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UPI (Unified payment interface) – How Does It Work ?

UPI (Unified payment interface) – Here is all you need to know.

When we talk about Fintech or mobile payment systems, we always think of examples of Silicon Valley, Germany, Luxembourg or Switzerland, maybe even Africa.

Today, we are going to Asia, India specifically. Introducing a mobile based payment system that unites all the Indian banks through a unified payment protocol. This is named Unified Payments Interface (UPI).

India is a diverse and vast country in every sense with numerous languages and cultures. So designing a payment system that works here is quite a challenge to which is added the problem that many of its inhabitants do not have access to a bank account (not to say a credit card) or to a mobile phone.

What is the Unified Payments Interface (UPI)?

A payment interface standardised and promoted by the Indian National Corporation of Payments where all the Indian banks that operate there are encompassed.

It serves to transfer amounts of up to 1 lakh rupees between two bank accounts using a smartphone. As you can see, it serves for almost all types of payments except possibly buying a luxury item, a new vehicle or a house.

And what’s so special about it as compared to a bank transfer or a money order? The first one is created from scratch and aims at creating an open payment ecosystem. Thus, every bank can create its own interface as it happens with the SEPA orders to redirect them through the banks.

The  UPI is designed to create payment gateways & payment apps. It even lets the banks develop their own UPI app.

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Functioning of UPI (Unified Payments Interface) – How does UPI Work?

The internal operation of UPI gives more than one post (the procedures have “only” 62 pages). Let us put an example between a payer and a receiver of a payment!

  1. The receiver of the payment makes a request for payment to the UPI through an application.
  2. The UPI requests the authentication data from the payer.
  3. The payer returns the data requested by the UPI.
  4. The UPI makes a payment request to the bank of the sender.
  5. The sender’s bank sends a payment response to the UPI.
  6. The UPI returns the response to the request for payment to the beneficiary’s bank.
  7. The beneficiary’s bank returns a payment response to the UPI and the UPI returns it to the recipient.
  8. The receiver returns a response to the application.

The steps described above give a summarised, rather non technical insights towards functioning of Unified Payment Interface.

Having good technology is good but if there is no ecosystem that supports it, it can lead to failure. At last, good technologies without an ecosystem die or are relegated to the professional niche market as happened to Betamax or the Macintosh.

Vishaka Goyal

A passionate writer who writes about what she believes in.

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