UPI, short for Unified Payments Interface, is a game-changer technology that works through a UPI-enabled smartphone application for real time digital payments, allowing you to send and receive money, make instant bill payments, and authorise transactions on a single application in a single step.

Users can check account balances, manage multiple bank accounts and transact through multiple payment methods without the need to carry debit or credit cards, hence simplifying the payment experience end-to-end. In a departure from conventional methods like NEFT or RTGS, UPI has streamlined the payments ecosystem, removing the constraints of time for both individuals and businesses.

UPI works on a highly secure, layered architecture with multiple levels of encryption, ensuring the confidentiality and integrity of data during transactions.

Let’s understand the meaning, role, functions and methodology of UPI:

What is Unified Payments Interface (UPI)? 

Unified Payments Interface (UPI) is a real-time payment system in India that enables seamless money transfers from one bank account to another instantly and free of charge through a mobile device.

Users can transfer money to each other with the help of a unique UPI ID or a Virtual Payment Address (VPA). Users can also transfer money by selecting receiver’s contact from their phone book or entering the receiver’s contact number.

UPI streamlines the process of transferring funds between individuals and businesses, enabling individuals to make online purchases, pay utility bills, and shop at brick-and-mortar stores through QR codes, VPAs, or UPI registered mobile numbers.

Related Read: What is UPI Lite? How Does it Work, and its Benefits

Features of UPI

  • UPI is a fast, real-time system that is available 24*7, 365 days of the year, enabling money transfer and payments within seconds.
  • UPI is one of the only payment system that allows you or online merchants to request money by sending a message, requesting payment via the bank, a facility that is not available in old systems like NEFT & IMPS
  • NPCI does not levy any extra charge for making payments or requesting money via UPI. Thus, UPI payments by individuals for peer-to-peer transactions are completely free.
  • With no lower limit on the amount of money that can be transferred, UPI has made it easier for brick and mortar stores to accept small payments.
  • UPI AutoPay function by NPCI for recurring payments provides you the ease of duly paying your utility bills.

Problems UPI solves and eliminates

UPI effectively addresses several issues that were prevalent in the pre-digital payment era, such as:

  • It eliminates the need for carrying physical cash, reducing the risk of theft or loss.
  • It minimises the hassles associated with writing and depositing cheques.
  • It does away with the time-consuming process of visiting banks or ATMs for transactions.

How Unified Payments Interface (UPI) Works?

Unified Payments Interface (UPI) brings together multiple bank accounts into a single UPI enabled mobile application, merging a range of features from any participating bank, thereby enabling seamless fund transfers for customers and merchants.

For sending and receiving money, UPI relies on the PUSH and PULL mechanism respectively.

To send money, the users use a UPI-enabled app and select the Pay or Send option. After providing the recipient’s details such as UPI ID or mobile number, and the desired amount, they select the bank account or wallet from which the money is to be debited. Finally, they enter the UPI pin to confirm the transfer, post which the transaction request is forwarded to their chosen PSP.

To receive money, the recipients log into the UPI-enabled app and select the collect or request money option. After providing the payer’s Virtual Payment Address (VPA) and the desired amount, they select their bank account in which the money is to be credited. A money request message goes to the payer, post which they enter the UPI PIN to authorize the transaction request.

Understand the UPI transaction flow in detail further in the article.

Let us explore the authentication protocols, data protection measures, existing payment systems and the parties involved in the working of UPI

Interbank Transfers

When a user initiates an online payment or fund transfer through a UPI-enabled application, the transaction is processed in real-time, ensuring that the funds are instantly debited from the sender’s account and credited to the recipient’s account.

Two-factor authentication (2FA)

UPI incorporates a robust Two-Factor Authentication (2FA) mechanism to ensure the security of transactions. Users are required to enter their unique Mobile Personal Identification Number (MPIN) to validate the transaction. Additionally, UPI leverages biometric authentication, utilising features like fingerprint or iris recognition, further enhancing the security of the payment process by reducing the risk of unauthorised access and fraudulent activities.

