Payment Gateway vs UPI: Key Differences Explained

Q: What is the main difference between a payment gateway and UPI?

The main difference is that payment gateways process multiple payment methods such as credit cards, debit cards, netbanking, wallets and UPI, while UPI is focused only on direct bank-to-bank transfers between accounts.

Q: Is UPI better than a payment gateway for small businesses?

UPI can be better for many small businesses because it has zero setup costs and very low or no transaction charges. This makes it ideal for low-volume, local transactions and quick payments from customers who already use UPI apps.

Q: Can I use both UPI and a payment gateway for my business?

Yes, you can use both UPI and a payment gateway together. Many businesses accept UPI for quick, low-cost local payments and also use a payment gateway to support cards, wallets and other methods, giving customers more choice at checkout.

Q: How secure are UPI payments compared to credit card transactions?

Both UPI and card payments are designed to be secure. UPI uses two-factor authentication and UPI PINs, while credit card transactions use 3D Secure, OTPs and tokenisation to protect card details. When used correctly, both are considered safe for everyday use.

Q: What are the fees associated with using a payment gateway?

Payment gateways usually charge a fee per successful transaction, often in the range of 1.5% to 3%, depending on the payment method and provider. Some may also apply setup fees, annual maintenance charges or extra fees for certain features.

Q: Does UPI support international payments?

UPI is primarily designed for domestic payments within India. Some international corridors and use cases are being developed, but for most businesses, UPI is still mainly used for payments between Indian bank accounts.

Q: Can I accept credit cards with UPI?

No, UPI itself only facilitates direct transfers between bank accounts and certain linked instruments. It does not process credit card payments directly; for card acceptance you need a card network integration, POS machine or an online payment gateway.

Q: What are the advantages of using a payment gateway for my online store?

Using a payment gateway gives your online store access to multiple payment options, including cards, netbanking, wallets and sometimes UPI. Many gateways also support international payments, provide detailed dashboards, refunds, settlements and tools for managing disputes and chargebacks.

Q: How long does a payment gateway transaction take?

Most online payment gateway transactions complete in real time, typically within 30 seconds to 3 minutes depending on the bank and network. However, settlement of funds to your bank account usually happens within 1 to 3 business days.

Q: Can I use UPI for large transactions in business?

UPI supports reasonably large transaction limits, often up to around ₹1 lakh per transaction or per day for most users, which is enough for many business needs. For very high-value B2B transactions, NEFT, RTGS or other methods may be more suitable due to higher limits.

If you’re running a business in India or simply curious about digital payments, understanding the difference between a payment gateway vs UPI is crucial for making informed decisions. Both systems have revolutionised how we transact digitally, yet they serve distinct purposes and offer unique advantages.

Let’s learn about the UPI vs payment gateway differences so you can choose the right solution for your specific needs.

Key Takeaways

Payment gateways enable businesses to accept multiple payment methods, including credit cards, debit cards, UPI, digital wallets, and net banking through secure channels

UPI facilitates instant, real-time bank transfers using simple identifiers like mobile numbers or virtual payment addresses (VPAs).

While payment gateways offer comprehensive payment solutions for businesses, UPI excels in peer-to-peer transfers and small business transactions.

Transaction costs differ significantly – UPI remains largely free for users, while payment gateways charge processing fees that can vary.

What is a Payment Gateway?

A payment gateway functions as a sophisticated technology infrastructure that securely processes digital transactions between customers, merchants, and financial institutions. Think of it as a virtual point-of-sale terminal that encrypts sensitive payment information and ensures safe transfer of funds.

When you make an online purchase, the payment gateway performs several critical functions:

Function	Description
Encryption	Scrambles payment data to prevent unauthorised access
Authorisation	Verifies fund availability with the customer’s bank
Settlement	Facilitates actual fund transfer to the merchant account
Reporting	Provides transaction records and analytics

Leading payment gateway providers in India, like Razorpay, support diverse payment methods, making them indispensable for e-commerce operations and larger businesses requiring comprehensive payment solutions.

Payment gateways also offer advanced features like recurring billing, multi-currency support, and detailed analytics dashboards. They integrate seamlessly with websites, mobile applications, and even physical point-of-sale systems through APIs and plugins.

What is UPI (Unified Payments Interface)?

UPI represents India’s revolutionary payment infrastructure developed by the National Payments Corporation of India (NPCI). Launched in 2016, this system enables instant money transfers between bank accounts using smartphones, transforming how Indians handle daily transactions.

The beauty of UPI lies in its simplicity. You create a unique Virtual Payment Address (VPA) like yourname@bankname, eliminating the need to share sensitive bank details. Popular UPI apps include:

• Google Pay
• PhonePe
• Paytm
• BHIM

UPI transactions occur in real-time, 24/7, including bank holidays. The system processes payments through a secure two-factor authentication process involving:

Login authentication (PIN/biometric)
Transaction authorisation (UPI PIN)

This dual-layer security ensures only authorised users can initiate transfers, making UPI remarkably secure for everyday transactions.

