What is UPI and How Does it Work?

“Unified Payment Interface” (UPI) enables all bank account holders to send and receive money from their smartphones without the need to enter bank account information or net banking user id/ password.

Where can UPI be used?

UPI can be used to send and receive money from individuals or to pay directly to merchants.

What is a Virtual Payment Address (VPA)?

For using UPI, users need to create a Virtual Payment Address (VPA) of their choice and link it to any bank account. The VPA acts as their financial address and users need not remember the beneficiary account number, IFSC codes or net banking user id/password for sending or receiving money.

How Does UPI Work?

Currently, if you want to make a bank payment online, you have to enter account number, account type, Bank name and IFSC code. Even if you have all these details, typing it all in, particularly on the phone, is a painful process. Most banks take up to 12 hours to add a new payee and only then you can make the transfer.

The idea behind the UPI is to do away with all of this. The interface will allow account holders across banks to send and receive money from their smartphones using just their Aadhaar unique identity number, mobile phone number or virtual payments address without entering bank account details.

According to NPCI, so far only 29 banks have agreed to start this service. If your bank is UPI-enabled, you can ask it to connect you to the system. To initiate a transaction, you can use two types of address—global or local. The global address includes your mobile, Aadhaar and bank account numbers.

A local address can be a virtual address. Let’s suppose your bank gives you a virtual ID similar to your email ID (for example, name@companyname). This virtual address will enable you to send and receive money from multiple banks and prepaid payment issuers.

So, you will no longer need to use a particular app to send and receive money. For example, if you use a taxi service, at the end of the journey you just have to give your virtual address and the driver will request money from it. You will get a message on your mobile phone asking for authentication.

Once you authenticate the transaction by entering your password, it will be complete. This process does not require either the driver or you to share bank details. Since UPI runs on IMPS, the service will be available in real-time and 24X7.