Exemplary Data Protection Measures

Since its inception in 2016, UPI has employed advanced encryption protocols to safeguard sensitive information, ensuring that data remains confidential and uncompromised during transmission.

Leveraging Existing Payment Systems

UPI relies on the existing National Electronic Funds Transfer (NEFT), Real-Time Gross Settlement (RTGS), and Immediate Payment Service (IMPS) systems for settlements. These established digital payment systems serve as the backbone for UPI, facilitating the seamless transfer of funds between banks and ensuring secure and timely transactions.

Versatility with Over-the-Counter and Barcode Payments

UPI’s versatility extends beyond peer-to-peer transfers. It can be used for over-the-counter (OTC) payments, allowing users to make quick transactions at physical stores by scanning QR codes or entering Virtual Payment Address (VPA). Additionally, UPI simplifies day-to-day bill payments such as utilities and mobile recharges, offering a one-stop solution for a wide range of financial transactions.

UPI Transaction Flow

PUSH: Streamlined Payment Initiation and Authorisation

Push transactions in UPI refer to the process of initiating a payment from the sender’s end to transfer money to a recipient. This method is commonly used when customers need to pay for goods, services, bills, or send money to friends and family.

Phase 1: Transaction Initiation and Authorisation

  1. Customers use their UPI-enabled apps to initiate transactions, providing recipient details, amount, and an optional note.
  2. The customer’s app forwards the transaction request to their chosen PSP. The PSP acts as an intermediary in the transaction process.
  3. The PSP routes the request to the NPCI, which oversees UPI transactions.
  4. The issuing bank, or the sender’s bank, verifies the transaction’s authenticity, balance, and customer credentials.
  5. Once verified, the issuing bank authorises the transaction and generates a digital signature to ensure security.

Phase 2: Verification and Fund Transfer

  1. The PSP shares the sender’s bank details with the UPI system for verification and routing.
  2. The NPCI checks the sender’s account details, account balance, and fund availability.
  3. If funds are available, the NPCI triggers the funds’ deduction from the sender’s account.
  4. The acquiring bank, or receiver’s bank, receives the transaction amount and credits it to the payee’s account.
  5. The UPI server sends a response to the customer’s app, confirming the successful transaction and providing a reference ID.UPI payment flow chart of intent payment

PULL: Controlled Payment Requests and Execution

Pull transactions involve the recipient initiating a request for funds from the sender. This method is often used for bill payments, collecting payments from customers, or receiving money from friends and family. The recipient generates a payment request, and the sender can then approve and execute the payment.

In the PULL method, transaction initiation and execution are controlled by the recipient, ensuring secure and authorised fund retrieval.

Phase 1: Transaction Initiation and Payment Message Flow

  1. Recipient Initiation: The recipient generates a payment request with the required details through their UPI-enabled app.
  2. Payment Message Flow: The payment request flows through the recipient’s app to the NPCI, signalling the intention to pull funds from the payer.

Phase 2: Transaction Flow between Banks

  1. The payment request reaches the creditor’s bank, which forwards it to the debtor’s bank through the NPCI.
  2. A merchant generates a payment request for a customer’s bill. The merchant’s bank sends the request to the customer’s bank (debtor’s bank) through the NPCI.
  3. The debtor’s bank verifies the request and checks the customer’s account details and available balance.
  4. If the customer’s account has sufficient funds, the debtor’s bank approves the transaction and confirms it with the NPCI.
  5. The debtor’s bank transfers the requested amount to the creditor’s bank, completing the transaction.

flow chart of collect UPI

The Process of UPI Transactions

To process a UPI transaction, the following participants are involved: 

Payer App/PSP: Initiating the Transaction

The UPI transaction journey begins with the payer app or Payment Service Provider (PSP). Payer PSPs are apps that allow customers to initiate/complete transactions. For example: Gpay, Phonepe, Bhim, PayTM, etc.

As the starting point, the payer app enables the user to initiate the payment process. The user opens the app, selects the recipient, and enters the transaction details, including the amount and any optional remarks.

