Unified Payments Interface (UPI)

Context:

• The National Payments Corporation of India (NPCI) has authorized Paytm to onboard new UPI users, contingent on compliance with all procedural guidelines and circulars.

Background:

• This decision provides relief to Paytm, which faced challenges earlier this year when the Reserve Bank of India restricted its associate company, Paytm Payments Bank Limited (PPBL), from onboarding new UPI users.

Unified Payments Interface (UPI):

• Developed by the NPCI in 2016, UPI operates on the Immediate Payment Service (IMPS) infrastructure.
• Allows multiple bank accounts to be accessed through a single mobile application from any participating bank, integrating various banking features such as fund transfers.
• Facilitates peer-to-peer inter-bank transfers with a simple two-click authentication process.

Features of Unified Payments Interface (UPI):

• Transfers are simplified using the recipient’s UPI ID, such as a mobile number, QR code, or Virtual Payment Address, eliminating the need for account numbers.
• Users can now access pre-sanctioned credit lines from banks via UPI, expanding transaction capabilities.
• Removes the need to enter bank details or sensitive information for each transaction.
• Supports 24/7 transactions and enhances interoperability among banks.
• Utilizes technologies like IMPS and Aadhaar-Enabled Payment System (AEPS) for smooth payment processing.
• Enables users to send and receive money offline using compatible devices that support Near Field Communication (NFC) through UPI Lite X.
• UPI Tap and Pay allows payments at merchant locations via NFC-enabled QR codes with a single tap, without requiring a PIN.

Concerns, Issues, and Challenges Associated with UPI:

• Expanding UPI for a global user base poses regulatory and compliance challenges regarding data protection and financial laws in different countries.
• A recent Parliamentary panel report, titled "Digital Payment and Online Security Measures for Data Protection," revealed that foreign entities like PhonePe and Google Pay dominate the Indian fintech market. As of October-November 2023:
  • PhonePe: 46.91% market share
  • Google Pay: 36.39% market share
  • BHIM UPI: only 0.22% market share in transaction volume.
• UPI is vulnerable to cyber threats, with cybercriminals potentially exploiting system weaknesses or using social engineering tactics to access sensitive information, leading to financial losses.
• Presents challenges for cross-border transactions, particularly in managing currency conversion and exchange rates while facilitating payments and loading money into wallets.
• Faces obstacles to widespread adoption, especially among individuals unfamiliar with digital payments, which increases the risk of financial fraud.