What is UPI Payment System and How UPI Works?

Last updated on October 9th, 2023 at 01:00 pm

Unified Payment Interface (UPI) is a real time payment system developed by NPCI. UPI made a Payment system more convenient and accessible. Though UPI is introduced in 2016, it is the mostly used payment system in term is of the volume and amount of transaction done.

But what is different with UPI that it overtook the conventional modes like IMPS, NEFT and RTGS? and How it works? Read this blog further for more understanding.

What is UPI?

UPI is a money transfer facility provided by NPCI for making online payment as well as transfer of money between bank account. Thus Unified Payment Interface introduced adding multiple bank accounts under single client app.

Thus under UPI one can access all of his account from different account in one app. Also one can make transaction in all bank account with single password.

How UPI Works?

UPI works by verifying the mobile number linked with the bank of the customers. Thus the client app now will automatically fetch the bank account details with the mobile number registered with the bank.

UPI Client App

UPI Client app is an application for providing UPI transaction facility on its platform. There are several UPI apps available in india including Google Pay, PhonePe, AmazonPay, Paytm, Whatsapp Pay, etc.

Apart from which the NPCI also operated its own UPI app BHIM.

Account Validation

• Thus upon installation of client app, the app automatically fetches all the account linked with your mobile number.
• The Client app will provide you with a unique ID called UPI ID. Thus UPI ID is a unique ID provided for user for processing of transaction.
• But you can not make transaction with on the go. You need to validate your account and set UPI pin by entering Debit Card details of the account.
• Upon successful validation and setting your UPI pin up you can start using the account for transaction.

Modes of UPI Transaction

UPI revolutionized the payment process to a person or merchant. Before UPI you can only send money with the Account Number, IFSC Code and other details of the account holder.

But with the advent of UPI it became possible to send money to a person or to merchant with different modes. The following are the modes you can make payment.

1. Mobile Number
2. Upi ID/ Number
3. Account Number and IFSC Code
4. QR Code
5. Online Payment through Payment Gateway

The latest addition to the options, now you can use UPI for creating Debit Mandate for recurring payments.

Benefits of UPI

UPI become a most successful payment system in the world in such a short time frame. Being simple and convenient to get start as well as for use it literally replaced all other payment systems in every sector.

The following are the important benefits that made people to go for it.

• Accessibility: As you can install the UPI app in Mobile Phone it becomes easily accessible to the retail customers.
• Simple Authentication: Unlike the conventional banking apps the UPI does not requires you to provide multiple password and OTP for transaction. You can manage all bank accounts with a single 4 to 8 digit UPI PIN.
• Integration: UPI app provides one stop solution for all the bank accounts. Thus you can better manage your account and keep all the account on hand all the time.
• Availability: UPI is available in most of the retail traders in the country hence making it a preferable option for the online and retail purchases.
• Money Request: Apart from sending money to others you can also send a request to through app to others.

Tips for Safe Usage UPI App

Though it is simple to use the UPI apps there are some common mistakes people make in UPI transaction. Follow these simple tips to avoid such mistakes.

• The maximum transaction limit per account per day is Rs. 2 Lakh as per NPCI, But the most of the apps still limit the transaction to 1 Lakh per day per account.
• There is no need for UPI PIN for receiving money. There has been fraudsters using the UPI for defaulting the unaware people. Thus if somebody sending you money you are in no need to enter your UPI PIN.
• Always send money to the existing verified contact number for sending money. Avoid sending money by typing the mobile number.
• UPI is really a secured payment system. If by for any reason your transaction is failed Do not worry. Because the amount will be refunded within 24 hours in the case of failed transaction.

Conclusion

Unified Payment Interface brought a major change in the Indian digital transaction segment. The success of the UPI made the entire world to adopt a similar payment system.

The introduction of UPI has made the digitization surge in the country in the past few years. It also by providing a secure, simple, easy to use payment system free of cost to the public.