How Secure are UPI Payment Gateways: What Merchants Should Know?
7 min read
As businesses continue to expand and transaction volumes increase at rapid rates, the stakes surrounding cybersecurity and secure transactions are growing exponentially. The last few decades have witnessed countless technological revolutions. These changes have also affected how we conduct transactions. UPI is one such tool that allows users in India to make quick and seamless transactions from their phones. It has emerged as a game-changer in the country, revolutionising how individuals and businesses transact.
However, the rise of UPI payment gateways has raised security and fraud concerns. Insecure payment gateways can expose users to fraudulent transactions, stolen patent details, and more. This could harm merchants who face payment reversals, unauthorised transactions, fraudulent orders, and more. Beyond the financial damage businesses could incur, these issues can have even more far-reaching consequences, such as reduced trust in their brand and reputational damage.
Businesses must take the steps to ensure secure UPI transactions. This article examines the security risks of using UPI payment gateways and the steps merchants can take to protect themselves.
What Are UPI Payment Gateways and How Do They Work?
They are payment gateways with UPI as its primary payment method that allows businesses to accept payments. It enables seamless and instant fund transfers between different bank accounts using mobile devices.
1. The Main Components of UPI Payment Gateways
There are three crucial core components of UPI payment gateways. These include:
Encryption: The payment gateway encrypts information to protect the user’s data while transactions occur.
Bank verification: The encrypted data is then sent to the customer’s bank to ensure the availability of funds and verify the authenticity.
Transaction approval or denial: The bank responds back to the business and customer, informing them that the transaction is approved or denied.
For businesses to use UPI, a few key components need to work together. Let’s dive in and see how UPI integrates with the payment gateways we rely on.
2. How Payment Gateways Integrate UPI
Payment gateways integrate UPI by connecting merchants’ platforms with the UPI system through APIs. This allows businesses to offer seamless UPI payment options, enabling customers to make payments directly from their bank accounts using their mobile devices. Here’s how it typically works:
API Integration: Payment gateways provide APIs or SDKs that businesses use to integrate UPI into their checkout systems. This allows the business to accept UPI payments on their website or mobile app.
User Authentication: Once the customer selects UPI as a payment method, the gateway triggers the UPI app on the user’s mobile device. The user authenticates the payment using their UPI PIN, ensuring security.
Transaction Routing: The gateway ensures that the transaction is routed through the UPI system to the correct bank, facilitating the transfer of funds from the customer’s account to the merchant’s account.
Security is vital when using UPI payment gateways to make or accept transactions. Luckily, most gateways employ a number of safety features to ensure their transactions are secure and businesses and customers remain protected during transactions. Many payment gateways employ the following measures exist to ensure safe transactions:
1. Fraud Management Tools
UPI Payment gateways typically use advanced fraud detection and prevention tools to ensure safe transactions. For example, the NPCI employs a Fraud Risk Management function. These systems look for any suspicious behaviour like unusual spending, multiple failed payment attempts, and others. They then automatically flag or block any suspicious transactions to prevent losses.
2. Regulatory Compliance and Certifications
UPI payment gateways must adhere to compliance regulations and standards outlined by the NPCI, PCI DSS, and RBI. These institutions provide the rules and regulations that UPI, PSPs, and TPAPs must follow. For instance, the RBI recently enabled UPI payments for full-KYC Prepaid Payment Instruments (PPIs) through third-party UPI applications, a step to provide more flexibility to customers. These ensure that transactions are conducted legally and securely.
3. End-to-End Encryption
UPI gateways also use end-to-end encryption protocols, including the Advanced Encryption Standard (AES), Transport Layer Security (TLS), and Public Key Infrastructure (PKI). This ensures that any sensitive information, such as payment credentials, personal data, and bank account details stays secure and private. These protocols play a large role in ensuring that sensitive customer information, payment credentials, and transaction data remain confidential. Stored customer data (like that utilised in recurring billings) is also encrypted on store servers. This ensures that data breaches don’t lead to sensitive data being leaked.
