Unified Payments Interface (UPI)

• 16 Nov 2021

Why in News

The Unified Payments Interface (UPI) payments system has cut across the Indian socio-economic digital divide amazingly fast.

• Even though UPI is indeed a groundbreaking innovation in the digital payments landscape, reliability and security are still considered to be at stake, keeping many individuals and businesses apprehensive about the payment system.

Key Points

• Unified Payments Interface (UPI):
  
  • It is an advanced version of Immediate Payment Service (IMPS)- round–the-clock funds transfer service to make cashless payments faster, easier and smoother.
  • UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
  • UPI is currently the biggest among the National Payments Corporation of India (NPCI) operated systems including National Automated Clearing House (NACH), Immediate Payment Service (IMPS), Aadhaar enabled Payment System (AePS), Bharat Bill Payment System (BBPS), RuPay etc.
  • The top UPI apps today include PhonePe, Paytm, Google Pay, Amazon Pay and BHIM, the latter being the Government offering.
  • As part of an agreement, India's UPI will be linked to Singapore's PayNow.
  • NPCI launched UPI with 21 member banks in 2016.
• Achievements:
  
  • Digital transactions through UPI recorded phenomenal growth during the pandemic year 2020-21 and several countries have evinced interest to learn from Indian experience so that they could replicate the model.
  • The value of transactions made using the UPI crossed USD100 billion in a month for the first time in October, 2021 according to data from the NPCI, further cementing its position as India’s most popular digital payments system.
    
    • India’s digital payments industry is likely to grow from Rs. 2,153 trillion at 27% Compounded Annual Growth Rate (CAGR) to Rs. 7,092 trillion by 2025.
    • The growth is likely to come on the back of strong use cases of merchant payments, government policies including Jan Dhan Yojana, personal data protection bill along with the growth of MSMEs, growth of millennials and high smartphone penetration.
• Challenges:
  
  • The threat of cybercrime in the global banking and financial services industry has increased amid the coronavirus pandemic.
    
    • E.g. Malicious Software Cerberus
  • Fraudulent claims, chargebacks, fake buyer accounts, promotion/coupon abuse, account takeover, identity theft, card detail theft and triangulation frauds are emerging as challenges.

National Payments Corporation of India

• NPCI, an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
• It is a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.

Way Forward

• A properly designed Public-Private Partnership (PPP) policy may provide a 21^st century engine to harness the power of market players for greater digital infrastructure, access, and literacy for the Indian population.
• In a vibrant Indian democracy, a public policy-driven digital empowerment of the Indian electorate can help ensure responsible digital conduct in the interest of consumers and the larger public interest.

Source: TH