What is a UPI Payment Gateway and How Does it Work
9 min read
The global pandemic fast-tracked the shift to digital payments, making it crucial for online businesses to keep up. Customers now expect seamless online transactions, and UPI has emerged as the preferred choice for its simplicity, speed, and convenience. As both merchants and consumers grow more familiar with UPI, platforms like PhonePe are leading the way in providing reliable, frictionless payment experiences.
For online businesses, a payment gateway is key to processing secure transactions, and UPI has become an integral part of these systems. Integrating UPI into your payment gateway is quintessential to staying competitive. As UPI continues to shape the future of online payments, businesses that adopt it will be well-positioned to meet customer expectations and drive growth in a rapidly evolving digital marketplace.
What Is a UPI Payment Gateway?
Simply put, it’s a payment gateway that allows merchants (the business) to receive payments directly from a customer’s bank account using the payment mode – UPI.
What sets UPI apart from other methods is that it removes the need for customers to manually input card details when checking out. Instead, they’re directed to their preferred UPI app, where they just enter their MPIN, and the payment happens almost instantly.
For example, if you run an online store and a customer chooses UPI to pay, the transaction is completed right away through their UPI app via two main flows Intent and Collect.
UPI has definitely made the payment process quicker, easier, and more convenient for businesses. But did you know there are different ways for merchants to accept payments through UPI? Keep reading to learn more!
Types of UPI Payment Gateway Offerings
A UPI Payment Gateway’s offerings primarily fall into two categories:
One-Time Payments
Recurring Payments
What are One-Time Payments?
One-time payments are exactly what they sound like- payments made for a single transaction, with no recurring charges or subscriptions involved. Once you get the payment from the customer via UPI, you can ship the product and consider the transaction done. No need to keep track of future payments or worry about managing anything long-term.
For one-time purchases, the UPI payment gateway makes things easy for customers by giving them options like entering a UPI ID, scanning a QR code, or clicking a payment link.
What are Recurring Payments?
Recurring payments are automatically processed at regular intervals, such as weekly, monthly, or annually. This works great for businesses that offer subscriptions, memberships, or services with ongoing access, like subscription boxes or SaaS products.
With UPI, customers don’t need to approve each payment individually- everything is scheduled and charged automatically from their bank account straight to yours. It’s a seamless way to manage recurring payments without any extra effort on the customer’s part.
Here are some important features of UPI payment gateways that help businesses accept transactions seamlessly.
1. Multi-Platform Support
UPI Payment Gateways work across 99% of UPI apps, letting businesses accept payments on their website, app, or other UPI-supported platforms. This flexibility allows customers to pay in the most convenient way, reducing payment failures and minimizing abandoned transactions. As a result, businesses experience lower customer churn and improved transaction success rates.
2. Faster Checkout for Customers
The payment process is quick and seamless with minimal friction. Customers don’t need to enter CVV or account numbers. They simply verify the payment with their MPIN in the UPI app and quickly return to the checkout page with confirmation, making the entire process faster and more convenient.
3. Quick Payment Processing
Dynamic routing optimises payment processing by automatically selecting the fastest and most reliable payment route in real time. This reduces delays, minimizes payment failures, and ensures a seamless transaction experience for customers.
4. Multiple Payment Options
UPI enables customers to pay through various methods, such as linked bank accounts, UPI Lite, credit lines, Rupay CC. This wide variety helps businesses attract more customers and boost sales.
5. Easy Integration
PhonePe PG provides a merchant-friendly interface that is easy to integrate with existing systems, streamlining payment processes and minimizing disruptions in transaction flow. PhonePe UPI Payment Gateway is also built on PhonePe’s tech stack allowing businesses to process large volumes of transactions without downtimes, enabling scalability and minimizing the risk of payment processing slowdowns.
6. Enhanced Security and Reliability
UPI Payment Gateways use advanced encryption methods to protect sensitive transaction data, such as bank account details and MPINs, ensuring secure and reliable payments for both businesses and customers.
7. Merchant-Friendly Dashboard
The dashboard is simple and intuitive, making it easy for businesses to manage payments, analyse transactions, settlements, and refunds. Its user-friendly design ensures that businesses, regardless of technical knowledge, can efficiently handle and track transactions with ease.
Next, let’s take a look at how you can integrate one for your business:
How Do UPI Payment Gateways Work?
In both of the categories One-time Payments and recurring payments, the payment flow is always carried out through two methods:
1. UPI Intent Flow
With UPI Intent, the customer initiates the payment process, Here’s how it works:
The customer is on the checkout page of an online store, ready to pay.
They are redirected to their chosen UPI app.