List of major UPI apps and their respective sponsor banks:

UPI App/PSPs Sponsor Banks Handles
Google Pay Axis @okaxis
ICICI @okicici
HDFC @okhdfcbank
SBI @oksbi
Phonepe Yes @ybl
ICICI @ibl
Axis @axl
Amazon Pay Axis @apl
WhatsApp Payments ICICI Bank @okicici
Airtel Payments Bank Kotak Mahindra Bank @Kotak
Paytm ICICI Bank @okicici
BHIM (Bharat Interface for Money) National Payments Corporation of India (NPCI) @upi

National Payments Corporation of India (NPCI)

The NPCI governs and manages the UPI system, ensuring uniformity, security, and interoperability across all participating banks and payment service providers. When a UPI transaction is initiated, NPCI steps in to validate the sender’s details, verify the transaction, and facilitate its routing to the respective banks involved.

It acts as a trusted switch to connect banks and Payment service providers (PSPs). Similar to the role played by VISA in the case of Card payments, NPCI makes sure that data flow between banks and payment apps are routed to the correct and verified destinations.

NPCI, in the case of UPI payments, has made the banking services interoperable. Users can use any UPI app to link any of their bank accounts and can transfer or accept payments. 

NPCI also exposes a bunch of non-financial interoperable APIs for everyone in the ecosystem. For example: Validate VPA/UPI ID, Bank list, etc. 

Issuing Bank: Authorisation and Processing

The issuing bank, also known as the sender’s bank, is a key player in the UPI transaction process. Upon receiving the transaction request from the payer app, the issuing bank verifies the authenticity of the transaction. It validates the payer’s credentials, checks the available balance, and confirms whether the transaction aligns with the payer’s past behaviour. Once these criteria are met, the issuing bank authorises the transaction and generates a digital signature to ensure security.

Acquiring Bank: Receipt and Confirmation

The acquiring bank, or receiver’s bank, receives the transaction details from NPCI and processes the incoming funds. The acquiring bank credits the payee’s account with the designated amount, ensuring a successful receipt of funds.

Payee PSP: Completing the Transaction

The final leg of the UPI transaction is executed by the payee PSP. The payee’s app receives the transaction details and confirms the successful receipt of funds. The app displays the incoming funds and provides instant notifications to the payee. This real-time confirmation enhances transparency and enables swift reconciliation for merchants and businesses.

How to Start Using UPI Payments

To ensure seamless digital transactions using UPI, a few fundamental prerequisites need to be in place:

  • Ensure you have a smartphone with a reliable operating system that can support UPI-enabled applications.
  • You must have an active bank account with a bank that offers UPI services.
  • Make sure your mobile number is linked to your bank account for verification purposes.
  • A stable internet connection is essential to use UPI services effectively.

Step 1: Choose a UPI-Enabled App

Select a UPI-enabled application from your smartphone’s app store. Popular choices include apps provided by your bank or third-party payment platforms.

Step 2: Registration and Verification

  1. Download and install the chosen UPI app.
  2. Open the app and select the option to register.
  3. Enter your mobile number linked to your bank account. The app will send an OTP for verification.
  4. After verifying the OTP, you’ll need to set a 4-6 digit UPI PIN. This PIN will be required for every transaction to ensure security.

Step 3: Create a Virtual Payment Address (VPA)

  1. Within the app, navigate to the UPI settings or profile section.
  2. Look for the option to create a new Virtual Payment Address (VPA). You can typically customise your VPA with a username that’s easy to remember (e.g., yourname@bankname).
  3. Link the desired bank account to this VPA. You can link multiple bank accounts if needed.

Step 4: Initiate UPI Transactions

  1. To send money, select the option to send funds and enter the recipient’s VPA or mobile number. Verify the recipient’s details.
  2. Enter the amount you wish to send and add an optional note if required.
  3. Confirm the transaction using your UPI PIN.

Step 5: Receiving UPI Payments

  1. To receive money, simply provide your VPA to the sender.
  2. Once the sender initiates the transaction, you’ll receive a notification.
  3. The funds will be instantly credited to your linked bank account.

Step 6: Additional UPI Services

Apart from basic transfers, UPI offers various services like bill payments, recharges, and more. Explore the app to make the most of these functionalities.

