’ and
provides the one-time UPI PIN in her app. Subsequent fee payments will be auto-
deducted from the customer’s linked bank account.

Credit card bill payment

Vaishanvi is clearing up around the house when she finds last month’s credit card bill
that she had forgotten to pay. Today is the last day for payments, and she realises that
she needs to pay the amount before she is charged interest. She uses her smartphone
to open her UPI enabled app and clicks on the credit card payment option. She enters
her card details and it auto-populates the amount she needs to pay. She is able to pay
by using her secret M-PIN to authenticate the transaction.

Merchant payment using BHIM app

Saira wants to treat her best friend who is visiting her from the USA. Saira takes her
friend to a trendy cafe where they proceed to order coffee and snacks. At the time of
paying the bill, Saira realises that her credit card has passed its validity date. So she
smoothly takes out her smartphone, accesses her UPI enabled BHIM app, and uses the
scan to pay feature to pay the cafe bill.

Non-financial transaction - change UPI M-PIN

Ramakant wants to change his M-PIN for security purposes. He enters his old UPI
PIN and preferred new UPI PIN (the UPI PIN that he would like to set) and clicks on
Submit. After clicking on submit, Ramakant gets a notification of either a successful
change of his M-PIN or a failure. In the event of failure, he will need to submit the
request again.

7. Acts

 Banking Regulations Act 1949

 Payment and Settlement Systems Act, 2007 (PSS Act) Section 43A of IT Act,
2000 and the IT Rules, 2011

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  Section 25 of the Payment and Settlement Systems Act, 2007 (PSS Act) s

8. UPI Architecture

UPI works on a common layer or a unified interface developed and hosted by NPCI.
This common layer orchestrates transactions and ensures settlement across bank
accounts using IMPS and Aadhaar Enabled Payment System (AEPS). Banks,
financial institutions and other entities that provide UPI services connect to the
NPCI's unified interface through standard APIs to enable transactions from Virtual
Payment Address avoiding the need to share account details or credentials. In UPI
solution, payment authentication and authorization are always done using personal
phone. Since this layer offers a unified interface, any-to-any interoperable payments
can be accomplished using standard set of APIs.17
All APIs are exposed as stateless service over HTTPS using XML input and output
and all entities consuming UPI services must ensure idempotent behavior for all APIs.
These APIs are asynchronous in nature meaning once the request is sent, response is
sent back separately via corresponding response API. This allows the response to API
call to return to the caller immediately after queuing the request. All request-response
correlation must be done via the transaction ID set by the originating point. Callers
are expected to call the API with a unique transaction ID for which response is sent
via a response API exposed by the caller. This allows same APIs to be used for instant
payment as well as delayed payments. This also allows APIs to scale without having
to wait in a blocking mode.
There is a set of standard APIs exposed to various participants of the UPI ecosystem
key. A set of Financial and Non-Financial transactions can be done using these APIs.
Apart from transactional APIs there are a set of Meta APIs to ensure that the entire
system can function in an automated fashion. These Meta APIs allow PSPs to validate
accounts during customer on boarding, validate addresses for sending and collecting
money, provide phishing protection using white listing APIs, etc. Figure 2 shows the
high level architecture of UPI. Some of the key APIs to enable UPI transactions are:

1) Payment API: This is the primary APIs used for routing the transaction and is used
to initiate Pay Request (Push Payment) and Collect Request (Pull Payment). The API
contains remitter and beneficiary details.

2) Authorization & Address translation: APIs are used to obtain appropriate

authorization details and translate the specific Virtual Payment Address to the
common global addresses (Bank Account Number and IFSC Code, Aadhaar number).
This allows users to simply provide such virtual (tokenized) address to others
(individuals, entities, etc.) without having to reveal actual account details.

3) Keys List APIs: These APIs enable secure capture and communication of
credentials to authenticate transactions by various entities in the UPI ecosystem.
These APIs are used to request for and cache the account providers and other entities
list of public keys. Trusted and certified NPCI libraries and utilities are used for
credential capture and PKI public key encryption at capture time.

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 9. 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.

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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.

Transacting Parties in UPI

There can be maximum up to four transacting parties in the UPI system. These four
parties consist of two PSPs which provide the UPI interface through the PSP UPI
mobile apps one each for remitter and beneficiary and two banks, one each of the
remitter and the beneficiary respectively. The two PSPs facilitate the transaction and
enable debit from the remitter's bank account and credit into the beneficiary's bank
account.

Transaction Authorization

All digital transactions in India must adhere to two factor authentication. In case of
UPI, transactions are authorized and authenticated on the personal mobile phone of
the user without the need of any external device. The first factor is the hardbound
mobile device fingerprint which is authenticated by the PSP UPI App. The second
factor to authenticate the transaction is a four to six digit MPIN which is created by
the user and captured on the NPCI libraries embedded in the PSP UPI App. These
libraries are available for all major mobile operating systems viz. Android, iOS &
Windows. These libraries allow secure capture of credentials like OTP and MPIN.
The secured credentials are captured by the NPCI libraries which use PKI Encryption.
These secured credentials (MPIN) are sent to the issuer bank for authentication and
upon successful authentication a transaction is complete.

Transaction Flow of UPI Payments

1) Customer Registration
a) Users can download any PSP UPI application from app discovery platforms like
Google Play or Apple App Store on mobile phone with mobile numbers registered
with their bank.

36
b) The PSP UPI application will send an encrypted outward SMS from the user's
mobile phone automatically to checks authenticity of the mobile number registered
with user's bank and to enable hard binding of the mobile device with the mobile
number. This hard binding of the device acts a device fingerprint.
c) User can now create unique Virtual Payment Address (for e.g. abc@xyzbank)
which will be unique payment ID for the users.

2) Bank Account Registration

a) Users can register their bank accounts on the PSP UPI App. The Issuing Bank
authenticates the mobile number registered with the bank and, it provides list of all
bank accounts registered against the mobile number which is displayed to the user on
PSP UPI App.
b) The PSP stores the account details received by the Issuer Bank in its data- base. At
this stage, the PSP Database contains the information such as Registered Mobile
Number, Virtual Payment Address, Name of User on PSP UPI App and Bank Name,
Account number and IFSC code.
c) User now needs to create a Mobile Personal Identification Number (MPIN) to
authenticate the transactions. An OTP Request is generated by the PSP UPI App to
NPCI for the newly added account. NPCI requests an OTP from the Issuer Bank and
the Issuer banks sends the OTP over SMS on the registered mobile number of the
user.
d) To establish the personal bona fide of the user, the user is asked to enter the last 6
digits of Debit card number, expiry date, OTP received on the registered mobile
number. In order to create the MPIM, user enters the desired MPIN on NPCI library
embedded in the PSP UPI app.
e) The Card details and OTP is authenticated by the Issuer Bank and UPI PSP
application sends this MPIN to NPCI which in turn send it to Issuer bank by
encrypting it with the public key using PKI. The Issuer bank decrypts the encrypted
MPIN with its Private Key and confirms the setting of the MPIN.

3) Transaction Flow
a) To make a Push Payment (Pay Request) the user needs to enter either the Virtual
Payment Address or the Account number and IFSC Code or Aadhaar Number of the
beneficiary.

b) User enters the MPIN on NPCI Libraries embedded in the PSP UPI App. MPIN is
encrypted using NPCI public key and sent to UPI which is decrypted using NPCI
private key. NPCI again encrypts the MPIN using Issuer Bank's Public key and sends
it to the Issuer Bank which then decrypts the MPIN using its own Private Key. Issuer
Bank then authenticates the MPIN and debits the Remitter's bank account and credits
the Beneficiary's bank account.

c) Similarly in case of Pull Payment (Collect Request) user makes a Collect Request
by entering the Virtual Address of the Payer. Beneficiary's PSP UPI App sends the
request to NPCI which in turn sends the request to Remitter's PSP for resolution and
authorization.
d) Payer needs to enter MPIN on Payer PSP UPI App to authenticate the payment. On
successful MPIN authentication by the Issuer Bank, the amount is debited from the

37
bank account of the Payer and instantly credited into the bank account of the
Beneficiary.

How Does UPI Work

The user will only have to use a virtual address, known as a Virtual Payment Address
(VPA) to carry out any transaction. UPI has been developed by the National Payments
Corporation of India (NPCI) and is regulated by the Reserve Bank of India (RBI).
UPI is slowly becoming the most preferred form of digital payment. The below-
mentioned things are required to transfer funds via UPI:

A smartphone
An active bank account
The mobile number must be active and linked to the bank account
Internet connection
UPI is slowly becoming the most preferred form of digital payment. The UPI
interface is compatible with most banks and many digital wallets, and payment
applications are embracing UPI. Some of the apps include Google Pay, Paytm,
PhonePe and the like.

How is it unique?
Immediate money transfer through mobile device round the clock 24*7 and 365 days.
Single mobile application for accessing different bank accounts.
Single Click 2 Factor Authentication – Aligned with the Regulatory guidelines, yet
provides for a very strong feature of seamless single click payment.
Virtual address of the customer for Pull & Push provides for incremental security with
the customer not required to enter the details such as Card no, Account number; IFSC
etc.
QR Code
Best answer to Cash on Delivery hassle, running to an ATM or rendering exact
amount.
Merchant Payment with Single Application or In-App Payments.
Utility Bill Payments, Over the Counter Payments, QR Code (Scan and Pay) based
payments.
Donations, Collections, Disbursements Scalable.
Raising Complaint from Mobile App directly.

