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TMI BlogUPI – A WAY FORWARD FOR CASHLESS BANKINGX X X X Extracts X X X X X X X X Extracts X X X X ..... UPI – A WAY FORWARD FOR CASHLESS BANKING - By: - DR.MARIAPPAN GOVINDARAJAN - Other Topics - Dated:- 15-1-2025 - Earlier banking system The early banking system was almost manual. Since the number of customers was increasing the banking sector has to innovate the means and methods in banking sector. The following are the developments that occurred in that period- MICR clearing in 1980s; Electronic clearing services and Electronic Fund Transfer in 1990s; Use of debit and credit cards issued by the bank in 1990s; ATMs, mobile and internet banking in 2000s; The National Financial Switch in 2003s; Payments through NEFT and RTGS in 2004; The Cheque Truncation System in 2008; The Government of India after that period wanted to adopt digital techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies in banking sector. The following innovations were made by the banking sector- National Unified USSD Platform in 2014; National Electronic Toll Collection in 2016; Unified Payments Interface (UPI) in 2016; Bharat Bill Payment System (BBPS) in 2017; National Common Mobility Card in 2019. National Payments Corporation of India The Central Government established National Payments Corporation of India during the year 2009 to manage India s retail payment system. The organization is an initiative of the Reserve Bank of India and the Indian Banks' Association under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust payment and settlement infrastructure in India. The authorised capital has been pegged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs.3 billion and paid-up capital is Rs.1 billion. NPCI has sharply focussed on bringing innovations in retail payment systems through the use of technology for achieving greater efficiency in operations and widening the reach of payment systems. Roles Responsibilities of NPCI NPCI owns and operates the (UPI) platform. NPCI prescribes rules, regulations, guidelines, and the respective roles, responsibilities and liabilities of the participants, with respect to UPI. This also includes transaction processing and settlement, dispute management and clearing cut-offs for settlement. NPCI approves the participation of Issuer Banks, PSP Banks, Third Party Application Providers( TPAP for short) and Prepaid Payment Instrument ( PPI for short) issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers in UPI. NPCI provides a safe, secure and efficient UPI system and network. NPCI provides online transaction routing, processing and settlement services to members participating in UPI. NPCI can, either directly or through a third party, conduct audit on UPI participants and call for data, information and records, in relation to their participation in UPI. NPCI provides the banks participating in UPI access to system where they can download reports, raise chargebacks, update the status of UPI transactions etc. Roles responsibilities of PSP Bank PSP Bank is a member of UPI and connects to the UPI platform for availing UPI payment facility and providing the same to the TPAP which in turn enables the end-user customers / merchants to make a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd accept UPI payments. PSP Bank, either through its own app or TPAP s app, on-boards and registers the end-user customers on UPI and links their bank accounts to their respective UPI ID. PSP Bank is responsible for authentication of the end-user customer at the time of registration of such customer, either through its own app or TPAP s app PSP Bank engages and on-boards the TPAPs to make the TPAP s UPI app available to the end-user customers PSP Bank has to ensure that TPAP and its systems are adequately secure to function on UPI platform PSP Bank is responsible to ensure that UPI app and systems of TPAP are audited to safeguard security and integrity of the data and information of the end-user customer including UPI transaction data as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as UPI app security PSP Bank has to store all the payments data including UPI Transaction Data collected for the purpose of facilitating UPI transactions, only in India PSP Bank is responsible to give all UPI customers an option to choose any bank account from the list of Banks available on UPI platform for linking with the customer s UPI ID. PSP Bank is responsible to put in place a grievance redressal mechanism for resolving complaints and disputes raised by the end-user customer. Roles responsibilities of TPAP TPAP is a service provider and participates in UPI through PSP Bank. TPAP is responsible to comply with all the requirements prescribed by PSP Bank and NPCI in relation to TPAP s participation in UPI. TPAP is responsible to ensu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that its systems are adequately secure to function on the UPI platform. TPAP is responsible to comply with all applicable laws, rules, regulations and guidelines etc. prescribed by any statutory or regulatory authority in relation to UPI and TPAP s participation on the UPI platform including all circulars and guidelines issued by NPCI in this regard. TPAP has to store all the payments data including UPI Transaction Data collected by TPAP for the purpose of facilitating UPI transactions, only in India TPAP is responsible to facilitate RBI, NPCI and other agencies nominated by RBI/ NPCI, to access the data, information, systems of TPAP related to UPI and carry out audits of TPAP, as and when required by RBI and NPCI. TPAP shall facilitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the end-user customer with an option to raise grievance through the TPAP s grievance redressal facility made available through TPAP s UPI app or website and such other channels as may be deemed appropriate by the TPAP like email, messaging platform, IVR etc. Unified Payments Interface UPI is a real-time interbank payment system for sending or receiving money. It is integrated with more than 632 banks in India. Consumers can participate in P2P transfer as long as they both have an account in one of the registered banks. To initiate fund transfer, users have to use any UPI supporting Android or iOS app, link their bank accounts and generate BHIM UPI PIN. Funds can be transferred via the following methods: Virtual Payment Address (VPA): Send o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r request money from/to bank account mapped using VPA. Account number IFSC: Send money to bank account. QR code: Send money by scanning QR code with enclosed VPA or Account number IFSC. Mobile number: Send or request money from/to the bank account mapped using mobile number. Aadhaar: Send money to the bank account mapped using Aadhaar number. Once the fund transfer is initiated, money is debited from payer's bank account and deposited in the recipient's bank account in real-time. This system works 24x7, including weekends and bank holidays. Key Features of UPI Instantaneous Transactions : UPI allows for 24/7 instant money transfers between bank accounts using a mobile application, facilitating quick payments without physical cash. