Narender Modi, the Prime Minister of India once stated that, “If all of us start transacting through online and mobile banking, it will be our great contribution towards eradicating corruption and black money from our country.”
Back in the past, where USA and China were the inventors of great technologies and inventions, India emerged a new player and stunned the whole world with a single invention that is the Unified Payments Interface (UPI) system. The infrastructure and per capita income of India made it difficult for a person to even trust and invest in a bank! People weren’t interested in investing as they didn’t have the means and time to do so. Not to mention that digitalization of the bank accounts occurred late in India as compared to other countries.
The Reserve Bank of India
The Reserve Bank of India (RBI) launched on 1 April in 1935, is the head of both government and private banks of India and is in charge of handling the finance affairs of the country. It is headed by Shaktikanta Das and acts as an umpire between bank transactions and ensures that each and every flow of currency is safe and secure in the country. RBI has played a crucial role in the evolution of online payment by launching RTGS, NEFT, IMPS and even UPI.
Real-Time Gross Settlement System (RTGS)
- Launched in 2004
- Pros:
- The first implemented mode of digital payment in India;
- Immediate processing time.
- Cons:
- Minimum limit of 2 lakh rupees.
National Electronic Fund Transfer System (NEFT)
- Launched in 2005
- Pros:
- No minimum limit.
- Cons:
- 30 minutes processing time.
Immediate Payment System (IMPS)
- Launched in 2010
- Linked with SIM card
- Pros:
- Allowed transactions below 2 lakh rupees to occur;
- Immediate processing time.
- Cons:
- Time-consuming authentication process.
Unified Payment Interface (UPI)
Launched in 2016 by NPCI, Unified Payment Interface that is UPI, is a payment system that enbales users to transfer money between bank accounts using VPAs without having the need of using account numbers and IFSC codes. It became the game changer of Digital Payments in India. It enabled instant transfer of money from one person to another seamlessly. It is often considered to be an updated version of IMPS.
The Rise of UPI
Having simple registration process and interface; partnerships with governments and banks; implementing discounts and bonuses frequently; secure and rapid transactions; integration with numerous e-commerce platforms; educational tutorials; ease of use and support channels set this Indian digital platform apart from other digital platforms.
The Need for Unified Payment Interface (UPI)
Due to many setbacks of IMPS, National Payments Corporation of India (NPCI) had felt the need to make transaction easier on ground basis. Companies like Visa and Mastercard apply Merchant Discount Rate per transaction which is 1% of the transaction amount, whereas the government opted a different path. They chose to keep UPI free from any kind of MDR charges.
Why can’t the government unify all of the digital transactions under one payment mode?
While it may be convenient for the citizens it will equally be difficult for the government to do so. The vast population and number of transactions occurring every day is simply unimaginable.
Difference between UPI and other transaction modes
- Where every mode such as IMPS, NEFT and RTGS used Indian Financial Security Code (IFSC) and account numbers, UPI used a different approach of transaction known as Virtual Payment Adress (VPA), which is nothing a type of ID. (example- name@upi)
- It enabled direct money transfers between bank accounts using mobile phones.
- Can be used without even having internet that is Wi-Fi/cellular data.
Some advantages of UPI
- Can enable transactions of money without the need of internet.
- Rapid, safe and secure mode of transaction
- No MDR charges taken
- Follows QR code system to ease the method of transaction
- Connection with various banks
- Low infrastructure cost for merchants (shopkeeper doesn’t need to buy and maintain a card machine)
- Available 24/7
- No middlemen involved
Restrictions On Users
- The government allows only 30% market share of third-party apps to prevent monopolization.
- Profit is earned by companies selling the collected payment data to
Telecom companies
Non-Banking Financial Companies.
Globalization of UPI
UPI has been successfully implemented in countries like Singapore, Bhutan, Dubai and even France to ensure India’s safety from being dollar-dependent on its financial expenses. Initially, UPI was restricted to only Debit cards but now it can be linked with credit cards as well.
Disadvantages faced by UPI currently
- Lack of infrastructure in building the software
- There are concerns as to whether it would be able to handle large volumes of transactions.
- Mode of revenue
- Since it doesn’t charge any transaction fees, banks don’t generate revenue from the transactions, thus creating a setback where UPI doesn’t get promoted.
- Accountability
- It lacks a subsidiary for analyzing and addressing the percentage of failed transactions.
Overall, UPI has gained popularity for its innovative idea of enabling not only fast transactions but also changed India vow to shape itself into “Digital India”.