Unified Payments Interface (UPI) - Part 1

 

UPI Payments is a very vast domain and covering it through a blog becomes more challenging. The objective of this blog is to give a high-level understanding of UPI Payments in a most structured and organized way. Today world is digitizing at a great pace and hence stress would be laid in bestowing benefits to almost all groups influenced by digital Payments under professional and domestic growth. The topic will focus gradually on exploring the functionality and the mechanism behind this one of the simplest yet secured payment system. 

Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI), an RBI regulated entity. UPI is built over the IMPS infrastructure and allows you to instantly transfer money between any two parties bank accounts.

Source: https://www.npci.org.in/

Abbreviations

• PSP - Payment Service Provider
• VPA - Virtual Payment Address
• P2P - Person to Person
• P2M - Person to Merchant

3-Step Payment

Let's take an example of PhonePe Mobile App

Introduction

UPI lets you make simple, easy and quick payment transactions. One can easily make direct bank to bank payments instantly and collect money using VPA. Unified Payment Interface is a system that provides an architecture and standard set of APIs to facilitate online immediate payments.

Core features of UPI

• Inter-operable
• Instantaneous
• Secure
• Simple
• Innovative

UPI Features

Send Money – Using this option, you can send money to anyone using Virtual Payment Address (VPA), Account no & IFSC and QR Scan.

Request Money – Using this option, you can collect money by entering Virtual Payment Address (VPA).

Scan & Pay- Using this option, you can pay by scanning the QR code through Scan & Pay & generate your QR to receive payments.

Transactions – Using this option, you can check transaction history and also pending UPI collect requests (if any) and approve, reject or Spam. You can raise a complaint about the declined transactions by clicking on Report issue in transactions

Profile – Using this option, you can view the static QR code and Payment addresses created. You can also share the QR code through various messenger applications like WhatsApp, Email etc. available on phone and can also download the QR code.

Bank Account – Using this Option, you can see the bank account linked with your PSP App. You can set/change your UPI PIN. Also, you can check the Balance of your linked Bank Account by clicking “REQUEST BALANCE”.

Participants

• Payer PSP
• Payee PSP
• Remitter Bank
• Beneficiary Bank
• NPCI
• Bank Account-holders
• Merchants

Types of Transaction

Financial

• Pay
• Collect

Non-Financial

• Registration on UPI
• Set / Change UPI PIN
• Check Transaction Status
• Balance Enquiry

P2P (Person to Person)

• As the name itself suggests P2P Transaction means a transaction between any two people.
• E.g. Harvey paying Rs. 500 to Ross using their own PSP App

 P2M (Person to Merchant)

• P2M Transaction means a transaction between a person and entity (merchant).
• E.g. Olivia paying Rs. 500 for a product/service purchased from an entity.

UPI as Four Party Model - Pay

Step 1: Customer (Payer) has PhonePe PSP and Bank Account with HDFC Bank. The customer initiates the payment using PhonePe.

Step 2: The request goes to the NPCI.

Step 3: Based on the entered VPA, NPCI routes the transaction to Google Pay. Google Pay is the payment receiver’s PSP. Payment receiver i.e., Beneficiary Bank is AXIS Bank.

Step 4: Google Pay resolves the VPA and gives a response to the NPCI.

Step 5: NPCI gives instruction to the HDFC Bank for the Debit. Debit Request.

Step 6: HDFC Bank gives the Debit response to the NPCI.

Step 7: NPCI after receiving Debit Response from HDFC Bank, sends the Credit Request to the Beneficiary Bank i.e., AXIS Bank.

Step 8: Beneficiary Bank gives a response to the NPCI with the Credit Response.

Step 9: After receiving the Credit Response, NPCI gives Payment Response to the Payer’s PSP i.e., PhonePe.

Step 10: Customer gets a notification on the PSP App. 

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Part - 2 will cover following topics

1) UPI as Four Party Model - Collect

2) Transaction with Virtual Address (Web) - P2M

3) Reconciliation

4) Deemed Transactions

5) APIs

6) Financial Benefits

7) Use Cases

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Image Courtesy: Google, PhonePe

Content Reference: NPCI, BHIM UPI

Example Reference: AXIS Bank, HDFC Bank

PSP Reference: PhonePe and Google Pay