Benefits of UPI for Merchants

  • Faster Settlements

    One of the standout benefits of UPI for merchants is the speed at which settlements occur. Unlike traditional payment methods that might involve waiting, UPI ensures swift transfers, often within seconds. This rapid settlement mechanism aids in maintaining healthy cash flow, enabling merchants to have access to funds promptly.

  • Enhanced Security

    In the digital age, security is paramount, and UPI rises to the occasion. With its multi-layered security protocols, including 2FA and biometric verification, UPI ensures that every transaction is safeguarded against unauthorised access.

  • Improved Customer Satisfaction

    UPI not only benefits merchants directly but also enhances the overall customer experience. Customers appreciate the convenience and speed that UPI offers, leading to increased satisfaction and the likelihood of repeat business.

  • Ease of Integration

    For developers and tech-savvy merchants, UPI offers a streamlined integration process. Many payment gateways and platforms provide APIs that enable easy integration of UPI services into online stores and applications.

  • Access to Digital Transactions

    As digital payments gain prominence, offering UPI as a payment option ensures that merchants stay relevant and accessible to a wider customer base. Embracing UPI opens doors to tap into the tech-savvy consumer segment, capturing opportunities that might be missed with traditional payment methods.

  • Reduced Transaction Costs

    UPI transactions typically have lower fees compared to traditional payment methods or card-based payments. This reduction in transaction costs makes it a cost-effective choice for receiving payments, boosting the overall financial health of merchants.

More than 50% of transactions on Razorpay are through the UPI payment method and it has become somewhat of a default payment mode for most of the people in India. The UPI is perhaps the fastest product to hit 2 billion transactions-a-month in 2020 since its inception in August 2016.UPI Transaction year-on-year growth

Benefits of UPI for Customers

Have a look at the following benefits of UPI that can enable you to provide superior services and experiences to your customers.

  • Ease of Use

    One of the standout advantages of UPI for customers is its user-friendly interface. UPI eliminates the need for intricate bank account details during transactions. With a VPA, customers can link their bank accounts and make payments using a simple identifier, often their email-like username.

  • Security Reinforced

    Customers prioritise security when engaging in digital transactions, and UPI system design caters to this need effectively. The incorporation of 2FA and biometric verification adds an extra layer of security to transactions.

  • Accessibility Redefined

    UPI has redefined financial accessibility by bridging gaps between traditional banking and technology. Customers, irrespective of their geographical location, can access UPI-enabled services with a smartphone and an internet connection.

  • Payment Versatility

    The adaptability of UPI to various payment scenarios is a major boon for customers. Whether it’s splitting bills with friends, paying for utilities, shopping online, or making in-store purchases through QR codes, UPI caters to a wide spectrum of payment needs.

  • Simplified Record-Keeping

    Customers often find it challenging to keep track of their expenses. UPI addresses this concern by providing users with a transaction history that captures every payment made through the platform.

Are UPI Transactions Safe?

UPI transactions are backed by robust safety protocols and stringent regulatory measures established by the RBI, making it a safe choice for business owners, merchants, and customers.

  • Multi-Layered Encryption

    UPI transactions are protected by advanced encryption protocols such as TLS (Transport Layer Security), AES (Advanced Encryption Standard), and PKI (Public Key Infrastructure), ensuring that sensitive information including user credentials and transaction data remains confidential during transmission.

  • Virtual Payment Address

    The VPA acts as a unique identifier for UPI transactions, eliminating the need to share sensitive bank account details. This reduces the risk of information exposure and unauthorised access to the user’s bank account.

  • Device Binding

    UPI-enabled applications are often bound to specific devices. This measure prevents unauthorised access to a user’s UPI account from different devices, adding an extra layer of security.

  • Transaction Limits

    UPI transactions often have predefined transaction limits set by the user’s bank. These limits restrict the amount that can be transacted in a single transaction or within a specified timeframe, minimising the impact of potential fraudulent activities.

