UPI (Unified Payments Interface) Explained: India’s Most Popular Payment System

Hare Preya
Hare Preya

The Unified Payments Interface (UPI) is a real-time payment system that allows users to instantly transfer funds between bank accounts. It was developed by the National Payments Corporation of India (NPCI) and launched in April 2016.

The idea for UPI emerged from the vision of the Reserve Bank of India (RBI) and the Indian government to encourage cashless transactions and promote financial inclusion. The NPCI, an organization for retail payment systems in India, took the lead in developing the UPI infrastructure.

UPI works by using a single payment interface for multiple banks. This means that users can link multiple bank accounts to a single mobile app. When making a payment, users simply enter the recipient’s UPI ID or scan a QR code. The transaction is then facilitated through Immediate Payment Service (IMPS) technology, which enables instant fund transfers.

UPI has gained rapid popularity in India due to its user-friendly interface, interoperability, and security. It is a convenient and secure way to make payments, and it can be used for a wide range of transactions, including P2P payments, bill payments, and merchant payments.

Over time, UPI has evolved and introduced several features and enhancements. These include the option to schedule transactions, the ability to link multiple bank accounts, integration with various apps and platforms, and support for additional transaction types like bill payments, ticket bookings, and merchant payments.

The success of UPI has transformed the digital payments landscape in India. It has played a significant role in driving the growth of cashless transactions, boosting financial inclusion, and facilitating the transition towards a more digital economy.

As of June 2023, UPI has recorded 9.41 billion transactions, with a value of Rs 14.3 trillion. This represents a 58% year-over-year (YoY) growth in terms of volume and a 43% YoY growth in terms of value. UPI is now the most popular payment system in India, accounting for over 60% of all digital payments in the country.

The growth of UPI is being driven by a number of factors, including the increasing adoption of smartphones, the growing popularity of e-commerce, and the government’s push for a cashless economy. UPI is also benefiting from its ease of use, security, and interoperability.

UPI is expected to continue to grow in popularity in the coming years. The government has set a target of achieving 500 billion UPI transactions by 2025. UPI is well on track to achieve this target, and it is likely to become the dominant payment system in India in the near future.

Quick History

In 2009, the National Payment Corporation of India (NPCI) was formed to integrate all payment mechanisms in India and make them uniform for all retail payments. In 2011, the Reserve Bank of India (RBI) found that only six non-cash transactions happen every year by an individual citizen in India, while 10 million retailers accepted card-based payment. Around 145 million families had no access to any form of banking. There was also the problem of tackling black money and corruption that happens mostly in cash.

In 2012, the RBI released a vision statement for a period of four years that indicated commitment towards building a safe, efficient, accessible, inclusive, interoperable and authorized payment and settlement system in India. It is part of the Green Initiative to decrease the usage of paper in domestic payments market.

Under RBI guidance, NPCI became the primary body tasked with developing a new payment system that is simple, secure, and interoperable. UPI works on a four-pillar push-pull interoperable model where there will be remitter/beneficiary front end PSP (payment service provider) and remitter/beneficiary back end bank that settles the monetary transaction for the users.

UPI was officially launched in 2016 for public use. It became one of the most successful deep-tech innovation coming out of India. In 2019, Google suggested Federal Reserve Board to follow UPI as an example in developing FedNow, a real-time payment system for the United States.

With exponential growth of UPI, India became the world’s largest real-time payment market with 25.50 billion annual transactions in 2020. As per the Economist Intelligence Unit Report 2021, UPI made India a leader in global real-time payment market followed by China and South Korea.

After the decision of Ministry of Finance to nullify merchant discount rate (MDR) in 2019 from UPI, the number of low value transactions skyrocketed making huge gains on real-time transaction volume data. Nations such as Brazil, Bahrain, Saudi Arabia, Singapore, United States and European Union are now trying to emulate the success of UPI in their own market.

From January 1, 2019, UPI became a popular payment option for initial public offerings (IPOs). The transaction limit was enhanced from ₹100,000 to ₹200,000 in March 2020. From December 2021, RBI again increased the limit to ₹500,000 for Retail Direct Scheme and IPO applications. To make UPI economically feasible for payment companies, RBI is considering merchant discount rate (MDR) on future UPI transactions.

In its first monetary policy for financial year 2022–23, RBI proposed cardless cash withdrawal facility from ATM using UPI based QR code. In partnership with NSDL Payments Bank and NPCI, ToneTag launched VoiceSE which will enable 400 million feature phone users to make UPI payment using voice in Hindi, Tamil, Telugu, Malayalam, Kannada, and Bengali languages.