Sending Money vs. Receiving Money

Sending money on the UPI is called a "push." In order to send money, the user logs
into the interface and selects the Send Money/Payment option. After entering the
recipient's virtual ID and the amount desired, he chooses the account from which the
money will be debited. The user then enters a special personal identification number
(PIN) and receives a confirmation.

Receiving money through the system is called a "pull." Once the user has logged in to
the system, she selects the option to collect money. The user then needs to enter the
virtual ID for the remitter, the amount to be collected, and the account in which she

38
will deposit the funds. A message then goes to the payer with the request to pay. If he
decides to make the payment, he enters his UPI PIN to authorize the transaction.

Once the transfer has been completed, both the sender and the recipient receive a
confirmation by text message to their smartphones.

Participants in UPI
Payer PSP
Payee PSP
Remitter Bank
Beneficiary Bank
NPCI
Bank Account holders
Merchants

Benefits

Benefits of UPI for Banks:

There is a universal application for one transaction
This is a single click Two Factor authentication
It is safer and more secure
It enables easy transactions
Unique Identifier
Payment basis Single

Benefits of UPI for Merchants:

Easier fund collection
There is no risk of storing the customer's virtual address
This is suitable for e-Com and m-Com transaction
Tap customers do not need credit/debit cards
In-App Payments (IAP)
It resolves the hassle of cash on delivery

Benefits for UPI for Customers:

It is a single application for accessing various bank accounts
There is round the clock availability
You can easily raise a complaint from the mobile app directly
The use of Virtual ID is secure

UPI Fees and Charges

There are no fees and charges applicable to the UPI platform. The UPI programme
was launched with the aim to promote digital transactions. The NCPI had earlier
marked the transaction charges to be 50 paise per transaction. However, the
Government of India had later cancelled these charges to make sure that more and
more people started using the platform.

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UPI vs. Cards and Cash
The main aim of the UPI applications is to promote digital transactions and paving
way for a cashless economy. With UPI, users can avail the benefit of not carrying
physical cash or any form of plastic money. All transactions can be taken care of
using their smartphones.

How secure are UPI transactions?

UPI transactions are secured using UPI PINs which is a 4-6 digit numerical
combination. In addition to that, the applications are highly encrypted and have heavy
bandwidth capacity

What is UPI 2.0?

UPI 2.0 is a new and upcoming version of UPI payment system with improved
features and benefits. It is being touted as a more secure and comprehensive service
with easier authentication process.

Upcoming Features of UPI 2.0

Although UPI app is chock full of features, UPI 2.0 promises to be a better tool than
its predecessor. Here are some of the new features set to be introduced in UPI 2.0:

Bill Payment:
Currently, users can transfer funds via the UPI system to someone who has a bank
account. But UPI 2.0 promises to add the facility of payment of utility bills via UPI
app. Bills for electricity, telephone, insurance, mobile, credit cards, even EMI
collection. can be paid off using this app at any time and place. Recent reports
indicate that 2 banks are set to launch the feature very soon. UPI will integrate Bharat
Bill payment system to facilitate bill payments with it.

Pre-Authorized Transaction:
UPI 2.0 resolves the problem of forgetting pending bill payments by adding the
feature of pre-authorized transaction. For bill payments that has to be made regularly,
the user can authorize those billers to automatically withdraw the bill amount before
the bill due date, thus, facilitating stress-free bill payments. The number of automatic
payments can also be limited with an option to set the maximum amount limit and
applicable date. Pre-Authorized Transaction will also work for EMIs.

Biometric Authentication:
UPI based payments are set to become more secure with the introduction of
fingerprint mapping technology and iris scanner in UPI 2.0. The facility of biometric
payment authentication would be introduced with the help of the Aadhar service. As
biometric identification of most Indian citizens have already been collected by
UIDAI, that database can be used to authenticate the identity of a user. Phones with
fingerprint scanners and high-quality cameras for capturing iris image can be used for
biometric authentication, thus bringing an end to the less secure MPIN.

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Check on Speed of Transaction:
UPI 2.0 is looking to add velocity checks for UPI transactions. These checks are there
to make sure that fraudulent transactions can be detected and hopefully prevented
from completing. Velocity checks are already used by some banks across India to
provide better security. Adding this feature in UPI 2.0 would greatly increase its
reliability. A suspicious transaction can be reported to the bank and the customer by
the UPI app.

Error Resolution:
If your mobile number is linked to other people's bank accounts, for example the
accounts of your family members, the current UPI app shows an error. For UPI to
work, the phone number needs to be unique to a person. UPI 2.0 is trying to resolve
this issue.

Scheduled Payment:
Currently scheduling payments is not a feature available in UPI payment system. But
UPI 2.0 is set to add this facility adding a much needed flexibility to the current
system.

Aadhaar Based Payments:

UPI 2.0 would introduce payments using Aadhaar numbers. Aadhaar number is
unique to an individual, more so than mobile numbers which multiple people could
have owned before you. Also, various banks have started linking the accounts to the
holder's Aadhar, making it easier to facilitate transaction directly from bank accounts.

Uniqueness of UPI than other digital payment methods:

 Immediate money transfers through mobile device round the clock 24*7 and
365 days.
 Single mobile application for accessing different bank accounts.
 Virtual address of the customer for Pull & Push provides for incremental
security with the customer not required to enter the details such as Card no,
Account number; IFSC
 Bill Sharing with friends and opportunity to earn reward points
 Best answer to Cash on Delivery hassle, running to an ATM or rendering
exact amount.
 Utility Bill Payments, Over the Counter Payments, Barcode (Scan and Pay)
based payments.
 Donations, Collections, Disbursements Scalable

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 1.8 Rise of UPI

UPI was first launched In 2016 it was piloted by the National Payments Corporation
of India (NPCI) and launched by 21 member banks from Raghuram G. Rajan, then
RBI governor. UPI’s target audience involves everybody that use digital methods of
transferring money. We look at the rise of UPI transactions in India and how they
have become a critical factor in the country’s evolving cashless ecosystem. With the
UPI payment limit being Rs. 1 lakh, according to the reports, over 3 billion
transactions took place in 2018 on UPI platforms, with 620 million transactions
touching the Rs 1 lakh crore mark alone in December 2018. According to another
report in January this year, the number of UPI transactions seen as pioneering in the
digital payment system and a crucial factor in a cashless economy was around 1.09
trillion rupees.

The value of online financial transactions in India increased 10.5 percent between
December 2019 and December 2020, the company said. A joint report by market
research firm WorldPay states that 39.7% of India’s e-commerce payments in 2020
were made through digital wallets, with wallets becoming the country’s leading online
payment method. According to data from EY, digital transactions based on UPI
increased 110% in volume and 109% in value between June 2020 and June 2021 if
current trends continue over the next few years, UPI’s contribution to the nation’s
entire digital payments industry will increase significantly. The consistent rate of
growth reflected in UPI payments could mean up to 18 percent of the country’s total
target of 30 billion transactions is achieved in the coming years.

By 2023, 60 billion UPI platform transactions are projected to account for more than
50 percent of India’s digital payments. Looking at the number of years, we can
confirm that the total number of UPI transactions reached 800 million in March 2019.
UPI transactions are growing faster this year than in the same period last year.
Between April and August 2021, there were 14.79 billion transactions, 22 times the
6.68 billion recorded in the same period in 2018. UPI It took three years to reach a
billion transactions a month and the next billion in years to come.

UPI has witnessed exponential growth in the past year, taking a large share of the
market from players such as PhonePe, Paytm, and Google Pay. In FY20, 125.1 billion
rupees (12,519 million) were made in transactions worth 2 lakh 1,317.0 crores (2,131
trillion rupees), representing a 13.2% increase in volume and a 14.3% increase in
value compared to FY19. UPI in March, the value of Rs5 lakh crore, the highest ever,
surpassed Rs2.3 billion in transactions at the end of the 2021 fiscal year. From
January 2020 to September 2020, from the Reserve Bank of India (RBI), the value of
UPI transactions rose by INR 2,162 billion to INR 3,290 billion over the same period.
The surge in UPI transactions has increased consumer interest in paying bills,
charging cellphones, and buying non-essential goods on e-commerce platforms. UPI
Payments’impact on the Indian market is enormous and has made a difference in
payment methods and shopping sites used by consumers.

India’s digital payments ecosystem received a much-needed boost with the launch of
the United Payments Interface (UPI) in 2016 after the Centre decided to withdraw
high denomination currency notes of INR 500 and INR 1,000.

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Since then, the adoption of UPI has grown by leaps and bounds, so much so that in
the last month of 2022, UPI transactions value stood at INR 12.82 Lakh Cr.

According to data sourced from the National Payments Corporation of India (NPCI),
the total number of UPI transactions last year jumped 91.11% YoY, and the value of
UPI transactions saw a 74.83% YoY increase in 2022.

As of now, the growth of the government’s digital payments network is showing no

signs of retreat.

Starting with 21 banks in 2016, the UPI ecosystem has today expanded to 381 banks,
enabling billions of digital transactions each month. According to the National
Payments Corporation of India (NPCI), the entity that manages the UPI

To put it into context, apps that are used to make UPI transactions, such as PhonePe
or Google Pay, are called third-party app providers (TPAPs) in the value chain. Banks
are called payment service providers (PSPs) in the value chain, while they also double
up as remitters and beneficiaries in most transactions. TPAPs can’t directly access the
UPI network and need PSPs to connect with the UPI network and enable transactions.

Currently, there are 381 live members on the UPI network, with 57 PSPs and the
remaining remitters or beneficiary banks.

The below graph indicates the use of UPI across various platforms in June 2021. Out
of the 2.8 billion transactions, Walmart subsidiary PhonePe had a share of 46 percent
and GooglePay a share of 35 percent. It was the seventh month in a row that PhonePe
topped the list after it had passed GooglePay in December 2020 for the first time. The
third big player is Paytm with a share of nearly 12 percent.

