Today, India has become one of the leading countries in the world in terms of digital payments. The Unified Payments Interface (UPI) has played the biggest role behind this. UPI has made the way of sending and receiving money so easy and fast that now it has become our most important need in everyday life.
In this blog, we will understand what UPI is, how it started, under whose control it works and how it actually works.
When and how did UPI start?
UPI was started in India in April 2011, when the then RBI Governor Raghuram Rajan launched it as a pilot project. It was only an experiment at that time, but over the next few years its possibilities grew so much that from 2016 Indian banks started adding UPI to their mobile banking applications.
After this a new phase started and UPI started spreading rapidly all over India. Today the situation is that UPI is available as a main feature in almost every bank and every digital payment app.
Who controls UPI?
UPI is owned by NPCI (National Payments Corporation of India). NPCI is the organization that manages India’s retail payment system. It comes directly under the control of the Reserve Bank of India (RBI).
In simple words, you can consider NPCI as the “supporting hand” of RBI, which runs digital payments smoothly.
What is UPI?
UPI i.e. Unified Payments Interface is a payment system that facilitates real-time or instant payments.
Real time means that as soon as you make a payment to someone, the money reaches his bank account directly at the same time. It neither takes much time nor does the payment get stuck.
Ways to pay with UPI
UPI offers many easy ways to make payments. These include:
- Payment by mobile number: If both accounts are linked to UPI, you can send money by just entering the mobile number.
- Payment by UPI ID: Every user gets a UPI ID (eg name@upi), to which money can be transferred directly.
- Payment by scanning QR code: You can make instant payment at shops, malls, petrol pumps or anywhere by just scanning the QR code.
- Direct bank transfer: Money can also be sent directly through UPI by entering the bank account number and IFSC.
Need for UPI apps
UPI is an application based system. That means you need to have a mobile application to use it. This app can be:
- A bank’s mobile banking app,
- Or a third-party app like Google Pay, PhonePe, Paytm etc.
Today, almost every smartphone user has some UPI app.
Record of payment from UPI
One of the features of UPI is that the complete record of every payment you make automatically goes to your bank account.
- The amount you sent,
- To whom you sent,
- When you sent it –
All these data are recorded in your bank statement or passbook. This maintains transparency and you always get a complete account of your expenses.
International expansion of UPI
Today, apart from India, about 7 countries of the world are using UPI. These also include big countries like Singapore and UAE.
The government aims to have at least 20 more countries adopt UPI by 2028-29. That is, in the coming time, UPI can emerge as a global payment system.
Other uses of UPI
UPI is not just a means of making payments, but it has many more uses:
- Checking bank balance
By entering your UPI PIN in the UPI app, you can easily know the balance of your account.
- Payment history and statement
You can download your payment history and statement on UPI apps. If you want, you can get the complete record of one month, three months or six months.
- Bill and ticket payment
- With UPI, you can easily make all kinds of payments like:
- Electricity, water and gas bills
- Mobile and DTH recharge
- Movie or travel tickets
- Insurance premium, loan EMI, credit card bill
- Shopping and merchant payments
Whether it is online shopping sites or local shops, payment through UPI is the fastest and easiest way everywhere.
- Self transfer
If you have more than one bank account, you can easily do self transfer.
Example:
Suppose you have two bank accounts and one account has ₹ 50,000. If you want, you can withdraw ₹ 25,000 from it through UPI and put it in the other account so that both have equal balance.
Why is UPI so important?
- It is a completely digital and cashless payment tool.
- Payment is done instantly and securely.
- Transparency of the banking system is maintained on transactions.
- Many types of services are available from a single platform.
In today’s time, UPI is not only making India’s economy digital, but is also making people’s everyday life easier.
Some important terms about UPI
To understand the model better, it is important to know these terms:
- Payer: The one who is going to make the payment (for example—me).
- Payee: The one who will receive the payment (for example—you).
- Beneficiary Bank: The receiver’s bank (your bank).
- Remitter Bank: The sender’s bank (my bank).
- NPCI (National Payments Corporation of India): The body formed by RBI which acts as the central router for UPI—that is, it sends the information to the banks in encrypted form.
- VPA (Virtual Payment Address): Your UPI ID.
- PSP (Payment Service Provider): Like BHIM, Google Pay, PhonePe—these apps provide UPI to the user.
Why is UPI so fast, safe and smooth?
In UPI, the routing, authentication, and confirmation of the request happens through NPCI’s secure infrastructure. NPCI has the mapping (in encrypted form) based on the mobile number/WPA etc. to know which bank the pay is in—and then the request reaches the right bank/PSP.
The entire process involves data security, encryption, and bank-to-bank handshake, so the transaction is completed in real-time, with very low latency.
How UPI works? (Step-by-Step Process)
If you have understood the terms related to UPI then now you can easily understand how UPI works. Let us understand the step by step process.
Step 1: Initiation of the request
- The user (I) initiates the payment—either using QR code, VPA, or mobile number.
- This is where the entire process initiates.
- The request goes to my PSP (i.e. the app I am using).
Step 2: Request to NPCI
- From my PSP, the request is forwarded to NPCI.
- NPCI looks up in its system to identify which is Pay (you)’s bank and which PSP/bank to forward the request to.
- This identification is based on an encrypted database/mapping—like the mobile number linked to your account.
Step 3: Request to Pay’s PSP
- From NPCI, the request goes to Pay’s PSP (where you have your account/UPI handle).
- Pay’s PSP accepts the request—i.e. the payment message is registered on the receiving side.
Step 4: Account details and route-back
- Now the PSP of the pay forwards the required bank details/routing configuration to the UPI app/network to ensure the correct path of debit-credit.
- The request is then routed back to the remitter bank (my bank)—that is where the debit has to be made.
Step 5: Remitter bank approval
- The remitter bank (my bank) receives the request:
- Checks balance, account status, UPI PIN/authentication etc.
- If everything is okay, approves the debit.
- This approval goes back to NPCI.
Step 6: Credit to beneficiary bank
- NPCI sends credit instructions to the beneficiary bank (your bank) by connecting the approved transaction to the UPI network.
- The beneficiary bank credits the amount to your account.
Step 7: Confirmation (both sides)
- Confirmation from beneficiary bank back to UPI→NPCI→payer’s PSP (my app) that the debit was successful.
- Also there is confirmation on the pay side that the credit has been done.
- This way both payer and payee get the status.
- This whole mechanism usually completes in a few seconds (often ~6 seconds).
In short: Payer’s PSP → NPCI → Payer’s PSP/Bank → Remitter Bank Approval → NPCI → Beneficiary Bank Credit → Confirmation to both.
Conclusion
UPI has completely changed the payment system. Earlier, a long process had to be followed to transfer money, whereas today payment can be made instantly by just scanning the mobile number, UPI ID or QR code.
It would not be wrong to say that UPI is moving towards becoming the future of digital payments not only in India but in the whole world. In the coming time, when more countries will adopt it, UPI will also make a strong identity at the global level.
Also Read:
- Do you know what is Autocad LT?
- Download Chrome Browser for PC
- Chrome Browser Download Speed
- Create Free Blog on Google and Earn Money Online
About the Author