  • Regulatory Measures by RBI

    The RBI mandates strong authentication methods for UPI transactions, such as 2FA and biometric verification. It has also established a dispute resolution framework that empowers customers to raise complaints and seek resolution for unauthorised transactions or discrepancies. Additionally, RBI encourages banks and payment service providers to educate customers about safe UPI practices

How is UPI Different from IMPS?

Both UPI and IMPS play pivotal roles in facilitating seamless financial transactions. But they differ in several key aspects.



Transaction Initiation

UPI is designed to provide a simplified and universal payment experience. It allows users to create a VPA that acts as a unique identifier, removing the need for bank account details during transactions. IMPS facilitates instant fund transfers through multiple channels, including mobile phones, internet banking, and ATMs.


Users can initiate UPI transactions through various UPI-enabled applications or platforms, making it easily accessible to a wide range of users. IMPS transactions often require the recipient’s bank account number and IFSC code for initiation, which might involve a more intricate process.

Transfer Methods

UPI focuses on simplifying transactions by utilising VPA, phone numbers, QR codes, and even beneficiary details to transfer funds. IMPS relies heavily on bank account details and IFSC codes for transfers.

Transaction Limits

UPI typically has transaction limits, both in terms of the maximum amount per transaction and the daily limit. These limits are often set by the user’s bank or UPI apps but they cannot exceed the UPI limits set by NPCI. The current UPI limit is ₹1 lakh in 24 hours. IMPS also has transaction limits, but these are often higher due to its broader range of use cases. IMPS can be used for high-value transactions like interbank fund transfers and bulk payments. The current IMPS limit is ₹5 Lakhs in 24 hours.

Interbank and Intrabank Transfers

UPI is designed primarily for interbank transfers or payments to merchants, allowing users to send money between different banks’ accounts seamlessly. IMPS supports both interbank and intrabank transfers, providing a comprehensive solution for transferring funds within the same bank or to accounts in other banks.

Transaction Timing

UPI operates 24/7, enabling users to make transactions at any time, including weekends and holidays. IMPS also offers 24/7 round-the-clock availability, making it suitable for urgent transactions that can occur outside traditional banking hours.

Why is Razorpay the Preferred Payment Gateway for UPI Payments?

First Payment Aggregator to Launch UPI Payments in 2016

Razorpay made history by becoming the first payment aggregator to introduce UPI payments through its platform in 2016. We were also the first payment aggregator to launch UPI AutoPay and UPI 2.0 features. Our close partnership with NPCI gives us an extra edge to stay one step ahead of our competitors. Interestingly, Razorpay is also the market leader in P2M (person to merchant) UPI payments in India. 

Multi bank model approach 

Razorpay closely works with multiple banks and payment technology service providers to solve the exact customer requirement. In the case of UPI payments, we work with 6 different banks and route transactions based on our Smart Routing solution. This helps businesses to keep getting best in class success rate, even if there is downtime on one bank or the other. 

Reconciliation and Refunds

Razorpay’s commitment to customer satisfaction is further underscored by its efficient reconciliation and refund processes. Reconciliation, a critical aspect of financial operations, is streamlined through Razorpay’s advanced technology, minimising discrepancies and simplifying accounting processes for businesses.

Razorpay Dashboard provides different types of reports to help you with reconciliations. Thus, even if we are using multiple banking partners to process your online payments, you don’t have to worry much about the reconciliation. The best in class Reconciliation system, along with our ‘Instant Refund’ product makes Razorpay the preferred UPI payment partner in India. 

Developer-Friendly APIs

In the rapidly evolving world of UPI transactions, developer-friendly APIs play a pivotal role, and Razorpay excels in this arena. Razorpay’s well-documented and intuitive APIs reduce the complexities associated with UPI integration. This approach encourages innovation, allowing developers to create innovative solutions that enhance the UPI ecosystem.

What is UPI 2.0?

UPI 2.0 represents the latest iteration of this revolutionary payment system, bringing with it a host of enhancements and new features. Understanding UPI 2.0 is crucial as it opens up new possibilities and capabilities within the realm of digital transactions. UPI 2.0 builds upon the foundation laid by its predecessor, UPI 1.0, to further simplify and enrich the digital payment experience.

