Unified Payments Interface (UPI) Explained: Meaning, Features, and How It Works
4 min read
In 2016, the National Payments Corporation of India (NPCI) decided to make digital payments as easy as sending a message from your phone. No cards or cash are needed, all you require is a smartphone with an internet connection to complete payments in just a few seconds. The technology behind this is the Unified Payments Interface or UPI, which has completely changed how Indians handle payments.
From 2016 to 2024, UPI has grown exponentially in popularity, with transactions surpassing Rs. 20 trillion in July 2024. Businesses across the country, small and large alike, have embraced UPI payments. This means that as a business owner, you need to understand what this payment method is and how it works.
What is UPI?
The Unified Payments Interface (UPI) is a real-time payment platform that enables instant transfers of money between bank accounts through a mobile application. It operates through a unique UPI ID or Virtual Payment Address. This way you do not have to share sensitive bank account details during transactions.
UPI simplifies online payments by offering multiple transaction methods, such as a QR code or a UPI-registered mobile number. This makes digital payments more accessible to everyone.
Key Features of UPI
1. Real-time Money Transfer
UPI allows you to transfer money instantly. It works 24/7, even during weekends and holidays. The real-time transfer ensures that the funds are transferred to the recipient’s account almost instantly.
2. 24/7 Availability
Unlike traditional banking systems that operate within specific hours, UPI is available round the clock. You can perform transactions without any time restrictions from anywhere, as long as you have your smartphone and internet access.
3. No Extra Charges
Most UPI transactions are free of charge, unlike other digital payment methods. This no-fee structure encourages more people to adopt UPI for their daily transactions.
4. Better Security
UPI transactions do not require users to share their bank account details with the recipient. Instead, transactions are conducted using a unique UPI ID or Virtual Payment Address (VPA). This reduces the chances of fraud and offers a more secure environment for digital payments.
5. Seamless Transactions
UPI payment gateways allow users to perform various financial activities without switching between different apps. They provide a better user experience and are more efficient than traditional banking systems.
6. Multiple Bank Accounts in One App
Users can link multiple bank accounts within a single UPI-enabled app. This increases flexibility, making it easier to manage different bank accounts without the need to use separate applications for each account.
How Does UPI Work?
Let’s now understand how the UPI payment gateway works. Imagine that you walk into a store to buy groceries and select a few items. The cashier bills your items and asks for payment, you decide to pay using UPI. Here’s what happens next:
1. Initiating the Payment
Once you decide to pay using UPI, the cashier will display a QR code for UPI payments. After scanning the code, you will need to enter the amount for the transaction. You will then be asked to authorise the transaction by entering your UPI PIN.
2. Authorisation
After you authorise the payment, the UPI platform sends an authorisation request to your bank to verify if you have sufficient funds to make the payment. If everything looks good, the bank approves the transaction.
3. Processing
After authorisation, the specified amount is transferred from your bank account to the grocery store’s bank account.
4. Confirmation
Both you and the merchant receive a confirmation notification as proof that your transaction was successful.
The entire process described above takes just a few seconds, and you can complete your transactions effortlessly.
Benefits of UPI for Businesses
Adopting UPI can offer numerous advantages for businesses of all sizes. Here are some key benefits:
1. Cost-effective: UPI transactions typically do not incur fees. With UPI, businesses can save on transaction fees that other payment methods require.
2. Better Customer Convenience: UPI provides customers with an easy way to complete their payments. This increases customer satisfaction.
Online UPI gateways have changed everything about digital payment in India, making them quicker, simpler and more accessible. For businesses, accepting UPI payments is no longer an option but a necessity due to high demand from customers. You can easily integrate UPI payment systems through reliable payment gateways like PhonePe Payment Gateway and fully embrace the benefits this payment system offers to your business.