Thousands of companies across hundreds of categories have recognized the essential

benefits that UPI Autopay offers and have switched on with it in the last year and a
half.

Even though it has a huge impact on the digital economy, UPI payment risk comes
with considerable security risks.

The below table depicts data of UPI transactions by various banks it shows the
contribution of some of the largest banks of India in UPI transactions, one of the
columns also indicates the % approval rate of UPI transactions

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Unified Payment Interface (UPI) usage across India in June 2021, by platform

Source: India: UPI usage by platform 2021 | Statista

UPI Remitter Banks – Top 50 Banks (September’21)

Sr. UPI Remitter Total Approved BD TD% Total Debit Debit

Banks Volume % % Reversal Reversal
No. (September- (In Mn) Count (In Success %
2021) Mn)

1 State Bank Of 1,036.45 89.52% 7.00% 3.48% 14.87 96.04%

India

2 HDFC Bank Ltd 327.32 94.77% 5.16% 0.07% 1.70 98.43%

3 Bank Of Baroda 231.73 92.28% 7.53% 0.19% 1.38 98.46%

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 4 ICICI Bank 225.22 94.29% 5.16% 0.55% 2.06 43.31%

5 Axis Bank Ltd 214.22 95.19% 4.14% 0.67% 1.50 60.12%

Source: UPI Ecosystem Statistics | NPCI – National Payments Corporation of

India

UPI indeed has great future potential, it has made our lives easier and is indeed one of
the safest and fastest modes of paymentsGovernment has plans of use of UPI for
easier transactions across countries at the same time a powerful risk
management system in case of frauds. UPI symbolises the progressive vision of a
country marching towards a digital economy. The pandemic has also played a vital
role in boosting the digital economy of India. The UPI transactions are growing at a
dynamic rate and have good growth potential. And can contribute significantly to
India’s GDP.

UPI Daily Product Statistics Trended February 2023

Day Volume (Million)

1 Februrary 2023 288.981
2 Februrary 2023 280.449
3 Februrary 2023 274.231
4 Februrary 2023 283.593
5 Februrary 2023 272.450
6 Februrary 2023 272.149
7 Februrary 2023 280.230
8 Februrary 2023 268.785

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 9 Februrary 2023 281.710
10 Februrary 2023 270.528
11 Februrary 2023 267.798
12 Februrary 2023 263.752
13 Februrary 2023 261.376
14 Februrary 2023 273.856
15 Februrary 2023 275.019
16 Februrary 2023 253.037
17 Februrary 2023 272.541
18 Februrary 2023 260.478
19 Februrary 2023 255.470
20 Februrary 2023 269.300
21 Februrary 2023 265.099
22 Februrary 2023 260.464
23 Februrary 2023 261.962
24 Februrary 2023 261.964
25 Februrary 2023 260.602
26 Februrary 2023 253.551
27 Februrary 2023 264.294
28 Februrary 2023 281.088
Total 7534.76

Source: UPI Daily Product Statistics Trended February 2023 NPCI – National
Payments Corporation of India

UPI Monthly statistics (2022)

Month Value (in Cr.)

Jan 8,31,993.11
Feb 8,26,843.00
Mar 9,60,581.66
Apr 9,83,302.27
May 10,41,520.07
Aug 1073162.17
Sept 1,116,438.09
Oct 1,211,587.50
Nov 11,90,593.39
Dec 1,281,970.86

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Source: UPI Monthly Product Statistics Trended 2022 NPCI – National Payments
Corporation of India

1.9 BHIM UPI

Bharat Interface for Money (BHIM) is a payment app that lets you make simple, easy
and quick transactions using Unified Payments Interface (UPI). You can make direct
bank payments to anyone on UPI using their UPI ID or scanning their QR with the
BHIM app. You can also request money through the app from a UPI ID.
BHIM is a unique payment solution which can be used without internet as well!! You
can dial *99# from any phone and avail the same features of BHIM on your mobile
screen. You can also register for BHIM using *99#.
BHIM was launched by Hon’ble Prime Minister on 30th Dec 2016 and within 10
days, the BHIM app had 1 crore downloads from Android Play Store and over 2
million transactions across the UPI (Unified Payment Interface) and USSD
(Unstructured Supplementary Service Data) platforms. BHIM is interoperable with
other Unified Payment Interface (UPI) applications, and bank accounts. BHIM is
developed by the National Payment Corporation of India (NPCI), a not-for-profit
company for providing retail payment systems in the country under guidance from
Reserve Bank of India.

BHIM has been designed for quick and secure user on-boarding, sports a best-in-class
and intuitive user interface and makes digital transactions seamless. BHIM has been a
huge boon for merchants who can now accept payments directly into their bank
accounts. All users, including merchants, get a ready to use VPA (virtual payment
address) and an exclusive, ready-to-print QR code upon sign-up.

How does it work?

After downloading the app, give necessary permission and verify mobile number
linked with bank account. Register your bank account with BHIM, and set a UPI PIN
for the bank account using last 6 digits of your debit card and expiry date. Your
mobile number is your payment address (PA), and you can simply start transacting.
Yes! It is that simple.

Send / Receive Money: Send money to or receive money from friends, family and
customers through a mobile number or payment address. Money can also be sent to
non UPI supported banks using IFSC and MMID. You can also collect money by
sending a request and reverse payments if required.

47
Check Balance: You can check your bank balance and transactions details on the go.

Custom Payment Address: You can create a custom payment address in addition to
your phone number.

QR Code: You can scan a QR code for faster entry of payment addresses. Merchants
can easily print their QR Code for display.

Transaction Limits: Maximum of Rs. 10,000 per transaction and Rs. 20,000 within
24 hours. The limit for USSD has currently been set at ₹5,000 per day.

Transaction Charges: NIL changes from BHIM app or background infra. Bank
transaction changes on UPI & USSD:

Upto 31.03.2017:
For transaction upto ₹1000 : NIL charges

For transaction upto ₹1000 : NEFT charges + services tax

Outward NEFT Charges

- For transactions up to Rs 10,000 : not exceeding Rs 2.50 (+ Service Tax)

Language supported: Hindi and English. More languages coming soon!

Purpose:
“The main purpose of BHIM App is to provide uniform experience of UPI and also to
support those banks who have not developed any UPI app for their customers as yet”,
says NPCI MD & CEO.

Features of BHIM UPI

48
Send Money
This feature enables a user to send money using Virtual Payment Address (VPA) or
combination of Account Number and IFSC or even by scanning QR code

Request Money
This feature enables a user to initiate a collect request by entering Virtual Payment
Address (VPA). Additionally, through BHIM App, one can also transfer money using
Mobile if it is registered with BHIM or *99#. Also, it is mandatory that the customers
mobile number is linked with the bank account.

Scan & Pay

Customers can pay by scanning the QR code through 'Scan & Pay' and generate QR
codes in the app for making payments.

Transactions
This option allows a user to check transaction history. It also highlights pending UPI
collect requests (if any) so that a user can approve or reject the payment requests.
There is a report issue tab if a customer is willing to raise any complaint pertaining to
transactions.

Profile
Profile option helps the user to view the static QR code and Payment addresses
created. The QR code is downloadable and could be shared through various
messenger applications like WhatsApp, Email etc.

Bank Account
Using this Option, a customer can check the bank account which is linked with the
BHIM App along with PIN status. Customer can set/change the UPI PIN, bank
account linked with BHIM App by clicking 'Change Account' tab provided in the
menu. This feature also helps a user to check their account balance.

Benefits:
1. 1 digital payment app for all bank accounts.

49
2. Money remains in your bank account, so you earn interest.
3. No charges from using BHIM app infra, minimal UPI charges from banks for
making transactions.
4. Simple, secure and light.
5. BHIM framework *99# works without internet.
6. Transaction from ₹1/- to ₹10,000/-
7. Daily transaction limit of ₹20,000/-

1.10 Some Major UPI Apps

1. Google Pay
Google Pay is a digital wallet and payment platform from Google. It enables users to
pay for transactions with Android devices in-store and on supported websites, mobile
apps and Google services, like the Google Play Store.
Users link credit or debit cards to their Google Pay account, which is used for making
the transactions for in-store or online purchases. On Android devices, Google Pay
uses near field communication (NFC) to interact with payment terminals. When
signed in to one’s Google account in the Chrome browser, users can conduct
transitions with Google Pay on sites that support the service.

History of Google Pay

Google Wallet was the company’s first mobile payment system, developed for
Android devices in 2011. In 2015, it was renamed Android Pay, with Google Wallet
refocused to strictly peer-to-peer (P2P) payments.

In 2018, Google announced that Google Wallet would join the other payment
offerings under the Google Pay branding. Google Wallet was then renamed Google
Pay Send.

Google Pay is available for contactless payments on Android devices. The peer-to-
peer functions and account access are available on iOS. However, when using an

50
iPhone or Apple Watch for NFC payments, only Apple Pay is eligible for this use
case.

Using Google Pay

The Google Pay service works with hundreds of banks and payment providers.
Specifically, cards from Visa, MasterCard, Discovery and American Express are
called out for support. Users should check with their individual bank if they are
unsure about its compatibility with Google Pay. Additionally, the Google Pay user
website maintains a list of supported banks by country.

There is also a Google support site list of featured stores and transit agencies that
support Google Pay. Users should look for the Google Pay symbol or contactless
payment symbol on a terminal. To pay, users must have the Google Pay app installed
on their device and have linked a card to their account.

After using Google Pay, the list of previous transactions are saved to one’s Google
account for later retrieval and record keeping.