In 2021, around 777 million Indian consumers shopped across the border. To make it easier for them to pay, NPCI International Payments Limited (NIPL) signed a memorandum of understanding (MoU) with UK-based PPRO Financial on November 17, 2021, to expand the acceptance of UPI into foreign markets, especially in China and the United States, which account for half of all international transactions coming from India.

  • On January 26, 2022, UK-based fintech startup Transact365 enabled UPI for global merchants with real-time currency conversion facilities. This will help merchants do business in India without having a local presence.
  • As per NPCI and RBI mandate, banks, payment service providers (PSPs), and third-party application providers (TPAPs) in India must enable international acceptance through UPI from September 30, 2022.
  • On June 17, 2022, RBI released the Payments Vision 2025 document, which sets out the roadmap for the future of payments in India. The document includes a plan to internationalize UPI with nations using the United States dollar, British pound, and euro under bilateral treaties.
  • The Ministry of External Affairs (MEA) is also actively pushing for the internationalization of UPI due to geopolitical concerns. However, some countries, such as Canada, are reluctant to accept UPI due to pushback from American firms. The MEA is exploring the possibility of central bank-to-central bank transfers using UPI as the pipeline, as well as collaborative efforts with countries that have similar systems to UPI.
  • On October 12, 2022, India offered UPI and related technologies to the Commonwealth of Nations.
  • On February 7, 2023, PhonePe announced that it would extend support for UPI for international payments in the UAE, Singapore, Mauritius, Nepal, and Bhutan. Users will be able to pay in international currency directly from their Indian bank accounts.
  • On April 27, 2023, NIPL signed a definitive agreement with PPRO Financial that will enable acceptance of UPI among international payment service providers (PSPs) and global merchant acquirers.

These are just some of the recent developments in the internationalization of UPI. It is clear that India is committed to making UPI a global payment system, and there has been significant progress in recent months. However, there are still some challenges to overcome, such as the reluctance of some countries to accept UPI and the need for interoperability with other payment systems. Nevertheless, the future looks bright for UPI, and it is likely to play an increasingly important role in the global payments landscape.

UPI is being accepted in other countries. In 2021, UPI was made available in Bhutan, and it is also being used in Singapore, Malaysia, the United Arab Emirates, Nepal, France, the United Kingdom, Russia, Oman, Qatar, and Europe. In addition, there are plans to introduce UPI in Australia, Thailand, Saudi Arabia, the United States, and Bahrain.

UPI is a secure and convenient way to send and receive money, and it is also very affordable. As a result, it is becoming increasingly popular in both India and other countries.

  • In Singapore, UPI is linked with PayNow, which is a similar payment system in Singapore. This allows users of both systems to transfer funds quickly and easily.
  • In the United Arab Emirates, UPI is being used by LuLu Financial Holding to offer real-time remittance to India.
  • In Nepal, UPI is being used to enable cross-border remittances with India.
  • In France, UPI is being used by Indian tourists and students to make payments.
  • In the United Kingdom, UPI is being used at POS terminals through a partnership with PayXpert.
  • In Russia, UPI is being used in conjunction with the Faster Payments System (FPS) of the Central Bank of Russia.
  • In Oman, UPI is being used through a partnership with the Central Bank of Oman.
  • In Qatar, UPI is being used by the Commercial Bank of Qatar for remittance.
  • In Europe, UPI is being used through a partnership with Worldline SA.

The acceptance of UPI in other countries is a positive development, as it will make it easier for people to send and receive money internationally. It is also a sign of the growing popularity of UPI as a secure and convenient payment method.

How does it work?

UPI (Unified Payments Interface) works by leveraging the Immediate Payment Service (IMPS) infrastructure, which facilitates instant money transfers between bank accounts in India. UPI introduces a layer of simplicity and interoperability, allowing users to send and receive money seamlessly across different banks and payment service providers.

To initiate a UPI transaction, users need to have a UPI-enabled mobile app, which could be their bank’s official app or a third-party app that supports UPI. They register on the app by providing their mobile number, linking their bank account, and setting a UPI PIN for secure authentication.

Once registered, users can create a unique Virtual Payment Address (VPA) associated with their bank account. The VPA serves as a user-friendly identifier that eliminates the need to share sensitive bank account details during transactions. For example, a VPA can be in the format “username@bankname” or “mobileno@bankname”.

To make a payment using UPI, users simply need to enter the recipient’s VPA or scan a QR code associated with the VPA. They then specify the transaction amount and authenticate the transaction by entering their UPI PIN.

Upon receiving the payment request, the UPI app communicates with the sender’s bank and securely transmits the request to the recipient’s bank through the NPCI’s (National Payments Corporation of India) UPI system.

The recipient’s bank verifies the transaction and checks the availability of funds. If approved, the recipient’s bank sends a confirmation message to the UPI system, which then communicates with the sender’s bank to initiate the fund transfer. The funds are instantly deducted from the sender’s account and transferred to the recipient’s account in real-time.

