UPI

Unified Payments Interface (UPI) is an instant payment system developed by the National Payments Corporation of India (NPCI) under RBI regulation. It allows instant money transfers between bank accounts. 

Within six years of its launch, UPI processed more transactions than the entire ATM network in India did in three decades.

UPI first crossed the 1 billion monthly transaction mark in October 2019, and since then, it has grown exponentially. By 2023, UPI recorded over 10 billion monthly transactions, solidifying its position as one of the fastest-growing and most successful real-time payment systems in the world​.

It took mobile phones almost 20 years to reach a billion users worldwide. UPI, in contrast, achieved nearly 118 billion transactions in just seven years, highlighting its unparalleled adoption rate. With that gigantic volume of transactions, UPI surpassed traditional card networks like Visa and Mastercard in India in 2023. 

When customers download a third-party UPI app, they link their bank accounts by verifying the mobile number registered with the bank and setting a UPI PIN. The app connects to the customer’s bank using APIs provided by the National Payments Corporation of India (NPCI). Each account is assigned a Virtual Payment Address, which serves as a proxy for account details.

For transactions or balance inquiries, the UPI app sends the request to NPCI’s central switch, which forwards it to the bank. The bank then processes the request either debiting the account for payments or providing real-time balance information and sends a response back.

For regular UPI transactions, the limit is ₹1 lakh per transaction, while specific transactions like Capital Markets or Insurance can go up to ₹2 lakh, and IPOs and Retail Direct Scheme up to ₹5 lakh.

NPCI also caps daily UPI transactions at ₹1 lakh and 20 transactions, though this can vary by bank. 

Payment aggregators like Razorpay, PayU, Pine Labs, Innoviti, and Worldline act as a bridge between large retailers and customers, facilitating payments through cards, wallets, and UPI. In the UPI system, banks handle identification, transaction processing, and bear the costs associated with scaling.

You can track the status of your transaction in real-time and register complaints on the UPI Help portal. 

The Government subsidises the cost of UPI transactions. The merchant discount rate (MDR) was set to zero on January 1, 2020, to encourage digital payments. However, banks and fintech companies argue that the zero-charge policy is no longer viable due to increasing technology and infrastructure costs. Although payment companies have pushed for a small MDR on larger transactions, the government has consistently refused to impose any direct charges on users or merchants, emphasizing that UPI is a “digital public good.”

Stats -

• 75% of retail transactions in India are below ₹100
• Half of all UPI transactions involve amounts up to ₹200

India still continues to remain predominantly a cash-based economy. Its cash-to-GDP ratio is the third highest in the world (behind Japan and Hong Kong). Affluent states like Gujarat, Chandigarh, Karnataka, and Delhi are lagging in digital-payment adoption. A study published in the Journal of Emerging Market Finance offers two compelling explanations -

• Businesses in economically advanced regions typically engage in high-value transactions that exceed UPI's daily limit.
• Tax evasion