UPI stands for Unified Payments Interface.
It is a payment mode developed by the National Payments Corporation of India.
UPI is a payment system that allows you to transfer money between any two parties. As compared to NEFT, RTGS and IMPS, UPI is far more well-defined and standardized across banks.
This means that you can use UPI to initiate a bank transfer from anywhere in just a few clicks!
The benefit of using UPI is that it allows you to pay directly from your bank account. The hassle or need to type in card or bank details goes away with UPI.
You can use UPI to transfer money to your family, friends or even between your own bank accounts. The much wider use of UPI comes when you have to pay to different merchants.
If you’re a merchant, here’s how you can use UPI to accept payments.
mPIN in UPI
Another benefit of using UPI is that you can do away with the need to wait for an OTP and enter it to complete the money transfer.
The mPIN is a 6-digit passcode that you must enter every time you need to make a transaction.
The mPIN is highly valuable because customers do not have to enter IFSC codes or other information each time they want to send or receive money, which is why the mPIN proves to be a great means to confirm one’s identity.
Without this pin, you cannot make transactions. This ensures that if your phone happens to fall into the wrong hands, you will not find yourself staring at huge transactions and an empty bank account the next day.
Read more about mPIN in UPI and how to generate it.
Features of UPI
UPI is useful because it is easier to use than credit or debit cards. Apart from being easy and convenient, UPI boasts of a host of other features.
- Reliability: Since UPI is launched by NPCI, one of the biggest features associated with it is its reliability. With UPI, customers have far greater control over transferring their funds and do not have to worry about them getting lost along the way
- Real-time transfers: Another vital feature associated with UPI is the fact that all transfers occur in real time. Customers press the send button and their beneficiaries receive the payments in a matter of seconds. As a result, basic daily-life activities such as buying groceries, taking an auto or cab home from work, or paying a friend back after borrowing money are simple and convenient
- Inclusivity: UPI does not always rely on the internet. UPI offers the option to conduct transactions without a smartphone or working internet
- No minimum transaction limit: UPI does not have a minimum transaction limit. Payments as low as Re 1 can be made while using this payment mode
Using a UPI ID
Your UPI ID functions almost in the same way your name does. It offers a Virtual Payments Address for senders to enter when transferring money to your account.
In order to create your own VPA or UPI ID, you must begin by downloading any app of your choice and registering yourself on it.
This article explains in detail how to use a UPI ID.
Download and Register BHIM
You need an app to create a UPI ID and begin transacting. One of the apps that you can use is the BHIM app.
BHIM offers rudimentary UPI services ideal for people with very basic needs. BHIM has numerous benefits for both customers as well as merchants:
- QR code generation for vendors that enables customers to simply scan and pay them
- QR Code generation for individuals to scan and receive P2P payments
- Fraud prevention features like timeouts following 90 seconds of no activity
- Hindi and English language support
- Transaction histories available as and when required
- Real-time transfer of money straight into the user’s bank account
- Strong security measures in the form of 2-factor authentication
- Consolidation of all payments (received and sent) within a single platform
- No traditional banking restrictions such as working hours or holidays
Here is a step-by-step guide to help you download and register on the BHIM app.
Features of UPI 2.0
UPI was first launched in 2016. Later on, UPI 2.0 was launched to increase digital adoption in the business sphere as well as to facilitate peer-to-merchant transactions.
The upgraded or revamped version of UPI has the following features:
- Use of overdraft accounts: Under UPI 2.0, merchants have the facility to withdraw money even when there is a cash-deficit in their account
- Capture and hold facility: Merchants accepting payments through UPI will be able to block certain amounts on their user’s cards and refund the same at a later date
- Support for invoicing: UPI 2.0 supports invoices, which means that businesses can use a single platform for sending invoices and receiving payments
- Easy resolution of refunds: Merchants can now initiate refunds on the same transaction through which they have received money
Read our article on how UPI 2.0 will affect the industry at large.
Charges on UPI
UPI seems to be great, but does it come at a cost?
At present, there are no charges for UPI transactions, both P2P and P2M (Person to Merchant). But as the user base saw new heights, some banks started making announcements to their customers about the charges for P2P UPI transactions from May 01, this year.
Kotak Mahindra Bank is the first bank to announce charges for P2P transactions made through UPI. They will not charge for the first 30 transactions in a month but there will be a charge beyond the cap.
We break down the charges on UPI here.
UPI Usage in India
UPI was a game changer in the Indian payments space in 2018. It became one of the fastest payment modes ever to bring financial inclusion to the masses.
- Between January and December 2018, UPI saw a 7x growth in usage volumes
- Among UPI apps, Google Pay ruled the roost with 62% of all transactions carried out on it
- UPI ate into the share of cards and wallets in a significant manner in 2018
- UPI adoption grew not only in Tier 1 cities, but Tier 2 and Tier 3 as well
Read our entire 2018 UPI report for more data points and insights.
Monthly UPI usage data
At Razorpay, we do a data story every month on the usage patterns seen in UPI and the payments space at large.
- In April 2019, UPI saw a 20x growth since April of the previous year
- UPI transactions fell by 6% in May 2019
What to do if you pay to the wrong UPI ID?
While UPI is the simplest form of making instant payments, it comes with a few constraints. One of the major drawbacks is the issue that occurs if you accidentally paid money to the wrong UPI ID.
Usually, it is difficult to get your money back if you accidentally paid it to the wrong UPI ID. There are low chances that the receiver would be willing to pay the money back.
However, you can write an application to your bank branch mentioning the details like UPI ID, amount, etc. Your bank branch will send these details to the UPI backend team who will further contact the beneficiary branch for the refund.
Again, no one can guarantee that the amount will be refunded easily.
It is advised to pay a minimum amount of Re. 1 before transferring an amount in bulk. This will help you cross-check and avoid such issues.
How to invest in mutual funds using UPI?
According to the mutual funds’ guidelines, if your investment is above Rs 2 lakh, units are allotted only after your money is deposited with the fund house. If you happen to invest a sum higher than Rs 2 lakh via cheque or netbanking, there’s a high probability that your money does not get deposited with the fund house immediately.
And, we all know how the market fluctuates. If your money ends up getting deposited after two days from when you transacted, the unit value can change by more than just a negligible margin.
This is why UPI makes sense for investing in mutual funds. With UPI, your money is transferred the moment you authenticate your transaction.
Read this article for more on using UPI to invest in mutual funds.
These data stories are published every month on Razorpay Blog.