Both the sender and recipient receive instant notifications through their UPI apps regarding the transaction status. They can also view the transaction details in the app’s transaction history.

UPI transactions can be used for various purposes, including person-to-person transfers, bill payments, merchant transactions, ticket bookings, and more. The interoperability of UPI allows users to access these services through different apps and platforms, providing flexibility and convenience.

The simplicity, security, and real-time nature of UPI transactions have contributed to their widespread adoption in India, transforming the way people transact digitally and driving the growth of a cashless economy.

Key features

The Unified Payments Interface (UPI) offers several key features that have contributed to its widespread adoption and success in India. Here are some of the prominent features of UPI:

  • Instant Fund Transfers: UPI enables instant and real-time fund transfers between bank accounts, 24/7, including weekends and holidays. This ensures quick and seamless transactions.
  • Virtual Payment Address (VPA): With UPI, users can create a unique virtual payment address (VPA) that serves as an identifier for receiving payments. This eliminates the need to share bank account details during transactions, enhancing security.
  • Multiple Bank Account Linking: UPI allows users to link multiple bank accounts to a single mobile application. This provides flexibility and convenience, as users can choose the desired account for making transactions.
  • QR Code Payments: UPI supports QR code-based payments, where users can scan a QR code associated with the recipient’s VPA to initiate a transaction. This simplifies the payment process and eliminates the need for manual entry of details.
  • Two-Factor Authentication: UPI ensures secure transactions through two-factor authentication. Users need to provide a unique UPI PIN for authorizing transactions, adding an extra layer of security.
  • Bill Payments and Merchant Transactions: UPI has expanded its functionality to support bill payments, ticket bookings, and merchant transactions. Users can conveniently pay utility bills, make reservations, and shop online using UPI.
  • Transaction Scheduling: UPI allows users to schedule transactions for a future date and time. This feature is particularly useful for periodic payments, such as bills or loan installments.
  • Transaction History and Notifications: UPI provides a transaction history feature, enabling users to view their past transactions. Users also receive instant notifications for successful transactions, enhancing transparency and record-keeping.
  • Third-Party App Integration: UPI has facilitated integration with various third-party apps and platforms, such as banking apps, e-commerce platforms, and digital wallets. This enables users to access UPI services through their preferred apps.

These key features of UPI have transformed the digital payments landscape in India, making it convenient, secure, and efficient for individuals and businesses to transact digitally.


UPI has become one of the most popular payment methods in India, with over 450 million users. There are many benefits to using UPI, including:

  • Secure: UPI transactions are secure because they use two-factor authentication (2FA). This means that you need to enter your UPI PIN and your bank’s one-time password (OTP) to complete a transaction. This helps to protect your financial information from unauthorised access.
  • Convenient: UPI transactions can be done 24 hours a day, from anywhere with an internet connection. This makes it a very convenient way to send and receive money. You can send money to your friends, family, or colleagues or pay for goods and services at merchants that accept UPI.
  • Cost-effective: UPI transactions are free of charge for most banks. This makes them a very affordable way to send and receive money. There may be some charges associated with UPI transactions, but these are usually very small.
  • Flexible: UPI can be used to send and receive money from multiple bank accounts. This gives you the flexibility to use the account that is most convenient for you. You can also link your UPI ID to your credit card, which allows you to make payments using your credit card balance.
  • Promotes a cashless economy: UPI is helping to promote a cashless economy in India. By making it easy and convenient to send and receive money digitally, UPI is encouraging people to use electronic payments instead of cash. This is beneficial for both individuals and businesses, as it can help reduce fraud and improve efficiency.

How to set up UPI?

Setting up a UPI account is easy and can be done in a few simple steps.

  1. Choose a UPI-enabled App: Select a UPI-enabled mobile app that suits your preferences and is offered by your bank or a third-party app that supports UPI. Popular UPI-enabled apps in India include BHIM, Google Pay, PhonePe, Paytm, and many bank-specific apps.
  2. Download and Install the App: Visit your smartphone’s app store (Google Play Store for Android or Apple App Store for iOS) and search for the chosen UPI-enabled app. Download and install the app on your device.
  3. Registration: Open the app and follow the registration process. You may need to provide your mobile number, verify it through an OTP (One-Time Password), and set up a security PIN for the UPI app.
  4. Link Your Bank Account: After completing the registration process, you will be prompted to link your bank account(s) to the UPI app. You can select your bank from the list of participating banks and follow the instructions to link your account.
  5. Set Up a UPI PIN: To authenticate UPI transactions, you need to set up a UPI PIN. This PIN will be required every time you make a UPI payment or authorize a transaction. Follow the app’s instructions to set a secure UPI PIN of your choice.
  6. Create a Virtual Payment Address (VPA): A Virtual Payment Address (VPA) is a unique identifier associated with your bank account. It can be in the format of “username@bankname” or “mobileno@bankname.” Create a VPA of your choice, ensuring it is available and not already taken by another user.
  7. Verification: Once your bank account is linked and the VPA is created, the UPI app will initiate a verification process. This may involve confirming your personal and bank account details, as well as linking your mobile number to the UPI account.
  8. Start Using UPI: Once the verification process is complete, you can start using UPI for various transactions. You can send and receive money, make payments to merchants, pay bills, and enjoy other features offered by the UPI app.

