Why UPI is India’s most under-rated achievement in the fin-tech space


UPI (Unified Payments Interface) is a widely used protocol in India for instantly transferring money between two bank accounts. While this sounds quite simple and basic at first, the technology is hugely underrated and has a host of long-term benefits.

It’s common to come across critical statements about India’s technology and infrastructure might. Private players rule the technology turf and government-led projects often end up being sidelined due to lack of interest and poor adoption from the executive branches, but UPI became a standard.

Amid all these challenges, UPI has been a hit in the country and was precisely launched around 2016’s demonetisation drive. The stop-gap ban encouraged users to get online and within a few months, it was soaring higher and higher.

What is UPI?

  • When you transfer money over closed systems like PayPal, you need a debit/credit card or direct bank account access to send money. The recipient also needs to be a part of the service and have integrated banking services on their end. Can you send money from Paytm wallet to PayPal? You cannot.
  • With UPI, you can instantly transfer money from one bank account to others directly. All you need is a UPI ID and you’re good to go. This works across all major private/public banks in India and the one-time setup process can directly attach your bank account, completely skipping the requirement of a plastic card.
  • Obviously, NEFT, IMPS, and RTGS are similar solutions. But, they’re still not as mobile as UPI and involve a more tedious process of collecting bank account numbers, IFSC codes, and more. Lastly, UPI is instantaneous. Meaning the transfer will be completed in real-time without waiting for the day’s settlement to processed. This puts it on par with a plethora of wallet systems around the globe.
  • Keep in mind, UPI is just a protocol. It’s a medium of sending money and not an end-application. Apps like BHIM, GPay, Paytm, PhonePe, and Amazon Pay simply act as an interface. Registering with them will give you a unique UPI ID that can be shared with others easily.

Why is UPI so important and promising?

  • It gets the definition of mobile payments right. A true mobile-only medium that can truly revolutionize the way we carry out transactions. In the case of numerous services like Apple Pay or Samsung Pay, a debit/credit card is a bare minimum necessity. Even if you want mobile payments, the actual heavy lifting is being ultimately done by plastic cards.
  • With UPI, you completely remove this dependence. Purely based on one client app (GPay, BHIM, or similar), you can add your account and let it directly operate the transactions. With a long-term perspective, payments via this method are more convenient because the requirement of a PoS (Point of Sales) machine is completely eliminated. And, even though their acquisition costs have reduced, it’s still not a viable method of payment for India’s micro-businesses.
  • With UPI, a QR code is all that’s required. And today, every other roadside eatery or shop accepts payments via these QR codes. India has managed to roll-out a standard protocol that can serve 130 crore people across all banks. No other country has been able to build an offering at this scale. Switzerland has an equivalent system called “Swish”, but it’s a lot easier to implement because of the small number of banks and users involved.
  • With UPI, the administration is trying to digitize the smallest of transactions. It’s no surprise that Indians love cash, and this leads to unaccounted income or revenue. A digital means of transfer is a stepping stone to bringing inclusion for the informal sectors of the economy.
  • Thanks to UPI, global companies like Google are striving to capture the payments market as quickly as possible. WhatsApp Pay has been in the works for quite some time and it also relies on leveraging the might of UPI.
  • According to a recent report, UPI now fulfils a majority of all digital transactions in the country. Further, NPCI expects the user base of real-time payment system UPI to expand fivefold to 500 million in the next three years, chief executive officer Dilip Asbe said. As much as 955.02 million transactions worth Rs 1.61 trillion were clocked during September, against 93,000 transactions worth Rs 3.1 crore when it was launched three years ago in August 2016.

How was UPI conceptualized?

  • However, the country has been quick to adopt digital means of payments. RBI realised the requirement to turn the economy digital and proceeded to offer a new banking license for “Payments Banks”. A brand new concept that mixed conventional banking as well as next-gen solutions that concentrated on payments. Unfortunately, the concept hasn’t actually taken off and the current players are either operating at a loss or completely closing operations.
  • Parallelly, the UPI project was being developed for years. NPCI which is a consortium of banks was established in 2008. Initially, 10 banks backed the non-profit organisation, alongside RBI. Today, there are more than 50 banks directly backing NPCI. Leveraging this industry-wide acceptance and RBI’s hold over regulations, the organisation was in a position to bring all relevant parties to the table and work on a unified payments method. Today, called Unified Payments Interface.

What’s next for UPI:

  • The most trending terms right now are “Cryptocurrency” and “Blockchain”. While these are excellent to drive up investor interests, the real world is far different. Facebook has been actively trying to push forwards its upcoming Libra cryptocurrency, but there have barely been any optimistic takers. Companies are trying to reach out to the untapped population, but have failed to do so.
  • With NPCI’s reach via regional as well as national banks, users are getting onboard the conventional banking systems. Thanks to RuPay, debit cards are now even more easily available and encourage zero-balance bank accounts. With deeper rural penetration, the country can ensure that every citizen has joined the future of digital banking.
  • It’s a fact that India’s mobile industry is rapidly expanding and there is a wide range of affordable options available. After completely skipping the computer age, the country’s rural population again stands a chance to join the revolution and leverage the might of UPI. Even basic feature phones can support UPI via text SMS and the system has been designed to work anywhere, anytime.

In the longer run, India has established a robust system that works. While the government tries to bring the population onboard the digital economy via tax fillings, consortiums like NPCI are ensuring that institutions have enough firepower.

Every major payment gateway today directly supports UPI, and there’s no stopping. Instead of relying on proprietary technology to grow, India has found a truly democratic way of ensuring collective growth.