Raghuram Rajan, hailed by many as one of RBI’s best and most competent governors ever, is about to leave as the staff of office changes hand in September. However, he undoubtedly had a wonderful moment as he saw the Unified Payments Interface, a project dear to his heart, finally go live on Monday. With UPI, smartphones will have potential to turn into virtual banks and make money transfers fast and hassle free.
You have probably been hearing about the UPI since the past few months. It is basically a joint push by the RBI and the National Payments Corporation of India, to take the country to a cashless transaction system. The RBI governor himself is a huge proponent of the scheme due to the assorted benefits associated with it, which may also be one of the major factors behind it hitting the ground running.
Before moving any further, lets take a look at what differentiates UPI from the conventional e-payment systems and why a whole lot of very intelligent financial experts are rooting for it to drive cashless transactions in the country.
You have probably done online transaction countless times. Credit card, debit card, payment gateways third party applications like Paytm and more lately, IMPS. These systems are pretty useful and have only grown better over the years, facilitating more online transactions, however they do have their failings. For example, except IMPS, all of these services work only during bank hours. Also, they require quite a lot of information to be submitted including the bank details of the sender as well as the beneficiary and bank branch name along with the IFSC code.
They are also not instantaneous and may take as long as a couple of hours to complete, depending upon when you initiate the payment.
All these failings along with a slow rate of absorption of the cashless transaction systems and several other factors means that the Indian economy is still largely cash based. Which is exactly what the UPI is aiming to correct. Let’s take a look at how it works.
How it works :
Under this scheme of things, you will require a bank account and a smartphone and you are all set. Once you have acquired these two essential components, visit your bank and register for UPI with. The bank will provide you with a unique ‘virtual address’ that will also be mapped with your mobile phone.
Okay, so now whenever you need to make a payment, all you need to carry along is your smartphone and the virtual address that has been provided by the bank. Once you make your purchases, all you need to do is tell your virtual identity to the beneficiary, lets say a cashier at a shop. He can then generate an invoice using UPI and the code you have provided.
Okay, so this concludes everything the cashier has to do. Now the sender’s work begins — which is limited to approving the payment notification received on his mobile phone. Approve the payment and wham, the money has been transferred. As simple as that. The whole system works on single-click 2-factor authentication and as such, is quite safe.
You can also have multiple virtual addresses for multiple accounts in various banks. Which means that you can initiate payments from as many different accounts as you want. And all you need to carry is those virtual addresses in your head,
in your mobile (Definitely not in your mobile!) or noted down in a diary. The service also allows customers to use their mobile numbers or Aadhaar card numbers as their name for the virtual mapping process.
Remarkably, the only account number mapping is done within the customer’s own bank. This means that the customer can conveniently and easily share their financial address with others, in case they want to be at the receiving end of a particular payment.
Meanwhile, the service is taking off with blessings from SBI, Canara Bank, BOI, ICICI Bank, HDFC Bank, Punjab National Bank, Bank of Baroda, HSBC, and Citi Bank. All of these banks are integrating their own applications with the UPI, and the number is expected to significantly increase in the coming time.
According to A. P. Hota, MD & CEO, NPCI,
29 banks had concurred to provide UPI service to their customers. We are confident that several banks will join UPI this year and the number will multiply further.
Meanwhile, UPI is significant considering that it has the potential to completely eliminate the need for maintaining a mobile wallet. The ease of usage associated with UPI is also exemplary and it will be very hard to create a simpler system. Simply download any bank’s UPI app on your smartphone, and add your details to get rolling. Now, you can make transactions to anyone with a UPI handle of their own. Simply input the amount to be transferred, provide the beneficiary’s UPI handle and click send.
The money is transferred using the IMPS pathway and as such, the process is virtually instantaneous, making it a possibility for almost anyone. Weather it is paying your kids school fees, making a purchase, or even paying the milkman, all that is needed is for the sender and the receiver to be in possession of their respective handles and voilà! And these small transactions — as well as the large ones — are exactly what UPI has been aimed towards.
As per NPCI chief operating officer, Dilip Asbe,
The target is to get the small value peer to peer payments made digitally through UPI, the existing modes like NEFT and IMPS are mostly being used for high value payments and remittances
Considering that the service is not limited to individuals but can be extended to organizations as well, UPI is a very important attempt at moving the economy into a cashless stream.
The system was actually supposed to go live by July end. However, a series of not-quite-unexpected complications led to the delay as RBI tried to ensure that it satisfied all standards and as other banks tried to get their applications for UPI integration cleared. Dilip Asbe had earlier confirmed the same when he said that,
We are trying to sort out the initial hiccups and issues both from the side of NPCI as well as the clients side, once the final level of testing is over we are hoping to go live with atleast 15 banks by July 31.
However, NPCI and RBI had also adhered to high standards and getting the go ahead required clearance from the highest levels of the latter. According to what we have gleaned, only lenders with thousand pilot customers, five thousand transactions and a minimum 90% success rate for performed transactions have been allowed to go live.
Meanwhile, banks are also inviting non-customers to use their application to use the service. As per Arun Tiwari, Chairman and Managing Director, Union Bank of India,
Union Bank in association with NPCI is one of the first public sector banks to launch this (UPI) product. This mobile app can be used by both our bank’s customers and non-customers.
Well, cheers for RBI’s UPI system and lets hope that it manage to do what it has set out to achieve. The idea is certainly very carefully thought out and the process couldn’t have been made easier. Let’s see if it’s picked up by the customers as well.