How to Register PSP in UPI: A Complete Step-by-Step Guide
UPI operates mostly behind the scenes. Payments are completed in seconds, confirmations appear almost immediately, and most people do not give it much thought. What is easy to miss is the organised system behind those transactions.
Banks and fintech firms that want to operate within the UPI ecosystem need to take an extra step beyond everyday usage. Registering as a Payment Service Provider (PSP) is essential, and it comes with regulatory checks and coordination with NPCI and a sponsor bank.
This piece explains how PSP registration usually works, from eligibility checks to approvals and onboarding.
What is PSP in UPI?
PSP in UPI refers to a Payment Service Provider. Simply put, it is the entity that enables users, merchants, and apps to connect to the UPI network and move money between bank accounts.
PSPs are usually banks or authorised financial institutions approved by NPCI to process UPI transactions. When a user makes a payment through a UPI app, the PSP manages the work happening in the background.
PSPs form the link between UPI apps and the banking system and are responsible for transaction processing, regulatory compliance, and settlement.
PSP banks connect directly with NPCI and handle the actual payment flow. Third-party app providers focus on the customer experience and rely on a PSP bank to access the UPI network.
Eligibility Criteria and Prerequisites to Register as a PSP in UPI
UPI allows only eligible and approved entities to operate as PSPs. Regulatory clearance, technical preparedness, and operational capability are treated as baseline requirements.
Organisations that are not banks must obtain appropriate authorisation from the Reserve Bank of India and work through a bank-led structure approved by NPCI. In many cases, this involves operating in partnership with a sponsor bank rather than acting as a direct PSP.
This approval confirms that the business is permitted to handle digital payments. Banks that are already regulated by the RBI follow a different approval process.
A PSP must also have the technical systems needed to connect with UPI and meet NPCI’s security requirements. Plus, a formal partnership with a sponsor bank is mandatory. The sponsor bank provides access to the UPI network and supports transaction settlement.
Compliance does not end there. PSPs must follow NPCI’s operational rules and India’s data localisation requirements. This means payment data must be stored within the country, and systems must meet prescribed security standards.
Common documents required
- RBI licence or authorisation
- Business registration documents
- Technical and security infrastructure details
- Sponsor bank agreement
Step-by-Step Guide on How to Register PSP in UPI
This section explains how to register a PSP in UPI, from early preparation to launch. The process involves regulatory checks, technical readiness, and coordination with NPCI and a sponsor bank.
Step 1: Prepare Your Business and Obtain an RBI Licence
If you are not a bank, RBI approval comes first. In most cases, this involves holding a payment aggregator or payment gateway licence that allows you to process digital payments.
Step 2: Partner With a Sponsor Bank for UPI Integration
To access the UPI network, you must work with a sponsor bank that is already connected to NPCI. The sponsor bank supports settlement and compliance and often helps initiate the onboarding process.
Step 3: Develop or Adapt Technology Compatible With UPI Standards
Your systems need to meet NPCI’s technical and security requirements. This includes UPI API integration, secure data storage, and reliable transaction processing. These systems will be tested before approval.
Step 4: Submit Application to NPCI With Required Documentation
Once everything is in place, submit your application to NPCI. This typically includes business details, regulatory approvals, technical documentation, security policies, and the sponsor bank agreement.
In most cases, the application is submitted through the sponsor bank as part of NPCI’s onboarding process.
Step 5: Undergo Compliance and Technical Evaluation and Testing
NPCI reviews the application and looks at how the systems perform during testing.
Step 6: Final Approval and Go-Live Preparation
Once this stage is cleared, approval follows. Attention then moves to launch preparation, such as setting up monitoring, arranging customer support, and finalising internal processes.
This phase often comes with additional financial planning. Options like the Hero FinCorp personal loan app for Android and iOS can be useful for managing short-term funding needs during rollout.
Step 7: Launch Your PSP UPI Services and Manage Ongoing Compliance
After going live, you can begin offering UPI services. Ongoing work includes system maintenance, security updates, and regular regulatory reporting.
Bonus tips for smoother registration:
- Begin licensing and sponsor bank discussions early
- Double-check documentation before submission
- Align your test environment closely with NPCI requirements
Technical and Security Requirements for PSPs in UPI
Any PSP that operates within UPI must meet a clear set of technical and security requirements. These rules are defined by NPCI to keep transactions secure and the system dependable for everyone involved.
PSPs are required to use OTP-based verification along with encryption to protect sensitive information. Multi-factor authentication adds another layer of protection and helps reduce the risk of unauthorised access.
UPI payment data must be stored within India, in line with data localisation rules. This helps maintain regulatory oversight and improve data protection.
PSPs also need to follow NPCI’s API standards so their systems can communicate correctly with the UPI network. Secure API usage, proper key management, and session controls are part of this setup.
Even after launch, PSPs need to keep track of how their systems are performing. Regular monitoring and audits help surface issues early.
Key requirements include:
- OTP-based verification, encryption, and multi-factor authentication
- Storage of payment and transaction data within India
- Secure API integration based on NPCI standards
- Continuous system monitoring and risk management
- Regular security audits and compliance checks
Planning for compliance and long-term stability often involves upfront investment.
What PSP Registration in UPI Means for You
Registering as a PSP in UPI involves regulatory approvals, secure systems, and ongoing compliance with NPCI and RBI requirements. Taking care of these early on can help avoid issues later and make operations easier to manage.
For many businesses and individuals in the financial space, digital infrastructure and access to financing tend to go together.
Hero FinCorp supports this broader ecosystem through transparent financial solutions and tools designed to help you plan, grow, and make informed decisions.
Explore Hero FinCorp’s personal loan options today to see how the right financial support can complement your next step.
Frequently Asked Questions
1. What is the full form of PSP in UPI?
PSP is short for Payment Service Provider and refers to the entity that supports UPI payments.
2. Who is eligible to become a PSP in UPI?
Only entities that meet regulatory and technical requirements can operate as PSPs. This usually involves RBI authorisation and working with a sponsor bank approved by NPCI.
3. How long does the PSP registration process take?
There is no fixed timeline. The duration depends on how prepared the applicant is and how quickly regulatory and technical checks are completed.
4. Is a sponsor bank mandatory for PSP registration?
Yes. A sponsor bank is required to connect to the UPI network and support the onboarding and settlement process.
5. Can a PSP in UPI serve international customers?
UPI is gradually expanding to other countries, but the ability to serve international customers depends on NPCI arrangements and regulatory approvals.
6. What are the ongoing compliance requirements for PSPs?
PSPs are expected to follow NPCI and RBI rules on security, data storage, reporting, and regular audits throughout their operations.