4. Session Timeouts and Secure API Integration
Payment gateways often use session timeouts to prevent unauthorized access to payment accounts. This leads to the session being closed automatically after a period of inactivity (usually a few minutes). API integrations between gateways and merchants ensure that communication and data handling are safe and secure.
5. Customer Consent and Authorization Records
UPI payment gateways maintain detailed records of customer consent and authorization to manage fraud investigations and disputes. These records can be referenced when needed, ensuring that the authorized user has agreed to any recurring payments and terms.
6. Fixed Transaction Limits
Many UPI payment gateways enforce limits to the amount that can be transferred for one-time and recurrent payments. This adds another security layer against large-scale unauthorised transactions or fraud, preventing significant losses.
7. Two-Factor and Multi-Factor Authentication
UPI payment gateways often use two-factor and multi-factor authentication features. These are usually in the form of one-time passwords (OTPs), which are sent directly to the user’s phone number or email or an MPIN that has to be entered into the customer’s UPI application.
8. UPI PIN Protection
UPI MPIN is a mandatory authentication step required for every UPI transaction, ensuring that only the authorized user can complete payments. Even if a phone is lost or stolen, transactions cannot proceed without entering the MPIN, making it a strong security layer.
Safety Measures Merchants Can Take
While payment gateways are generally safe, they are not foolproof. Taking additional steps to protect your business and your customers is always necessary and can add an extra layer of protection. Some steps for merchants to stay safe and minimize risks include:
1. Only Use Trusted Payment Gateways
When choosing a payment gateway for UPI transactions, it is crucial to first review its reputation, reviews, and previous records. This reduces the risk of fraudulent or insecure transactions. Gateways like PhonePe PG are safe and secure and are known for their security features.
2. Ensure Your Website/App is Secure
Merchants must regularly update their websites or apps and address bugs or security issues to prevent cyber criminals from intercepting communication between users and servers. Major shopping platforms handle sensitive data like personal and payment details, and without robust security, data breaches could harm your customers and damage your brand reputation and profits.
3. Implement Multi-Factor Authentication and KYC
Multi-factor authentication is more challenging for scammers to bypass. Implementing this for your website or app logins, like asking users to enter an OTP sent to their registered mobile number, can improve security. Know Your Customer (KYC) protocols can also add an extra layer of security.
4. Regularly Monitor Transactions
Regularly monitoring business transactions can help identify any suspicious activity on time. Any suspicious activity can be caught early on, allowing businesses to take the steps to address them before they escalate. This allows merchants to prevent significant data or security breaches from occurring, as well as financial losses.
5. Regularly Conduct Security Audits
As technology advances and security systems get more efficient, scammers invent more efficient ways to breach network security. To prevent this, merchants must conduct regular security audits of their systems and infrastructure to catch and fix any vulnerabilities.
6. Provide Efficient Customer Support and Query Resolution
Sometimes, online attacks may still affect UPI payment networks despite following all possible security measures. In such cases, merchants must provide their customers with some way to report unusual activity and skilled customer support executives to help streamline the process. Providing a clear and straightforward framework for customers to report suspicious activity and issues, along with the right resources and skilled staff, ensures concerns are resolved quickly.
By implementing these safety measures, merchants can ensure that their businesses and customers remain protected from data breaches, financial losses, and other potential problems.
At the end of the day, using a UPI payment gateway for your online business is a smart move. It makes payments easier for your customers and keeps things running smoothly on your end. But, just like any business, security is important. While the gateway provides solid protection, it’s up to you to ensure your site or app stays secure, monitor transactions, and have a clear support system in place for your customers.
By staying proactive with security measures and using trusted payment methods, you’ll not only protect your business but also offer your customers a great, worry-free experience. It’s all about building trust, simplifying payments, and ensuring your business stays secure as it grows. If you’re looking for a reliable and secure UPI payment gateway, PhonePe UPI Payment Gateway offers features like internal audits, data encryption, and PCI DSS compliance to help protect transactions. Visit the website today to learn how PhonePe can support your business payments.