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ser-Friendly Interface : The design of UPI apps emphasizes ease of use, enabling users including those unfamiliar with digital banking to complete transactions with minimal effort. Interoperability : UPI supports interoperability among different banks, allowing users to link multiple bank accounts to a single UPI ID, simplifying transactions across institutions. Robust Security: UPI employs strong security protocols, including multi-factor authentication (MFA) and encryption, to safeguard user information and transactions, thereby enhancing trust among users. Cost-Effectiveness : Most UPI transactions do not incur fees, encouraging users and businesses to adopt cashless solutions Transaction limit UPI transactions come with specific limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and minimal charges, making it an economical choice for users: UPI Transaction Limits: UPI allows users to transfer up to ₹1 lakh per transaction, with a maximum of 20 transactions per day. These limits can vary based on the bank and specific UPI-enabled app. Charges: Generally, UPI transactions are free for users. However, some banks may impose nominal charges for specific services, like recurring payments or merchant transactions, depending on their policies. Benefits of UPI 1 The UPI is much beneficial to business people as well as customers. The UPI is benefited to the business people in the following ways- Secure and convenient way to receive payment directly in bank account; Low-cost infrastructure for receiving payment QR Code; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No need to handle cash; Zero MDR; No risk of sharing sensitive data; Collect functionality; Suitable for both online and offline merchants; Access to large data base of customers using UPI payment mode; No need of storing customer s bank on financial details. The UPI is beneficial to the customers in the following ways- Round the clock availability; No sharing of sensitive data; Simple user interface including ease of rising complaints; Convenience and affordability (no cost/very low cost); Availability of Apps with simpler interfaces; Suitable for payment without exposing account details; Convenient for high frequency low value merchant payments; Financial inclusion due to low cost and ease of operations; Creates digital financial footpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for users which enables access to credit and other financial services. The UPI is beneficial to the banks in the following ways- Low-cost alternative to cash transactions; Low merchant on boarding cost; Data on transactions enables targeting customers for other financial services. Growth in UPI transactions UPI is much liked by everyone including customers. The progress of UPI in the recent years is amazing. The following table shows the significant growth in UPI transactions in our country- GROWTH IN UPI TRANSACTIONS Financial year UPI Volume (In crore) Value (in crores) 2017-18 92 1962 2018-19 535 2482 2019-20 1252 2953 2020-21 2233 3000 2021-22 4597 3021 2022-23 8375 3355 2023-24 13116 3659 2024-25 (Till August 2024) 7062 1669 Source: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ministry of Finance Press release dated 20.09.2024 Latest developments Two new changes have come to UPI starting November 1, 2024. The National Payments Corporation of India has introduced an auto top-up feature and increased transaction limits for UPI Lite, effective November 1, 2024, to streamline small-value digital payments. Under these new guidelines, users can now make transactions up to Rs 1,000 without entering a PIN, doubled from the previous limit of Rs 500. The maximum wallet balance limit has also been increased from Rs 2,000 to Rs 5,000, though the daily transaction cap remains at Rs 4,000. The auto top-up feature automatically recharges a user's UPI Lite account when the balance falls below a predetermined threshold. User ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s can set their preferred top-up amount through their UPI app, with a limit of five automatic recharges per day. In October 2024, NPCI recorded 16.58 billion UPI transactions totalling Rs 23.5 trillion. This marks a 10% increase in volume and 14% increase in value compared to September, driven primarily by person-to-merchant transactions during the festive season. Now one can use his UPI ID as a payment option while subscribing for IPO on National Stock Exchange and Bombay Stock Exchange. Simply tell your broker to use UPI ID as the payment option while filling the IPO application. Future prospects of UPI As India continues to move toward a cashless society, several advancements in UPI are expected: International Expansion : The NPCI is exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loring partnerships with various countries for cross-border payments using UPI. This initiative aims to facilitate global commerce and increase UPI's footprint beyond India. Introduction of New Features - UPI Lite: Designed for low-value transactions, allowing users to make payments without the need for an internet connection, especially beneficial in areas with poor connectivity. UPI Lite: Designed for low-value transactions, allowing users to make payments without the need for an internet connection, especially beneficial in areas with poor connectivity. Cross-Industry Integration : UPI is anticipated to be integrated into more sectors, such as agriculture and healthcare, enhancing its usability and functionality for a broader range o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f services. Central Bank Digital Currency (CBDC): The Reserve Bank of India is also exploring the integration of UPI with CBDCs to streamline transactions and reduce costs for end-users. Enhanced Educational Initiatives : Sustained efforts to improve financial literacy regarding digital payments will be crucial in addressing apprehensions among potential users and ensuring wider adoption. Conclusion UPI has significantly transformed the digital payment landscape in India, achieving remarkable growth in transaction volume and user adoption. With over 420 million users and a substantial increase in transaction counts and values, UPI continues to play a pivotal role in advancing financial inclusion and digital literacy across the country. As o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther nations observe India's success with UPI, there is potential for similar systems to emerge globally, further enhancing the digital payment ecosystem worldwide. Reference: https://static.pib.gov.in/WriteReadData/specificdocs/documents/2023/may/doc202351190501.pdf . https://en.wikipedia.org/wiki/National_Payments_Corporation_of_India . https://rasorpay.com/blog/what-is-upi-and-how-it-works/ - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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