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Unified Payments Interface (UPI) and its Challenges

Last Updated : 01 Sep, 2022
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A system called the Unified Payments Interface (UPI) combines several bank accounts. It makes easy fund routing, and merchant payments into a single mobile application (of any participating bank). Additionally, it supports “Peer to Peer” collect requests that may be planned and paid for according to need and convenience. It is an immediate real-time payment system that enables customers to transfer money between different bank accounts in real-time without disclosing personal information to the other party. The National Payments Corporation of India (NPCI), which is governed by the Reserve Bank of India (RBI) and IBA (Indian Bank Association), established the concept of UPI.

Achievements of Unified Payments Interface (UPI):

  • During the epidemic year 2020–2021, digital transactions using UPI had amazing development, and numerous nations have expressed interest in learning from India’s experience in order to duplicate the concept.
  • According to figures from the NPCI, the UPI’s transaction value surpassed USD100 billion in a single month for the first time in October 2021, further solidifying its status as India’s most widely used digital payment system.
  • By 2025, the Indian digital payments market is expected to have grown from its current value of Rs. 2,153 trillion (27% CAGR) to Rs. 7,092 trillion.
  • Strong use cases for merchant payments, government initiatives like the Jan Dhan Yojana and the personal data protection bill, as well as the expansion of MSMEs, the millennial generation, and high smartphone penetration are all expected to contribute to the growth.
  • Recently, for instant, low-cost, cross-border fund transfers, the central banks of India and Singapore will connect their respective Unified Payments Interface (UPI) and PayNow fast digital payment system.  In July 2022, the connectivity become operational.

 UPI’s key characteristics:

  • Faster than NEFT immediate fund transmission.
  • UPI is accessible around-the-clock.
  • Additionally, it is accessible on vacations.
  • Each bank offers a unique UPI for several mobile operating systems, including Android and iOS.
  • It can be used to pay utility bills and for payments to merchants.
  • Any complaint may be submitted simply through a mobile app.

Benefits of Unified Payments Interface (UPI):

  • Customers merely share a virtual address and give no other critical information, therefore it is secure. Your bank account is used as an alias for the “virtual payment address.”
  • When a specific merchant’s account is hacked, your security cannot be compromised because their database will only include a list of virtual addresses.
  • Compared to other payment methods that send sensitive information like credit card numbers, it provides superior security. All of these information is concealed when utilizing UPI because just a Virtual Payment Address (VPA) is utilized.
  • With digitalization, the market’s black money can be diminished, increasing compliance and increasing tax revenue.
  • The UPI has significantly impacted both the fintech sector and banks. It helps banks cut costs associated with merchant onboarding and offers them a low-cost alternative to cash.

Importance of UPI:

  • By using the collect payment option, make Person to Business (P2B) interactions easier. This would improve commerce and the Indian economy as a whole.
  • UPI will reduce the amount of cash used in the economy, which is now 12% of GDP.
  • The annual cost of cash transfers will decrease thanks to UPI (currently around Rs. 20000 crores)

Payment charges on UPI:

UPI services won’t be subject to any fees from the Indian government. According to the finance ministry, UPI would continue to be free. According to the ministry, UPI is a digital public benefit that offers the public tremendous ease and boosts economic output. The administration is not contemplating about charging for UPI services.

Challenges of the Unified Payments Interface (UPI) :

  • Some experts worry that UPI won’t be able to maintain itself over the long term without levying MDR to pay for its infrastructure. Right now, neither the customer nor the merchant pay an additional fee.
  • Even though cash transactions have become less common since the introduction of UPI, they are still important. Due to the tax terrorism threat and cash’s greater acceptance as a payment method, people still favor using it.
  • It is still very difficult to conduct UPI transactions because there is still a significant percentage of the population without access to the internet or smartphones.
  • Since most people lack digital literacy, they are unable to use the UPI system. Furthermore, UPI apps’ lower adoption is caused by their predominant use of English.


Digital transactions in India are at an all-time high as a result of initiatives from Startup India and the Ministry of Finance. India really leads the globe in the number of digital transactions made, mostly as a result of the fact that UPI transactions are now free for users. However, there must be a way for banks and service providers to make money in order to improve the entirety of infrastructure-related and risk mitigation operations that they must do. The people will definitely gravitate toward cash transactions the moment the RBI introduces a transaction fee, which could be a setback for the cashless Bharat goals. In order to meet the rising demand for cash, the government will need to print more currency, and banks will need to add more ATMs and manual tellers. These all involve expenses that would be challenging to recover from the general public. There might not be a transaction charge established to create digital India.

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