Security of Google Pay

Google Pay generates a unique, encrypted number instead of your actual credit card
number when registering the transaction. Additionally, this virtual account number is
removed if screen lock is disabled on the user’s device.

If a device is lost, Google’s Find My Device service can be used to remotely wipe
sensitive information, if necessary. Users can also sign into their Google Pay account
from another device and remove any cards or bank accounts they have attached.

Google Pay Send

Google Pay Send is the peer-to-peer payment function of Google Pay. Individuals can
use the service to send money to friends or other contacts by inputting their email
address or phone number into the application.

Whoever receives the money must link the phone number or email address to a bank
account. Or if they have an existing Google Pay account, funds will post directly to
that account. Payments can be sent without fees through the app for Android, iOS or
through one’s Google Pay account on the web.

51
 2. PayTm
Paytm is India's largest financial services firm providing an entire range of online
payments & financial solutions to customers, online retailers and service partners. The
company works towards a vision of introducing at least half a billion Indians into the
mainstream economy through payments, trade, finance, recruitment, and financial
services. One97 Communications Limited, which owns the Paytm brand, was founded
by Vijay Shekhar Sharma in the year 2010. It is headquartered in Noida, Uttar
Pradesh. Its primary investors include Softbank, Ant Financial, AGH Holdings, SAIF
Partners, Berkshire Hathaway, T Rowe Price and Discovery Capital.
Vijay Shekhar Sharma, founder & CEO of Paytm, and One97 Communications
Limited, together owns Paytm Payments Bank, the country's largest digital bank with
more than 58 million account holders.
Vijay Shekhar Sharma is a billionaire businessman in India. He graduated from Delhi
College of Engineering with a Bachelor's degree in Electronics & Communication
Engineering. In the year 1997, while still in college, he designed and launched a
website, which he later sold for $1 million in the next two years. One97
Communications, his brainchild was founded in the year 2000. Initially, it was
majorly into providing mobile content, like news, cricket scores, ringtones, jokes and
examination results. Later, in 2010, Paytm was born.
In 2017, Sharma emerged on Forbes' World Billionaires List, the youngest Indian on
the list with a net valuation of $2.1 billion. The founder of Alibaba, Jack Ma, and
Masayoshi Son of Softbank, are his inspirations. He was even on the list of the 100
Most Influential Individuals of Time Magazine in 2017.

Products & Services offered by Paytm

The primary business of Paytm is digital payments. Paytm serves as a payment

gateway to customers and merchants to make seamless payments from cards, bank
accounts and other e-wallets. Paytm also provides a range of payment facilities, such
as mobile recharges, bill payments, movie tickets, taxi, train and flight tickets, loan
payments, insurance, forex, etc. Consumers can directly link their bank accounts and
credit cards to their Paytm account to make seamless payments on different retail and
online ecommerce sites.

It has since grown multi-fold and now has the following subsidiaries:

 Paytm Money

 Paytm Mall

 Paytm Labs

 Paytm Entertainment

52
Payments & Money Transfers

With over 350 million downloads, Paytm is the most commonly used payment app in
India. It allows you to pay at merchant locations using phone number or QR Code.
Since its introduction in 2014, Paytm Wallet is the most widely used payment app in
the country. Paytm Wallet opened the Indian economy to digital banking. It allows
users to load money to their wallet through Netbanking, credit card or debit card and
use it to make a plethora of payments around the country.

Paytm Wallet was such a massive movement that street vendors saw a huge boom in
their business. Paytm Wallet became the preferred method of payment for college
students and working youngsters, since it removed the hassle of carrying their wallet
wherever they went.Paytm Wallet also allowed money transfer from person to person
using just the mobile phone number. Indians were not new to NEFT or IMPS, but
instant money transfer to another bank account kind of revolutionized the entire
digital banking landscape. Paytm continues to retain millions of loyal customers from
its initial days owing to its user friendly interface and exciting offers and discounts
from time to time.

3. PhonePe
PhonePe is a mobile payment platform using which you can transfer money using
UPI, recharge phone numbers, pay utility bills, etc. PhonePe works on the Unified
Payment Interface (UPI) system and all you need is to feed in your bank account
details and create a UPI ID. There is no need to recharge the wallet, because the
money will be directly debited from your bank account at the click of a button in a
safe and secure manner.

The best thing about UPI is that it is a 24/7 service and can be used even on bank
holidays and weekends. The app can be downloaded on both Android and Apple
phones. This is a safe and secure application that will help cater to all your banking
needs under one roof in a convenient manner. The will be no need to go through the
cumbersome process of registering a beneficiary, entering bank account details such
as account number or IFSC code. All that is required is a Virtual Payment Address
(VPA), using which money can be sent at any time and from anywhere.

PhonePe App

PhonePe Private Limited is a leading e-commerce payment platform in India. The

digital wallet company was founded in December 2015. This platform offers services
in over 11 Indian regional languages. As a user, you can use the app and book cabs,
book hotel services, order food online, pay for your Redbus tickets, and also pay for
your flight tickets.

How to Make Payments Through the PhonePe App

53
You can carry out transactions in the PhonPe app by following any of these methods:

 UPI Debit Card

 UPI Credit Card

 Via linked Bank account

 Using PhonePe Wallet

PhonePe Business

PhonePe for Business allows payments across over 70 BHIM UPI apps. As a BHIM
UPI App user, you can trigger a merchant payment by using the "PhonePe for
Business - Accept all digital payments". The merchant account for PhonePe is stable
and convenient.

Features of PhonePe Business

The following are the features of PhonePe Business:

 PhonePe Business offers top notch payment experience with higher success
rates.

 The users will get access to seamless and reliable platform which can handle
heavy transactions.

 It provides 24/7 customer support.

4. BharatPe

BharatPe is an Indian fintech company that caters to small merchants and kirana store
owners in India. The company offers a range of fintech products including
interoperable QR code for UPI payments, Bharat Swipe (POS machine) for card
acceptance, and small business financing.
It facilitates small merchants to accept payments via Unified Payments Interface
(UPI) for free, through BharatPe QR codes. It also offers merchant loans of up to ₹7
lakh (US$9,800) for a duration of 3 to 12 months. The other products include and a
peer to peer lending product called 12% Club.[3] In 2020, the company launched a
new product, Digital Gold, which allows the users to transact for 24-carat gold
containing 99.5% purity.[4]BharatPe is a QR code-based payment app for offline

54
businessmen and retailers. The company has its headquarters in New Delhi, but there
are around 5 more offices of BharatPe across the country. The app, which allows its
users to accept UPI payments for free through the BharatPe QR code, is hugely
beneficial for the small merchants and kirana stores and their owners. Along with
offering easy and interoperable QR codes for effortless UPI payments, BharatPe also
extends Bharat Swipe (POS machine) for card acceptance and small business
financing. Furthermore, the company also offers merchant loans of up to Rs 7 lakhs
that can be availed for a duration of 3 to 12 months.
BharatPe also owns a peer-to-peer lending platform called 12% Club. BharatPe also
launched the Digital Gold product in 2020. This will allow the users to transact for
24-carat gold with 99.5% purity.
The BharatPe app powered by efficient QR code payments helps its users to sign in
immediately, and instantly start receiving the funds in their bank account. BharatPe
started with a mission to make payments free for all its users. Its intention is to help
all.
BharatPe - Founders and Team
BharatPe founders were Ashneer Grover, Bhavik Koladiya, and Shashvat Nakrani.
However, with Ashneer's resignation dated February 28, 2022, BharatPe listed Bhavik
and Shashvat as its Co-founders. Bhavik Koladiya resigned, months after Ashneer
Grover was terminated, as per reports dated August 2, 2022.
BharatPe was initially founded by Shashvat Nakrani and Bhavik Koladiya, each of
whom owned 50% of the company shares. It was Koladiya, who served as the face of
the company, and negotiated with the investors for funding. Then, Ashneer Grover
joined in June 2018, 3 months later. He was the third founder of BharatPe. However,
with Grover joining the company, BharatPe's shareholding structure changed. It then
granted Grover a 32% stake, Nakrani a 25.5% stake, and Koladiya held the largest
stakes (42.5%).

However, Koladiya's name went missing from the founder's list of BharatPein
December 2018, before Sequoia came onboard. This is because the investors refrained
from investing in a company whose co-founder was convicted in a US court in 2015.
Koladiya was involved previously in a credit card fraud. Since then, Ashneer Grover
was made the face of the company.

BharatPe is caught in the midst of a storm, but what is the startup’s business model?
BharatPe is a B2B startup and its core offering is the QR Code for merchants to
accept UPI payments which make up 80% of its $16 billion annual total payment
volumes (TPV). In person-to-merchant (P2M) payments, BharatPe closed FY21 with
a monthly market share of 8%. The company also has PoS machines for merchants to
accept card payments. However, payments earn thin margins for the company. The
company’s revenues come from its merchant and consumer-lending products. Its

55
BNPL product PostPe clocked in a TPV of $321 million within three months of its
launch in October 2021.

5. CRED Pay

Fintech unicorn CRED has launched a UPI payment offering ‘Scan & Pay’, putting
the company in direct competition with the likes of Google Pay, PhonePe, Paytm and
others.

The service will be limited to CRED members, who can now make UPI payments
from their bank accounts linked to the CRED app, by scanning any QR code. To
become a CRED member, one needed to have 750 or above credit score.

The UPI payment experience will include flairs and skins, 2x rewards on partner
merchants and dynamic messaging. The company has also added features like CRED
Protect for allowing users to create an alias UPI ID instead of using the default one
including their phone number. Also, in case of a transaction failure, CRED will ensure
that the users money is returned back to their bank account without the need to raise
any complaint ticket.

