UPI, which stands for the Unified Payments Interface, is a real time payment system and an instant interbank electronic fund transfer method widely used in India. It was developed by the National Payments Corporation of India (NPCI) to facilitate digital payments and make financial transactions easier for people across the country. We can say that it is like a digital wallet for our bank account. It makes it easy to send and receive money by using just our smartphone.
How UPI works?
First, we need to link our bank account to a UPI app on our phone. Which is usually done through the bank’s official mobile app, or any other UPI enabled app like Google pay or Phone Pe.
When we set up the UPI, we get a unique UPI ID which is like our virtual address. Something looks like “ourname@bankname". We can also use our mobile number linked to our bank account as a UPI ID.
For sending money to someone, we just need their UPI ID or mobile number. Then we have to open our UPI app, enter the recipient’s UPI ID and the amount which we want to send. Confirm the details and the money is sent instantly.
For requesting money, we need someone to pay us, we can request money by entering their UPI ID or mobile number and the amount we are owed, they will get a notification, and they can easily approve and pay us.
To make sure our transaction is secure, we set up a UPI pin during the registration process. We will need to enter this PIN every time we send or make payment.
UPI works across different banks so we can send money from our bank to someone else’s bank account, even if they use a different bank.
UPI apps often have additional features like paying bills, buying products online and even investing in mutual funds.
Money movement happens across Banks, Gateway, PSPs, and Hops.
Unified payment interface (UPI) makes simple digital transactions and allows seamless money movement between different banks. UPI has revolutionized digital transactions in India. With the help of UPI, we can easily send and receive money between different banks, gateways, Payment Services providers (PSPs) and hops.
These are the steps of money movement.
Sender initiates transfer:
The sender opens their UPI app.
They enter the receiver’s UPI id or mobile number and enter the amount to be sent.
Sender’s bank (Bank A):
The UPI app communicates the transfer request to the sender’s bank (Bank A).
Bank A checks the sender’s account and verifies sufficient funds.
Intermediary (NPCI - National Payments Corporation of India):
NPCI, act as an intermediary, receives the transaction request from Bank A.
NPCI processes the transaction details and routes it to the appropriate receiver's bank (Bank B).
Receiver's Bank (Bank B):
Bank B validates the receiver's account details.
Confirms the availability of funds and verifies the transaction request.
Money Transfer:
With validation complete, Bank B processes the money transfer electronically.
Funds are easily moved from the sender's account (in Bank A) to the receiver's account (in Bank B).
Confirmation:
Both Bank A and Bank B confirm the successful completion of the transaction to NPCI.
Notification:
NPCI notifies the UPI app that the transfer is successful.
Both the sender and receiver receive notifications that a transaction is successful.
Sender initiates transfer:
The sender opens their UPI app.
They enter the receiver’s UPI id or mobile number and enter the amount to be sent.
Sender’s bank (Bank A):
The UPI app communicates the transfer request to the sender’s bank (Bank A).
Bank A checks the sender’s account and verifies sufficient funds.
Intermediary (NPCI - National Payments Corporation of India):
NPCI, act as an intermediary, receives the transaction request from Bank A.
NPCI processes the transaction details and routes it to the appropriate receiver's bank (Bank B).
Receiver's Bank (Bank B):
Bank B validates the receiver's account details.
Confirms the availability of funds and verifies the transaction request.
Money Transfer:
With validation complete, Bank B processes the money transfer electronically.
Funds are easily moved from the sender's account (in Bank A) to the receiver's account (in Bank B).
Confirmation:
Both Bank A and Bank B confirm the successful completion of the transaction to NPCI.
Notification:
NPCI notifies the UPI app that the transfer is successful.
Both the sender and receiver receive notifications that a transaction is successful.
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