The UPI Phenomenon

Thank you for all the support on the last blog. This one is crisp and direct but for those craving for more, I'll be providing some links to read and understand more about the phenomenon called UPI.

UPI is on a roll, it recorded 6 billion transactions in July 2022, the highest since its debut. Let's get straight to the point, how does it work? 

I have summarised it in this flowchart for easier understanding.



Here, a Remitter bank refers to a bank holding the account of the payer where the debit of the UPI instruction is received, while a Beneficiary bank holds the bank account of the receiver of the funds. This entire process occurs in no time which in itself is an achievement. Note that, The flowchart has been purposefully simplified to get a basic sense of the working of UPI.
As we're done with its working, let's understand why UPI is so popular.

Firstly, UPI is very reliable as it was launched by NPCI and has end-to-end encryption, secure verification methods, and much more. 

Secondly, UPI transactions aren't charged, while fund transfers via credit cards levy a minimum charge.

The transfer is almost instant because it is carried out through the Instant Payment Service(IMPS).

One more feature of UPI is that one doesn't need to rely on the internet or even a smartphone to make payments through the medium.

For small traders like kirana stores, mandi sellers, and small vendors, the UPI seller app ensured the continuation of their business.

For failed transactions, funds get refunded within an hour.

A very interesting thing here is how Paytm, BharatPe, and PhonePay are competing for speakers. Yup you read it right, since they don't get a cut of any sort from the UPI payments one makes through these apps, Paytm had the idea to provide their QR codes with speaker devices, which have an upfront fee of Rs 500 with rental of around Rs 125/month. Now, this has one very important benefit for small shopkeepers as they instantly get a voice message regarding their payments and don't have to constantly glance at their phones for the same. 

The following analysis by Omidyar Network and Boston Consulting group deduces the impact of demonetization on the growth of the UPI.


The acceptance of UPI among the common folks is a success story in itself, the system itself is fairly convenient, fast, interoperable, and safe. 

UPI is a growth accelerator for our country, a recent study by Boston Consulting Group titled Digital Payments in India: A US$10 Trillion Opportunity forecasted that the digital payments industry in India was en route to quadrupling from the current $3 trillion to $10 trillion by 2026. 

India is well on its way to becoming a cashless economy.




Links to read more about UPI:

1. https://www.npci.org.in/what-we-do/upi/product-overview

2. https://www.npci.org.in/what-we-do/upi/upi-ecosystem-statistics

3. https://www.niti.gov.in/protecting-upi-jewel-among-indian-fintech-innovations







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