6. Amazon Pay UPI

Amazon Pay is the fourth biggest app used for making UPI transactions, as of
November 2020, Amazon Pay has 37.15 million transactions in volume with Rs.
3,624.51 Cr in transaction value this month. The brand name “Amazon” has helped
Amazon Pay to reach the fastest growth within a short period.
Amazon Pay has become the treasure of UPI payers and has integrated with most
shipping and payment gateways, along with awesome cashback rewards.

56
 Major UPI Apps (Feb'23)

Customer
B2C B2B On-us
Initiated
Transacti Transactio Transactio Total
Transaction
Applica ons ns ns
Sr. s
tion
No. Val
Name Volu Volu Volu Valu Volu Valu Volu
Value ue Value
me me me e me e me
(Cr) (Cr (Cr)
(Mn) (Mn) (Mn) (Cr) (Mn) (Cr) (Mn)
)

Amazon 47.8 4,981. 47.8 4,981.

1 - - - - - -
Pay 0 82 0 82

Axis
1,352. 44.1 58. 51.9 1,413.
2 Bank 7.74 0.03 2.82 - -
53 9 61 5 95
Apps

23.2 7,158. 23.2 7,158.

3 BHIM - - - - - -
1 37 1 37

36.5 17,902 36.5 17,902

4 Cred - - - - - -
7 .20 7 .20

Google 2,63 424,44 2,63 424,44

9 - - - - - -
Pay 9.55 2.48 9.55 2.48

HDFC
11.8 3,116. 11.8 3,116.
10 Bank - - 0.00 0.14 - -
7 03 7 17
Apps

ICICI
28.9 8,054. 390 6,38 40.5 14,831
11 Bank 5.68 5.84 - -
9 44 .60 6.36 2 .40
Apps

IDFC
21.3 2,176. 868. 22.2 3,044.
12 Bank - - 0.98 - -
1 07 14 8 21
Apps

Kotak
Mahindr 12.0 2,521. 12.0 2,521.
13 - - 0.00 0.03 - -
a Bank 9 61 9 65
Apps

Paytm
Paymen 1,02 116,86 10.5 17. 621. 98.6 19,02 1,13 136,52
14 0.43
ts Bank 7.97 4.36 2 08 78 1 5.03 7.53 8.25
App

PhoneP 3,51 620,12 3,51 620,12

15 - - - - - -
e 9.12 1.97 9.12 1.97

State
Bank of 1,753. 1,753.
16 3.72 - - 0.00 0.05 - - 3.72
India 88 93
Apps

Yes
25.8 7,481. 37.0 26.5 7,518.
17 Bank - - 0.66 - -
9 18 6 5 24
Apps

*Volume of transaction in million

57
 1.11 Business Model of UPI

How UPI Businesses earn money?

UPI services have spurred the adoption of digital payment in India and one important
reason for this is that transactions on the medium have been kept free of cost.
However, the Reserve Bank of India in its discussion paper dated August 17 sought to
know from stakeholders the possibility of introducing a tiered charge for the system -
that is if transactions above a particular amount could be billed.
The Finance Ministry had to allay fears that such a system was being immediately
introduced. The ministry said in a tweet: “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.”
The UN defines digital public goods as “Open source software, open data, open AI
models, open standards and open content that adhere to privacy and other applicable
international and domestic laws, standards and best practices, and do no harm, and
help attain the Sustainable Development Goals.”

What is the RBI seeking?

The Central Bank sought to know by October 3rd this year whether charges can be
introduced. It argued that since UPI also functions as a funds transfer system like
IMPS (Immediate Payment Service), it should be subjected to the same charges as
fund transfers over IMPS.
“Based on the feedback received, RBI would endeavour to structure its policies and
streamline the framework of charges for different payment services / activities in the
country. At this stage, it is reiterated that the RBI has neither taken any view nor has
any specific opinion on the issues raised in this discussion paper,” said the RBI in the
discussion paper.
To encourage faster and deeper adoption of digital payments post-demonetisation and
amid the pandemic, the government had made transaction over UPI free of cost with
effect from January 1, 2020. Neither customer nor merchant has to pay anything for
using UPI services. This is the government’s zero-merchant discount rate or zero-
MDR framework.
The RBI also sought to know if UPI transactions are charged then “should MDR for
them be a percentage of transaction value or should a fixed amount irrespective of the

58
transaction value be levied”. It has also asked whether the RBI or he market should
determine charges if they were to be brought in.
UPI players hope for incentive
UPI service providers like PhonePe, Google Pay, and Paytm Payments Bank have
offered their service for over two years without earning any revenue and have been
hoping the government would give them an incentive now. Since the digital switch,
over Rs 7 lakh crore payments monthly have been conducted over UPI.
Last year, the government had introduced a reimbursement scheme for RuPay and
low-value UPI transactions, allocating Rs 1,300 crore to it. Under the scheme, for
Person-to-Merchant (P2M) transactions, the merchant would not be charged for these
but the government would pay the acquiring bank or the merchant’s bank which
receives the payment. The bank would then have to share the reimbursed amount with
payment gateways.
In the absence of revenue from charges on transactions, UPI service providers have
other avenues of making money. Whenever a customer pays her electricity or water
bill or recharges DTH over UPI, the payments platform earns a commission from the
service provider. A similar commission is earned for mobile recharges.
Google Pay, PayTM and others have amassed millions of active users and thus have
access to a mine of data that they can use to fine tune their product. To some extent
data substitutes revenues.
However, there has been a continuous debate on why private entities should provide
UPI free of cost. Industry executives believe that now that a robust digital payment
infrastructure has been set up and adopted, it is time to allow them to earn revenue
from these transactions so that more players enter the UPI as a service space and build
further financial inclusion.

59
Source- Economic Times

Here are the primary ways through these firms make money:

1. Commission income:
All these companies tie up with brands for a brand placement fee and daily- utility
servicing companies for commissions on expenses like mobile recharge, bill
payments, DTH activation etc. You must have often seen scratch cards which say-
Rs.250 off on placing order with a xyz company or shares worth Rs.1000 of Apple
will be transferred to one's demat account if they have an account with the company
mentioned on the scratch card.

60
2. Subscription revenues:
For all the POS machines installed at kirana stores, through which one can scan and
make payments, these companies charge a nominal transaction fee, which adds to
their revenue coffers.

3. Loan disbursals:
As banks can often take time to review applications and grant loans, these apps have
started with instant loans, merchant and personal loans with quick disbursals. These
loans help them make 2.5% to 3.5% up front of the loan value.

4. Collection:
These enterprises also end up collecting money on behalf of their lenders, which gives
them 0.5% to 1.5% of the current disbursement value.

5. Data collection for marketing services:

Data is used to innovate new products for the company or help other marketing
companies identify consumer trends in the market. For instance, co-branded credit
cards give an upfront distribution revenue and lifetime usage fee.

1.12 UPI Without Internet

*99#, a USSD based mobile banking service of NPCI was initially launched in
November 2012. The service had limited reach and only two TSPs were offering this
service i.e. MTNL & BSNL. Understanding the importance of mobile banking in
financial inclusion in general and of *99# in particular, various regulatory/trade
bodies came together to ensure on boarding of all TSPs on *99# (USSD 1.0). With the
wider ecosystem (11 TSPs), *99# was dedicated to the nation by Hon’ble Prime
minister on 28th August 2014, as part of Pradhan Mantri Jan Dhan Yojna .

NPCI launched Unified Payments Interface (UPI) with member banks on 25th
August, 2016. UPI allows account holders across banks to send and receive money
using a unique id known as UPI id or payment address. UPI allows users the facility
to generate their own UPI ID. Besides UPI ID, user can also send money using the
conventional financial address i.e. Account number + IFSC. Conceptualized as a

61
mobile application based solution primarily catering to internet compatible phones
(smartphone users) , UPI is now available for non-internet based mobile devices
(smartphone as well as basic phones ) in the form of dialing option (*99# ) and is
known as USSD 2.0 .This functionality i.e. USSD 2.0 is launched along with BHIM
on 30th December 2016.

*99# service has been launched to take the banking services to every common man
across the country. Banking customers can avail this service by dialing *99# on their
mobile phone and transact through an interactive menu displayed on the mobile
screen (available only for live TSPs). Key services offered under *99# service
include, Sending and Receiving interbank account to account funds, balance enquiry,
setting / changing UPI PIN besides host of other services. *99# service is currently
offered by 83 leading banks & all GSM service providers and can be accessed in 13
different languages including Hindi & English. *99# service is a unique interoperable
direct to consumer service that brings together the diverse ecosystem partners such as
Banks & TSPs (Telecom Service Providers).

It is a common technology platform developed by NPCI which allows the Banks and
TSPs to seamlessly integrate with each other to provide banking services to the
customers at large over the mobile phones (basic as well as smartphone).

Currently, following Financial, Non-financial and Value Added Services (VAS) are
offered through *99# service.

Sending Money using Mobile No

Sending Money using UPI ID
Financial Services
Sending Money using Account No. + IFSC
Requesting Money using UPI ID / Mobile No.
Account Balance
Set UPI PIN
Non-Financial Services
Change UPI PIN
Last 5 transactions

Features of *99# Service

62
 Uses USSD as the access channel that works across all GSM handsets (smartphone or
otherwise) making it reach the last mile user

 Supports menu-based applications that is easy to manoeuvre for the users

 Does not require data connectivity (works on signalling channel) that makes it high
availability service

 Round the clock availability (works even on holidays)

 Accessible through a common code *99# across specific GSM Operators and mobile
handsets

 Additional channel for using BHIM app and key catalyst for financial inclusion

How to transfer money from UPI offline?