Features of UPI 2.0

  • Overdraft Facility

    UPI 2.0 introduces an overdraft facility, allowing users to link their overdraft accounts to their UPI handles. This empowers users to perform transactions even when their account balance is insufficient, ensuring uninterrupted services.

  • One-Time Mandate

    UPI 2.0 enables users to create one-time mandates for pre-authorised transactions. This feature is particularly beneficial for businesses that offer subscription-based services or have recurring payment requirements, providing a hassle-free way to initiate transactions without repetitive authorisation.

  • Sending invoices on the go

    Businesses can now send invoices along with payment requests through UPI 2.0. This feature streamlines the payment process for customers, as they receive detailed invoices directly in their UPI apps, simplifying payment validation and reconciliation.

  • Signed Intent and QR

    UPI 2.0 enhances security by introducing signed QR codes. These QR codes carry digitally signed information, ensuring the authenticity of the merchant and preventing potential QR code tampering.

  • Linking of Multiple Accounts

    UPI 2.0 allows users to link multiple bank accounts to a single UPI handle. This feature offers added flexibility and convenience, enabling users to choose from different accounts when making transactions.

  • Biometric Authentication

    UPI 2.0 incorporates biometric authentication, leveraging fingerprint and iris scans for secure transaction authorisation. This advanced authentication method adds an extra layer of security to UPI transactions.

  • Enhanced Transaction Limits

    UPI 2.0 raises transaction limits for certain types of payments, such as peer-to-peer and peer-to-merchant transactions. This facilitates larger transactions, catering to businesses and individuals with higher payment requirements.

  • Bill Sharing

    UPI 2.0 introduces bill-sharing options, enabling users to split bills and expenses seamlessly. This feature simplifies group payments, making it easier to settle shared expenses among friends, family, or colleagues.

Key Takeaways

UPI stands as a transformative force in the world of digital transactions. Its ingenious design, seamless integration, and user-friendly features have reshaped financial transactions. UPI’s real-time capabilities, robust security measures, and interoperability have not only simplified transactions but have also accelerated the adoption of digital payments.

As UPI continues to evolve with enhancements like UPI 2.0, its significance in modernising financial interactions and promoting a cashless economy remains indisputable. It has ushered in a digitally empowered financial world with a strong focus on inclusivity. Significantly, Razorpay has earned a distinct status as the preferred payment gateway for UPI payments.

Frequently Asked Questions (FAQs)

What is UPI PIN?

A UPI PIN is a unique 4 to 6-digit Personal Identification Number that serves as a secure authentication code for UPI transactions. It ensures that only the authorised user can initiate and confirm transactions through their UPI-enabled app, adding an extra layer of security to the process.

Is UPI safe?

Yes, UPI is safe due to its multi-layered security measures. These include Two-Factor Authentication (2FA), encryption of sensitive data, and user-defined UPI PINs. Additionally, the RBI mandates strict security guidelines to ensure the safety of UPI transactions.

What should I do to set my UPI PIN?

Follow these steps to set your UPI PIN:

  1. Open your UPI-enabled app and go to the UPI PIN section.
  2. Enter the last six digits of your debit card and its expiry date.
  3. You will receive an OTP for verification. Enter the OTP.
  4. Set your desired UPI PIN.
  5. Confirm the UPI PIN and it will be set for your account.

What will happen if I forget my UPI PIN?

If you forget your UPI PIN, you can reset it using the app’s “Forgot UPI PIN” option. This usually involves verifying your identity through methods like answering security questions or receiving an OTP on your registered mobile number. It’s important to follow the app’s instructions for a secure PIN reset process.

Is it possible to pay merchants through UPI?

UPI allows seamless payments to merchants. You can make payments by scanning the UPI QR code or entering the VPA. This method simplifies transactions for both customers and merchants, fostering efficient and secure digital payments.

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    Shubham Bisht
    Author Shubham Bisht

    Shubham is an Associate Director, Product Management at Razorpay and manages Cross Border Payments and Checkout Product for Razorpay. Before moving to Product Management, he has worked on Particle Physics at CERN and ETH Zurich.

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