Payment Gateway vs UPI: Key Differences

1. Payment Methods Supported

The fundamental distinction in payment gateway vs UPI capabilities lies in payment method diversity:

Payment Gateways:

• Credit and debit cards (Visa, Mastercard, Rupay)
• Net banking across multiple banks
• Digital wallets (Paytm, MobiKwik, Amazon Pay)
• UPI payments
• Buy-now-pay-later options
• International payment methods

UPI:

• Direct bank-to-bank transfers only
• Requires linked bank account
• Limited to participating Indian banks

2. Use Case

Understanding UPI vs payment gateway use cases helps determine the right fit:

Payment Gateway Applications:

• E-commerce websites requiring diverse payment options
• Subscription-based services
• International transactions
• High-value B2B payments
• Businesses needing detailed payment analytics

UPI Applications:

• Small merchant payments at local shops
• Person-to-person money transfers
• Bill payments and recharges
• QR code-based transactions
• Micro-transactions under ₹1 lakh

3. Transaction Speed

Processing times vary significantly between these systems:

Payment Type	Payment Gateway	UPI
Processing Time	30 seconds – 3 minutes	Instant (5-10 seconds)
Settlement Time	T+1 to T+3 days	Immediate
Refund Processing	5-7 business days	1-3 business days

4. Fees and Charges

Cost structures differ substantially:

Payment Gateways:

• Setup fees: ₹10,000 – ₹50,000
• Transaction charges: 1.5% – 3% per transaction
• Annual maintenance: ₹5,000 – ₹20,000
• Additional charges for international cards

UPI:

• Zero setup costs
• No transaction fees for P2P transfers
• Minimal charges for merchant transactions (0.5% – 1%)
• No annual maintenance fees

5. Security

Both systems employ robust security measures:

Payment Gateway Security Features:

• PCI-DSS compliance mandatory
• SSL encryption for data transmission
• Tokenisation of card details
• 3D Secure authentication
• Fraud detection algorithms

UPI Security Features:

• Two-factor authentication
• Device binding
• Transaction limits (₹1 lakh per day)
• Encrypted communication channels
• Real-time fraud monitoring

By using Razorpay Payment Gateway, you effectively “commercialise” UPI. You get the low-cost benefits of UPI for smaller transactions while keeping the robust infrastructure of a gateway for high-value corporate card payments and automated reconciliation. It’s not just about accepting money; it’s about building a finance stack that scales with your revenue.

When to Use Payment Gateway vs UPI for Your Business

1. When to Use a Payment Gateway

Choose a payment gateway when:

• Operating an online store with diverse customer demographics
• Accepting international payments
• Managing subscription-based services
• Requiring detailed transaction analytics
• Processing high-value transactions regularly

2. When to Use UPI

Opt for UPI when:

• Running a small business with local customers
• Accepting payments under ₹1 lakh
• Prioritising zero transaction costs
• Needing instant settlement
• Operating in cash-heavy segments transitioning to digital

Benefits of Payment Gateways and UPI

Benefits of Payment Gateways:

• Comprehensive payment acceptance capabilities
• Professional checkout experience
• International payment support
• Advanced fraud prevention
• Detailed reporting and reconciliation

Benefits of UPI:

• Zero or minimal transaction costs
• Instant fund transfers
• Simple setup process
• Wide acceptance across India
• No technical integration required

Did You Know?

UPI transactions in India crossed 16 billion in October 2024, highlighting the growing popularity of this simple and cost-effective payment method.

Payment Gateway or UPI — Which One Should You Choose?

The payment gateway vs UPI decision ultimately depends on your business model and customer preferences. Large-scale enterprises and e-commerce platforms benefit from payment gateways’ versatility and comprehensive features. Meanwhile, small businesses and individual sellers find UPI’s simplicity and cost-effectiveness ideal for their operations.

Consider implementing both solutions to maximise payment acceptance. Many successful businesses use UPI for small, frequent transactions whilst relying on payment gateways for larger purchases and international customers.

Ready to streamline your payments?

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FAQs

1. What is the main difference between a payment gateway and UPI?

Payment gateways process multiple payment methods, including cards and wallets, whilst UPI exclusively handles direct bank-to-bank transfers.

2. Is UPI better than a payment gateway for small businesses?

UPI suits small businesses due to zero setup costs and minimal transaction fees, making it ideal for low-volume, local transactions.

3. Can I use both UPI and a payment gateway for my business?

Yes, many businesses successfully implement both systems to cater to diverse customer preferences and transaction types.

4. How secure are UPI payments compared to credit card transactions?

Both offer robust security; UPI uses two-factor authentication, while credit cards employ 3D Secure and tokenisation.

5. What are the fees associated with using a payment gateway?

Payment gateways typically charge 1.5%-3% per transaction, plus setup and maintenance fees.

6. Does UPI support international payments?

Currently, UPI primarily supports domestic transactions within India, though international corridors are being developed.

7. Can I accept credit cards with UPI?

No, UPI only facilitates bank account transfers and cannot process credit card payments directly.

8. What are the advantages of using a payment gateway for my online store?

Payment gateways offer multiple payment options, international payment support, and comprehensive transaction management.

9. How long does a payment gateway transaction take?

Most payment gateway transactions are completed within 30 seconds to 3 minutes, with settlement in 1-3 business days.

10. Can I use UPI for large transactions in business?

UPI supports transactions up to ₹1 lakh per day, suitable for most business needs but limited for high-value B2B transactions.