Step 1: Dial *99# from your registered mobile number which is linked to your bank
account.

Step 2: A menu will be popped up with available facilities to initiate from your bank.

Send Money
Request Money
Check Balance
My Profile
Pending Request
Transactions
UPI Pin

Step 3: To send money type 1. And tap on send

Step 4: Now select from which account you want to send money eg. Mobile Number,
UPI ID, Saved Beneficiary and other. Type the number of the option and tap send.

63
Step 5: If you have selected transfer via mobile number, enter the mobile number
linked to the UPI account of the receiver and tap send.

Step 6: Enter the amount you want to send and tap on send.

Step 7: Now enter the remark for the payment.

Step 8: Enter the UPI pin to complete your transaction.

Step 9: Your UPI transaction will be completed offline.

You can also disable UPI services offline by dialling using *99# from your registered
phone number and following the instructions.

1.13 UPI – THE WAY FORWARD

The volume of transactions completed using the UPI (Unified Payments Interface)
System crossed a significant milestone in March 2022 and was close to crossing
another milestone. The volume of transactions on UPI in the financial year 2021-22
crossed the $1-trillion mark, with transactions worth INR 84,17,572.48 crores being
processed on this platform. In addition to this, transactions processed in the month of
March 2022 alone stood at almost INR 10 trillion.

In addition to the success of the UPI system as showcased through its widespread
adoption and the rapid pace of growth, the recently concluded financial year (FY
2021-22) also saw strides being made in the adoption of the UPI platform at an
international level. The Reserve Bank of India and the Monetary Authority of
Singapore announced plans in September 2021 to link the UPI system with
Singapore’s PayNow system, enabling seamless, low-cost transfers between bank
account holders in the two countries. This linkage is expected to go live in July 2022.
Nepal became the first foreign country to adopt the UPI platform for “the
digitalisation of cash transactions”. Going ahead, Nepal’s adoption of the UPI
platform could potentially act as a precursor step to opening up cross-border real-time
peer-to-peer payments between India and Nepal. These developments – a consistent
growth in the number and volume of domestic UPI transactions, adoption of the UPI
platform by other countries, and launching cross-border peer-to-peer transaction

64
services with other countries – provide further evidence of the promise of the UPI
platform. This promise was recognised early on when tech giants like Google had
recommended the UPI as an example that the US Federal Reserve should emulate in
its effort to build the FedNow, a new interbank real-time settlement system for the
USA.

However, despite all the accolades that UPI has received so far, there are still some
drawbacks to the platform which need to be overcome. One of the main challenges to
the broader adoption of UPI was the inability of users without smartphones or mobile
internet access to access the system (although users could utilise USSD based services
to make UPI transactions, this feature was not very popular). NPCI (the organisation
that developed the UPI platform) and RBI recently launched the UPI Pay123 system
for users without access to a smartphone, mobile internet, and USSD based services in
March 2022. This initiative is expected to provide the subsequent surge in new users’
adoption of the UPI platform.

Another concern is the large number of low-value transactions made through the UPI
platform. NPCI estimates that 75% of the retail transactions in India are below the
value of INR 100 each. When it comes to UPI transactions, this number is equally
high, with over 50% of the offline transactions (transactions conducted in physical
stores) being less than INR 200 in value (https://bit.ly/3JgZIyo). The low value of
these transactions combined with the MDR (Merchant Discount Rate) charges on UPI
transactions being reduced to zero doesn’t incentivise the market to develop
innovative solutions to meet challenges.

The final concern is about the nature of NPCI itself. NPCI is the organisation
operating retail and settlement systems in India. All payment systems like NEFT,
ECH, RTGS, IMPS, UPI, etc., are managed by NPCI. This has raised concerns that
NPCI may have become too big to fail and business continuity challenges in case of
any systems issues facing the payments systems. RBI had recently invited
applications from interested banks and companies to form a New Umbrella Entity
(NUE) – an exercise which saw active interest from several large Indian banks,
Payment aggregators like VISA and MasterCard, and corporates like the Tata group
and Reliance group. However, these plans were put on hold for the time being. Given
the rapid increase in transaction volume and value of retail digital payments, it may be
time for RBI to restart the process of issuing an NUE license (the RBI Governor has
recently announced that the NUE applications are under consideration).

1.14 Challenges Faced by UPI

Growing cases of transaction failure:

65
While there has been a massive 700% rise in UPI’s value of transaction, which is
currently at 800 million transactions on March 2019; there has also been a 2% fall in
the total volume of payments, seen during early 2019, which was at 3.6%, a year ago.
Despite having its transaction success score of 85% in 2019, the declined

People perceive UPI payments to be a revolution in technology, despite having its

own disadvantages. This is because after demonetization a lot of leading Indian banks
could not cope up with the pace of digital adopting, which is currently slowing down
UPI payments. Majorly, on-going challenges are with the bank server management
and connectivity. There has been instance where money gets deducted but takes time
to reflect on user accounts, causing delays. Also, there has also been a moment where
the UPI portal will malfunction when it tries connecting itself with bank servers,
which is also a significant reason for users to moving away from such UPI Apps.

It is estimated that the over 15 million UPI transactions were failed in March-April
2019; and the average value of transaction was at $25 during the same period. A
significant share of it has failed due to server-side challenges.

Technology challenges can be addressed in three ways:

 Cloud migration would also be a cost-effective initiative as Banks now can

cut-down on their on-going operational expenditure.
 Bringing Datacentre close to the user groups could be possible solution to
address this on-going challenge.
 Also, adding a layer of analytics within Bank’s UPI to understand the on-
going transaction trends in real-time to understand customer demographics
would address the on-going disadvantages with server management
Speaking about UPI for Fintech enterprises, there is a serious debate between the
ownership of customers. Experts clarify that for bill payments and recharges, payment
platforms have a relationship with customers, but the settlement part is claimed by the
banks, thus it’s a mix of both as there are multiple service providers to make a
successful transaction. For example, Yes Bank got into a partnership with PhonPe;
similarly, SBI, HDFC bank and ICICI bank have partnered with Google Pay. By
doing so banks are able to restrict payments instead of allowing payments to go into
an insulated wallet ecosystem.

66
 CHAPTER 2: RESEARCH METHODOLOGY

2.1 Objectives of study:

1. The study is to know the consumer awareness, consumer perception and

consumer satisfaction towards UPI.
2. The role of UPI Payment system in India.
3. To study how UPI has helped the banking sector
4. To study how UPI has helped the government in promoting Cashless India.
5. To find out the most preferred mode and application for digital payments by
the users.
6. To find out the frequency of digital payments by different age and income
group.
7. To find out the problem faced by UPI users

67
 8. To identify the variance between UPI services and traditional services

2.2 Scope of study:

The scope of study was limited to google forms responses and the publicly available
information regarding my topic.

2.3 Statement of problem:

The statement of problem under study is to analyse the effectiveness of UPI on Indian
Economy.

2.4 Hypotheses of the study:

The hypothesis of the study can be described here in as under:

H0 – Is UPI really effective?
H1 - UPI is a system that powers multiple back account into a single mobile
application and merges several banking features

2.5 Nature of study/type of research:

This is a descriptive and diagnostic type of research where survey method is adopted
to collect primary information from the users of UPI using different scales as required
and the required secondary information for the analysis.

2.6 Sample of study:

While developing the sampling design for the study, following points will be
considered:

1.Sampling unit:

68
For the required study sampling unit was based on the city base level as far as
geographical aspect was concerned. UPI users will be the population under study.

2.Size of sample:

This refers to the number of items to be selected from the universe to constitute a
sample. The population being large the survey was being carried among 30
respondents (approximate). They will be considered adequate to represent the
characteristics of the entire population. It will fulfil the requirements of efficiency,
representativeness, reliability and flexibility.

3.Sampling procedure:

The sampling procedure to be followed in the study was non probability snowball
sampling. Simple random procedures were used to select the respondents from the
available data base. The research work was carried on the basis of structured
questionnaire. The study was restricted to Indian citizens and residents of Mumbai
city.

2.7 Time dimension:

The research was a cross-sectional base due to time limitations which allowed take a
snapshot of aspects at a single point of time. The whole research was completed in a
month’s time.

2.8 Data collection method:

1. Primary Data:
For the present study, both the Primary data collection method was applied through
the questionnaire method. A questionnaire schedule was prepared and mailed/handed

69
out to the selected respondents (customers) through Google Forms. The respondents
were requested to answer the questions and return the questionnaire. Thus, the
primary data was collected through a survey method.

2. Secondary Data:
Secondary data was collected through various websites and articles on internet.

2.9 Techniques used for data presentation:

Quantitative method is used to explain, predict phenomenon with measurable

variables.

The analysis of data collected is completed and presented systematically with the
use of

Microsoft Excel and MS Word.

The various tools used for presentation of data are:

 Bar graphs
 Column graphs
 Line graphs

2.10 Limitations:

There were certain limitations of this study that are enlisted below:

 Resources of the researcher were limited whereby the customers spread all
over the country could not be studied.

70
  Geographical expansion of target population, as we know that the UPI Users
are located throughout the country.

 Time of submission, due to academic schedule the researcher had the limited
time frame of a week to complete this research.

 The study was restricted to 30 respondents which was a very small number to
generalise the findings for the whole population.