Once you have set up your UPI account, you can start sending and receiving money. To send money, you will need the recipient’s UPI ID. To receive money, you will need to share your UPI ID with the sender.

Make sure that you are using a secure UPI app. Keep your UPI PIN confidential. Do not share your UPI ID with anyone you do not trust. Be careful of phishing scams that attempt to steal your UPI PIN.

UPI is a safe and convenient way to send and receive money. By following these simple steps, you can set up your UPI account and start using it today.

How to make Payments?

To make a payment, you will need to know the recipient’s UPI ID or mobile number. You can also make payments to merchants by scanning their QR codes.

To make a payment, simply open your UPI app and enter the recipient’s UPI ID or mobile number. Enter the amount you want to send and your UPI PIN. You will then receive an OTP (one-time password) on your registered mobile number. Enter the OTP to verify the transaction.

Once you have verified the transaction, the payment will be sent to the recipient’s account instantly.

Is UPI safe?

UPI is a safe payment method, but there are still some risks involved. Here are some tips to help you stay safe when using UPI:

  • Never share your UPI PIN with anyone. This is the most important thing you can do to protect your account.
  • Be careful when entering your UPI ID or mobile number. Make sure you enter the correct details, otherwise your payment will not go through.
  • If you are making a payment to a new person, verify their UPI ID before you send money. You can do this by asking them to share their UPI ID with you in person or by calling them.
  • Keep your UPI app up to date. The UPI app developers regularly release security updates, so it is important to keep your app up to date to ensure that you have the latest security features.
  • Be aware of phishing scams. Phishing scams are emails or text messages that look like they are from a legitimate source, but they are actually trying to steal your personal information. Do not click on links in these emails or text messages, and do not give out your personal information.
  • If you think your UPI account has been compromised, report it to your bank immediately. They will be able to help you protect your account and your money.

By following these tips, you can help to keep your UPI account safe.

In addition to the general security features of UPI, there are a few additional security features that you should be aware of:

  • UPI Collect: This feature allows merchants to send a request to the sender’s VPA, and the sender approves the request from his or her UPI app in order to complete the transaction. This helps to prevent fraud, as the sender must approve the transaction before it is processed.
  • Two-factor authentication (2FA): This feature requires you to enter your UPI PIN and your bank’s one-time password (OTP) to complete a transaction. This helps to protect your financial information from unauthorised access.
  • Encryption: UPI transactions are encrypted using bank-grade encryption. This helps to protect your data from being intercepted by unauthorized parties.
  • Fraud detection: UPI uses fraud detection to identify and prevent fraudulent transactions. If a fraudulent transaction is detected, your money will be protected.

By being aware of these security features, you can help to keep your UPI account safe.

The future of UPI

The Unified Payments Interface (UPI) has revolutionised the way people make payments in India. Since its launch in 2016, UPI has grown to become the most popular payment method in the country, with over 450 million users.

UPI’s success is due to a number of factors, including its convenience, security, and affordability. UPI transactions are processed instantly, so you can send or receive money in a matter of seconds. UPI also uses two-factor authentication to protect your account, and most UPI transactions are free of charge.

As UPI continues to grow in popularity, it is poised to play an even greater role in the future of payments in India. Here are some of the ways that UPI is likely to evolve in the coming years:

  • UPI will become more integrated with other payment systems. UPI is already integrated with a number of other payment systems, such as credit cards and debit cards. In the future, UPI is likely to become even more integrated with other payment systems, making it easier for people to use UPI to pay for goods and services across a wider range of merchants.
  • UPI will be used for more complex transactions. UPI is currently used for a variety of transactions, including person-to-person (P2P) payments, person-to-merchant (P2M) payments, and bill payments. In the future, UPI is likely to be used for more complex transactions, such as split payments, recurring payments, and donations.
  • UPI will be used for international payments. Currently, UPI can only be used for domestic payments. However, there are plans to expand UPI to allow for international payments. This would make it easier for people to send and receive money from overseas.

Overall, the future of UPI looks very promising. UPI has the potential to make payments in India more convenient, secure, and affordable for everyone.

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