In the app, they confirm the payment details and approve the transaction using their MPIN.
After the payment is completed, they are sent back to the app with a confirmation message.
For you as a business, this means no hassle with manual card entries, no waiting for payments to clear, and no more worrying about payment errors.
2. Collect Flow
In the Collect method, the merchant (the business) triggers the payment request. Here’s how it works:
The customer enters their UPI ID on the checkout page.
Once they enter their UPI ID, the merchant’s app or website sends a payment request to the UPI app of their choice.
The customer then approves the request by entering MPIN on their UPI app.
After completing the payment, the customer is redirected to the merchant’s website or app to confirm the payment has been processed.
For you as a business, it is perfect because it allows customers to enter their UPI ID manually, making the process feel more personal and controlled. The payment is then processed directly through their UPI app, and you get paid quickly and securely.
How to Integrate a UPI Payment Gateway
Step 1: Pick a Payment Gateway
Select an appropriate payment gateway provider for UPI transactions that meets your business requirements. When selecting a payment gateway provider, review transaction fees alongside multi-platform support and security features. Choose a provider that offers essential UPI features, including QR code payments, along with support for recurring payments and custom payment links.
Step 2: Create a Merchant Account
Create a merchant account through your chosen payment gateway provider. You need to submit your business information, including your name and address and website URL as well as the industry you operate in. You need to upload essential documentation such as your business registration certificate, GST certificate, bank account information, and proof of identity.
Step 3: Get Your API Keys
The payment gateway provider will examine both your submitted application and supporting documents to complete verification. Following approval, you will gain access to your merchant dashboard.
Step 4: Choose How to Integrate
The provider will provide API keys, a Software Development Kit or a plugin to facilitate integration. To establish a secure connection between your website or app and the payment gateway, you must use these keys. Note: Keep these keys confidential to prevent security breaches.
Step 5: Add UPI Payment Method
To set up your payment gateway, integrate the API keys into your website’s backend or use the SDK for mobile apps. On your website, configure payment methods such as UPI ID, Cards, Netbanking and Wallets. For mobile apps, the SDK handles communication with the gateway’s servers, enabling real-time transaction processing.
Step 6: Test It First
The sandbox environment from the gateway should be utilized to test your integration before launching live operations. Test the functionality of different payment mechanisms, including UPI ID entry and QR code scanning, along with recurring payment processes.
Step 7: Go Live
After confirming successful testing results, move from the sandbox environment to the live environment. The gateway provides the necessary steps to update your API keys for production mode.
Step 8: Monitor Payments
Access the Merchant Dashboard to manage and monitor your payment activities efficiently. View live transactions in real-time, track settlement details, identify and resolve errors, and review past transaction records for better financial oversight. Additionally, as a merchant you can access the Help Center for prompt support, enabling uninterrupted business operations and a seamless payment experience.
Now, with all this in mind, how effective are UPI Payment Gateways? Well here are a few real-life examples to understand just how impactful they can be:
1. Aseem, a brand known for giving traditional sarees a modern twist, faced several challenges early on, including managing working capital and keeping up with growing customer demand. These issues often made handling payments tricky, which could slow down business growth. However, after integrating the PhonePe UPI Payment Gateway, Aseem experienced a major improvement in payment processing. The integration was fast and seamless, and PhonePe PG helped eliminate payment friction, ensuring smooth transactions for both customers and big brands.
With this reliable payment solution in place, Aseem was able to focus on growing their business without worrying about payment issues. The added trust from customers and partners helped Aseem shift from a small setup to a thriving business, proving how essential a smooth payment system is for business success.
2. Similarly, Patch Up, a growing D2C brand, needed a reliable payment gateway to support its scaling journey. They tested a few options, but PhonePe PG stood out for its reliability and quick setup. One key moment that really highlighted PhonePe PG’s value was when the team forgot to integrate a UPI Payment Gateway before their launch. PhonePe PG stepped in, and within just 24 hours, they had everything up and running seamlessly. This fast integration not only saved them from potential delays but also gave them peace of mind, allowing Patch Up to focus on other aspects of the business.
These use cases clearly define how UPI Payment Gateways can enhance payment reliability, improve customer satisfaction, and support business growth just by choosing the right payment gateway.
PhonePe Payment Gateway stands out as a trusted choice for digital payments, backed by millions of users and strong partnerships with banks and merchants. What sets it apart is its proprietary tech stack, ensuring exceptional reliability and the ability to process high transaction volumes seamlessly.
As UPI adoption continues to grow, PhonePe PG remains a leading choice for businesses. Its advanced technology, secure payment processing, and user-friendly experience make it the ideal solution for businesses looking to scale in the digital payments ecosystem.