Chapter 3: Literature Reviews

Introduction
In this study the researcher aims to identify the customer preference towards unified
payment interface and to know the impact of unified payment interface in customer
satisfaction. The researcher's find out the below review of literature which is relevant
for in this study.
 Dr. Virshree Tungare (2019)
Digitization and Go cashless scheme has been extensively pushed by the
Indian government to regularize and smoothen the cash transaction after
demonetization. The demonetization consequences give extraordinary growth
in digital payment such as Ebanking, Mobile banking, Card transaction etc.
Unified Payments Interface (UPI) is one of the fastest growing digital payment
system through which a user can both send and receive money through a
Virtual Payment Address (VPA). Uniqueness of UPI over other digital

71
 payment methods like 24*7 and 365 days availability, Easy and convenient to
use and secure gateway attracts the customers of service sector. This research
was mainly focused to study the customer perception (service sector) towards
the awareness and adoption of UPI systems in Indore region. For this research
primary data was collected through structured Questionnaire contains 5 point
Likert scale from service sector and secondary Data collected from
Government Reports, Website etc. This research concludes with aspects of
awareness and adoption of UPI through comparison between gender, age and
occupational data of customers. The results of this study add to our knowledge
about acceptation of UPI and its usefulness in cashless and immediate
transactions that influence young male customers who belongs to service
sectors. The research concluded that customer of service sector is more swing
towards the adoption of UPI and there is significant difference found male and
female customers towards the adoption and use of UPI.

 Parvesh Deepak Oswal & Prof. Hanmant N. Renushe (2021)

Impact of COVID-19 on UPI Services. According to their study they say that
universal access to banking, and therefore the introduction of biometric sensors in
phones can proactively encourage UPI transactions and findings discovered that
the respondent has a positive angle towards the UPI dealing for ushering in a less-
cash society in the Asian country.

 Mahesh A., Ganesh Bhat (2021)

The Indian Banking sector is striving hard to popularise digital payments and has
gained momentum after demonetization and digital India initiatives. To facilitate
digital payments, “National Payment Corporation of India (NPCI)” launched the
“Unified Payment Interface (UPI)”, which is an amazing, revamped, and cost-
effective breakthrough for enabling digital payment services for all. Proliferation of
smartphones, technological innovations, and effective of mobile payment for
smartphone users, financial institutions and particularly the banks. To achieve
paperless and cashless economy, Unified Payment Interface (UPI) is a potentially
innovative way of transferring funds using a virtual payment address established by
the National Payment Corporation of India (NPCI). Hence, it is needed to be assessed
for its potential to contribute towards achievement of digital economy

 Rishabh Jha & Rohit Kumar (2021)

In his study titled “An innovative step for making Digital Payment Effective and
factors affecting Consumer perception on the use of UPI” Performance
expectancy, effort expectancy, facilitating conditions (Mobile specs & Network
strength), and Cashbacks & Rewards found to have an impactful relationship with
the behavioural intention of the users who prefer to adopt and use UPI payments.

72
 Nileshkumar L Patel & DR. JAYSHRI S DATTA (2020)
Factors influencing the usage of UPI have been identified in this research. The
findings revealed that compatibility of application, comparative advantage and
threats have positive impact on the usage of UPI. Perceived risk and customer
profile have negative impact on the usage. Customers demand safety standards for
online UPI transactions which must be robust in industry safety grades.

Chapter 4: Data Analysis, Presentation and Interpretation

1) Have you ever used UPI services?

73
 Total
30

25

20
Total
15

10

0
No Yes

*Source- Primary Data

From almost 30 responses over 28 samples use UPI in their day to day life, which
can be clearly seen in the above mentioned graph, which shows almost everyone
who has a bank account uses UPI to transact in their day to day life. It shows how
useful is UPI in today’s world. In the pandemic when social distancing is the most
critical norm, the Unified Payments Interface (UPI) is like a godsend. The instant
real-time payment system has turned out to be the best financial innovation post-
Independence in India and has begun in earnest the process of replacing the cash
economy altogether. It has contributed its might to make the country one of the
fastest growing digital economies in the world. According to the latest data
compiled by the National Payments Corporation of India (NPCI), which manages
UPI, it has reported a threefold increase during the last fiscal (2020-21) in both the
number of transactions and the value. As of March 2021, the total volume has
jumped to 2,732 million transactions, worth ₹5,04,886 crores. At the beginning of
the fiscal, in April 2020, the total volume stood at 999.6 million with the total
value of transactions at ₹1,51,141 crores. The government’s decision to abolish
merchant discount rate (MDR) in December 2019 and bring the transaction fee to
zero had worked in UPI’s favour immediately.

2) Which medium introduced you to UPI

74
 Total
12

10

8
Total
6

0
Friends Internet Other Television

*Source- Primary Data

The graph states how were the samples introduced towards UPI; In simple words
through which medium they got to know about the services and benefits of UPI. From
the data acquired from almost 30 samples, over 11 samples discovered about UPI
through their Friends, Family and peers. The rest of the samples discovered about UPI
through Internet, Television and other modes.

3) Which digital payment method do you think is accepted by most merchants (Apps)

The above graph states which payment app is used by the merchants the most, so as
clearly seen, Gpay i.e. Google pay is accepted by most of the merchants, followed by
PayTm, PhonePe, BHIM UPI and other apps.

75
 Total
25

20

15 Total

10

0
BHIM UPI GPay Others Paytm PhonePe

*Source- Primary Data

4) Which UPI app do you find easiest to use?

Count of Name by Which UPI app do you find

easiest to use?
25

20

15

10

0
GPay Others Paytm PhonePe

*Source- Primary Data

According to the samples Gpay has the most user friendly application interface,
followed by Paytm and other applications. Almost 21 i.e almost 70% of the sample
size finds Gpay as the most convenient.

76
5) Which UPI app is best in terms of offers, discount and cashback

Count of Name by Which UPI app is best in terms

of offers, discount and cashback
25

20

15

10

0
Amazon pay GPay Others Paytm PhonePe

*Source- Primary Data

Once again the almost 66.7% of the sample size finds Gpay, the best application in
terms of offers, discount and cashback, followed by Paytm and other applications

6) What method of payment you use most frequently while making an online
purchase?

Total
25

20

15 Total

10

0
Cash Credit Other UPI

*Source- Primary Data

77
According to the primary data collected majority of the samples use UPI as a payment
method for making an online purchase, as it is very convenient method to pay while
purchasing online as there is no hassle at the time of delivery.

7) What method of payment you use most frequently while making an offline
purchase?

Total
16

14

12

10
Total
8

0
Cash Other UPI

*Source- Primary Data

Although, while making an offline payment customers prefer cash as a mode of

payment, followed by UPI, gradually UPI is rising here as well, in coming years UPI
would take over.

78
8) If you use UPI payments, which of the following things have you used UPI
for?

Most of the samples use UPI for Person to Person (P2P) Transfer, Bill payments,
Recharge and merchant Payments. This shows UPI is a very convenient method for
making a payment.

Total
8
6
4
2
0
Total

*Source- Primary Data

Secondary Data

1) UPI transactions touch a record Rs 11.17 trillion in September, shows data

India’s flagship digital payments platform, Unified Payments Interface (UPI), has
created yet another record in September, both in terms of volume and value of
transactions.

According to the latest data released by the National Payments Corporation of India
(NPCI), the UPI platform recorded 6.8 billion transactions in September, amounting
to Rs 11.17 trillion. It is up 3.05 per cent and 4.06 per cent in volume and value terms
on a month-on-month (MoM) basis.

On a year-on-year (YoY) basis, volume of transactions was up 85.55 per cent and
value went up 70.61 per cent.

79
2) UPI market share

80
PhonePe continues to dominate the #UPI market with 45.2% share in the number of
transactions done in June, shows latest NPCI data.

GooglePay is next with 34% of the transactions. Other players are far behind -

3) The rise of UPI transactions

From a modest start in April 2016, UPI has grown faster than other mode of digital
payment in India. The framework is changing the digital payments landscape in the
country as transfers happen in real time. For end users, the process is simple and easy.
Transactions require minimal details and a virtual address. UPI’s growth and adoption
have led to expectations that it will have the largest pie of digital transactions over the
next few years. National Payments Corporation of India, which developed UPI, set up
a subsidiary to help governments and central banks implement similar instant fund
transfer in their countries.

81
4) UNIFIED PAYMENT INTERFACE: So Far, So Good

The fact that values have grown at a significantly higher rate than number of
transactions shows that the popularity of the system has not just resulted in its
widening UPI’s base but also its depth of usage.
A comparison with a similar system will put the growth in context. In FY 2016-17,
IMPS transactions totalled 507 million with a total value of INR 4,11,624 crores. UPI,
on the other hand, totalled 17.86 million transactions with a total value of less than
INR 7,000 crores. The corresponding figures for the last year (2019-20) for IMPS
were 2,579 million (more than five times) and the value transacted was INR
23,37,541 crores (close to four times). UPI, by the way, had grown to 12,519 million
(about 70 times) while value transacted on UPI rose to INR 21,31,330 crores (more
than 300 times). In the first six months of this year (FY 20-21), UPI had already done
8,487 million transactions with a value of INR 15,49,240 crores while IMPS had done
about one-seventh in terms of transactions and about 20% less in terms of transacted
value, UPI having overtaken IMPS in February this year, in terms of value—and thus
establishing itself as the prime mode of retail transaction.

82
 Chapter 5: Conclusions and Suggestions
Findings

 If you are sending money from the UPI application, then the receiver should
have to register to the UPI application at another end. Otherwise, you cannot
able to send money by mobile number, then you can send money by entering
your account number and IFSC code.

