Moving Towards Cashless India: Understanding UPI

India has traditionally been a fiercely cash-driven economy. The current government has made several efforts to drive transactions through various digital and online channels which would help give the economy a boost, and improve India's global image. While we shift from a cash driven to economy to a cashless one, it is important to understand its significance, and related facets.

Significance of a Cashless Economy

A cashless economy is one where business transactions are not carried out with notes or coins but transferred electronically between transacting parties. It helps track spending and adds convenience, while lowering the risks arising out of physical cash handling. The biggest benefit of a cashless economy is the ease with which it facilitates business through a quick and seamless transfer of funds.

Such an economic system could help the Indian Government to better monitor instances of tax avoidance as all transactions can be monitored. Secondly, this would also help reduce the generation of black money, as there is a clear trail for every rupee moving through the economic system.

Government of India Initiatives for Promoting a Cashless Economy

The government has been actively taking steps to achieve a cashless economy, some of the initiatives taken by the government are, licencing of payment banks, promoting mobile wallets, promoting e-commerce by liberalizing FDI norms, reduction on surcharge amounts on card and digital payments.

Last year, the Reserve Bank of India (RBI) Governor, Raghuram Rajan, along with Nandan Nilekani, ex-chairman of Unique Identification Authority of India (UIDAI) launched the Unified Payment Interface (UPI). UPI is a way in which you can electronically transfer funds or make payments.

Initiated and implemented by the National Payments Corporation of India (NPCI), UPI is based on the Immediate Payment Services (IMPS) infrastructure. IMPS allows you to immediately transfer money from a bank/ wallet to other accounts.

UPI is an enhanced version of IMPS, where you can send as well as request and receive money. Also, under UPI, you have a single identity and password for using multiple bank accounts. Popular UPI apps in India are: BHIM, PhonePe, eMpower by Canara Bank, SBI Pay, Axis Pay and Tez by Google. UPI has several benefits for banks, customers and merchants/ establishments, the major are listed below:

1. Benefits for banks:

• Universal app for transactions

• Two-factor authentication with a single click

• Safer, innovative and secure

• Leverages existing infrastructure

• Payment based on a single unique identifier

2. Benefits for Customers:

• Single app allows access to multiple bank accounts

• 24x7 availability

• Authentication with a single click

• No requirement of sharing credentials, aiding security

• Easy grievance handling via Mobile App

3. Benefits for Merchants:

• Seamless transaction of funds from customers

• Larger pool of customers since those with debit/credit cards can now access digital payment system

• No risk of losing vital customer data to hacking

• Suitable for e-commerce transactions

• No problems with Cash-On-Delivery collection

• Easier In-App Payment (IAP)

In order to use UPI, users need to create a Virtual Payment Address (VPA) of their choice and link it to the bank account they wish to use. The VPA acts as their financial address and users do not need to remember or send bank IFSC Codes or beneficiary account number to send or receive payments every time they make a transaction.

How to use UPI

Getting started on to UPI is easy, all you need is a smartphone. The UPI app is available across banks and each bank offers its own app. You can use any of these apps to create a VPA or unique ID to transfer funds. Some banks have already incorporated UPI into their existing app. You can also download the UPI app from one bank and connect your other bank account to it. Before choosing a UPI app, understand how good the interface is through reviews. The BHIM app is the simplest of them all.

The UPI app is not a mobile banking app or wallet. It only facilitates payments from your bank accounts to merchant establishments. The general steps of using a UPI app is simple. They are:

1. Open app using a passcode.

2. Select PUSH or PULL depending on whether you want to send or receive money.

3. Choose the account from which payment has to be made, in case multiple accounts are linked.

4. Add unique ID of the receiver in case receiver is to be added.

5. Select receiver. Add bank account details or IFSC code, or select VPA of the receiver to transfer funds.

6. Enter the amount to be transferred and hit send.

7. The app will generate a passcode before making the payment. Enter the passcode to confirm the payment.

UPI is new technology, having been launched in 2016 and will take some time to be as popular as e-wallets which have become important to own in the post-demonetisation era. E-wallets are also popular due to increased publicity, discounts, and cash-back on purchases. But the UPI is capable of making payments in the home and foreign currency through apps like the BHIM app, which will be its strongest point in the time to come.

The entire payment is routed through payments banks, which is a new model of banks conceptualised by the Reserve Bank of India (RBI).

These banks can currently accept deposits up to INR 1 lakh per customer and may be increased further. Payments banks can issue services like ATM cards, debit cards, net-banking and mobile-banking. Airtel has launched India's first live payments bank, which has made ground-breaking progress in the first few months of its launch.

You do not need to be an Airtel subscriber to avail of this service. All you need is an Aadhaar card. This service has already got over 1 million merchants on its platform and more than 300,000 Airtel retail outlets as banking points. This facilitates a large scale shift of transactions in rural areas that are underserved as per RBI.

Almost a year after UPI was launched, the NPCI is gearing up to launch UPI 2.0. It is touted to be faster, more secure and will have an easier authentication process. UPI 2.0 will integrate Bharat Bills payment system with it to facilitate payments of electricity, mobile, insurance and telephone bills via the app. E-mandate is another feature planned to be introduced and it is expected to be a turning point for digital lending companies at the time of collections.

Conclusion

UPI is a great enabler; it will allow users to pre-authorize transactions as well as use biometric authorization to ensure secure payments. They will also be able to schedule periodic payments and Aadhaar based payments with greater efficiency overall.