 UPI mainly targets smartphone users and the number of smartphones is

increasing day by day but Digital literacy is too less. This will affect the UPI
till now, there is no transaction charge but for maintaining servers and for
other infrastructure facilities, Banks may start applying charges for the same

 UPI mainly requires Internet connection but in India Data connection is not
available everywhere, but now UPI can also be used without internet
 Single Application for accessing different bank accounts
 Use of Virtual ID is more secure, no credential sharing Single click
authentication.
 Raise Complaint from Mobile App directly
 Seamless fund collection from customers - single identifiers
 No risk of storing customer's virtual address like in Cards
 Tap customers not having credit/debit cards
 Suitable for e-Com & m-Com transaction
 Resolves COD Collections Problems

Conclusion

UPI developed the m-payment technology by facilitating mobile phone to be used as a

main payment device for giving and accepting payments. In contrast to all of payment
systems it can be say that UPI is the most advanced payment system in the world.UPI
payment system allows money transfer between any two bank accounts by using a
smart phone. It allows a customer to pay directly from a bank account to different
merchants, both online and offline, without the hassle of typing credit card details,
IFSC code, or net banking/wallet passwords. It aims to simplify and provide a single
interface to money transfers easy, quick and hassle free. These features of UPI
motivate the respondents of service sectors to adopt the tool and the above study
revealed that there also a significant difference found between the gender towards the
adoption of UPI. The use of smart phones, the availability of an online verifiable
identity, universal access to banking and the introduction of biometric sensors in

83
phones will proactively encourage UPI Transactions and findings revealed that the
respondent has positive attitude towards the UPI transaction for ushering in a less-
cash society in India

Despite all the claims of government, the most preferred mode of payments remains
cash & cards on an average. Although usage digital payments have increased
manifolds by the people in all age groups, but more awareness needs to be spread
especially in field of UPI. The frequency of digital payments is highest in the age
groups of 20-35 and least in above 40. People are although aware of UPI but are not
as inclined towards it as they are to mobile wallets and debit/credit cards. The new
technology faces challenges that need to be addressed and taken care of in order to
promote it in future. In case of UPI the front-end platform is to be designed by the
banks. If banks fail to work effectively on this, then consumer adoption of UPI will be
difficult more likely because private mobile firms have sincerely invested in creating
merchant network to ensure smooth and failure free payment process. Moreover, they
have also included cashbacks and discounts to attract customers at least but for a trial
usage. Already the mobile wallet companies of India have a larger customer base
compared to existing bank supported apps combined. If UPI fails to deliver its
promise in creating a one stop solution for financial payments, then banks will lose
their revenue to private fintech companies. The UPI allows consumers to transact
directly through their bank account with a unique UPI identity which syncs to
Aadhar's verification and connects to the merchant for the settlement and lets the
issuing bank to close the transaction. In a single swipe the transaction is complete
without any middlemen (like Visa and Master Card swich) to facilitate the
transaction. This also has been possible because India is the only country which has
been able to register more than one billion of its population (DNA, 2016) on the
identification database called Aadhar. Thus a robust Aadhar platform is one of India's
superior achievements which will aid the country to digitalize its payment services
through UPI.

 From above study, it is concluded that UPI will definitely change the way we
are transacting now and transforming into digital payments where each
person's smart phone will be primary device for all payments
 UPI creates convenience of transacting without knowing Bank details means
knowing phone number or virtual address with high security and simple
process. From all above points we can conclude that UPI will gradually end
the cash payments and reducing circulation of currency notes. This will leads
to a transparent system and a cash less economy
 Currently India is developing at the rate of 6 to 7% we know that cashless
payment will definitely reduce or stop the burden of circulating hard cash
throughout the nation.

84
Recommendations

1. A very big plus with UPI is that cash sent or received goes directly into a bank
account. In digital wallets such as Paytm, payments and cashbacks stay in the wallet.
Also these typically involve a fee for moving the money to a bank account. This fact
needs to be properly communicated to prospective customers. The more people start
understanding this, more shifts would be seen towards UPI payments.

2. UPI adoption and extensive use for merchant payments needs to be targeted.
According to figures from chief digital officer, YES BANK, there is an ecosystem of
around 40 million merchants in this country who are not using electronic payments.
They need to be targeted. Mobile wallets became successful when small merchants,
tea vendors and kirana (neighbourhood) shopkeepers started accepting them and
similar market targeting should be done for UPI to make it a game changer.

3. The facts and figures from NPCI and the research insights from this research
suggest that more volumes could be generated out of the individual-to-merchant
payment space. This could be for rent payments, bill payments, contributions to chit
funds or mutual funds etc.

4. The initial growth in usage of UPI was mainly being driven by demand that arose
post demonetisation, but to sustain this growth the industry needs to create multiple
use- cases for UPI payments just like digital wallets have managed to score points by
adding multiple use-cases.

5. UPI should come up with bigger value proposition for merchants for example,
loyalty programmes, post-purchase analytics, merchant ratings, systematic savings
etc. which will manage to take UPI to the peer to merchant space.

UPI has already surpassed many global digital payment service providers with huge
adoption rates. However, there are certain on-going challenges affecting the
ecosystem, majorly due to the technological disadvantage of Banks to support digital
payments. However, UPI 2.0, has already been launched in 2019, which is likely to
address some of the connectivity & technology problems as well as it will open up
huge opportunity for banks, Fintech, payment ecosystem players and technology
companies. Also, In the next 2 years Indian Banking and non-banking players are
likely to partner with fintech start-ups.

85
 Bibliography and Annexure

1. A Study on Customer Insight Towards UPI (Unified Payment Interface) -

IJSR
https://www.ijsr.net/archive/v8i4/ART20197212.pdf

2. Impact of COVID-19 on UPI Services - JETIR

https://www.jetir.org/papers/JETIR2106546.pdf

3. Digital Payment Service in India - A Case Study of Unified Payment

Interface – Research Gate
https://www.researchgate.net/publication/
353217166_Digital_Payment_Service_in_India_-
_A_Case_Study_of_Unified_Payment_Interface

4. Factors influencing the usage of UPI among customers – IJCRT

https://www.ijcrt.org/papers/IJCRT2009206.pdf

5. UPI - An Innovative step for making Digital Payment Effective and factors
affecting Consumer Perception On the use of UPI
https://www.jetir.org/view?paper=JETIR2107710

6. Challenges of UPI platform in India - Linkedin

https://www.linkedin.com/pulse/challenges-upi-platform-india-kumar-sanjeev-
1d

7. UPI – THE WAY FORWARD - JG University

https://jgu.edu.in/blog/jsbf/upi-the-way-forward

8. How to send money through UPI without using internet -India Today
https://www.indiatoday.in/technology/tech-tips/story/tech-tips-how-to-send-
money-through-upi-without-using-internet-2299549-2022-11-20

9. How UPI is making India’s digital economy boom - Fortune India

https://www.fortuneindia.com/enterprise/how-upi-is-making-indias-digital-
economy-boom/105433

10. How UPI business makes money, what profit margin do they have? –
Economic Times

86
 https://bfsi.economictimes.indiatimes.com/news/fintech/how-upi-business-
makes-money-what-profit-margin-do-they-have/95985239

11. UPI is paying off, setting the pace for other nations – Live Mint
https://www.livemint.com/industry/banking/upi-is-paying-off-setting-the-
pace-for-other-nations-11576513910988.html

12. UPI transactions touch a record Rs 11.17 trillion in September, shows data –
Business Standard.
https://www.business-standard.com/article/companies/upi-processes-over-6-8-
billion-transactions-in-sep-worth-rs-11-17-trln-122100300765_1.html

13. UNIFIED PAYMENT INTERFACE: So Far, So Good – I.T Next

https://www.itnext.in/article/2020/11/23/unified-payment-interface-so-far-so-
good

14. Study of UPI payments Slideshare

https://www.slideshare.net/SushantCheulkar/study-of-upi-payments

15. NPCI
https://www.npci.org.in/

16. Unified Payments Interface (UPI) Product Overview – NPCI

https://www.npci.org.in/what-we-do/upi/product-overview

17. PayTm
https://paytm.com/

18. PhonePe
https://www.phonepe.com/

19. Google Pay (Android Pay)

https://www.techtarget.com/whatis/definition/Google-Pay#:~:text=Google
%20Pay%20is%20a%20digital,like%20the%20Google%20Play%20Store

20. Cashless India

http://cashlessindia.gov.in/bhim.html

21. Reserve Bank of India

https://www.rbi.org.in/

22. Fortune India

https://www.fortuneindia.com/

23. BHARAT INTERFACE FOR MONEY (BHIM)

https://www.bhimupi.org.in/

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 Annexure
Questionnaire
1. Name

2. Age
o 18-25
o 25-35
o 35-45
o 45-55
o 55 and above

3. Gender
o Male
o Female
o Prefer not to say

4. Have you ever used UPI services?

o Yes
o No

5. Which medium introduced you to UPI

o Television
o Friends
o Company representatives
o Internet
o Other

6. Which digital payment method do you think is accepted by most merchants

o Paytm
o GPay
o PhonePe
o Bharat Pe
o Amazon pay
o BHIM UPI
o Others

7. Which UPI app do you find easiest to use?

o Paytm
o GPay

88
o PhonePe
o Bharat Pe
o Amazon pay
o Others

8. Which UPI app is best in terms of offers, discount and cashback

o Paytm
o GPay
o PhonePe
o Bharat Pe
o Amazon pay
o Others

9. What method of payment do you use most frequently while making

an ONLINE purchase?
o Cash
o Credit
o UPI
o Other

10.What method of payment do you use most frequently while making

an OFFLINE purchase?
o Cash
o Credit
o UPI
o Other

11.If you use UPI payments, which of the following things have you used UPI
for?
o Person to person transfer
o Bill payment or recharge
o Paying a merchant
o Other

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