AIR Spotlight: UPI Transactions in India

AIR Spotlight is an insightful program featured daily on the All India Radio News on air. In this program, many eminent panellists discuss issues of importance which can be quite helpful in IAS exam preparation.

This article is about the discussion on ‘UPI (Unified Payment Interface) transactions in India giving boost to digital transactions’. 

Participants:

• Sharad Kohli: Economic Analyst
• V. Ravi Kumar: AIR Correspondent

Introduction

• UPI is an instant real-time payment system which facilitates inter-bank peer-to-peer (P2P) transactions. There are no charges applicable for UPI transactions (at present).
• The National Payments Corporation of India (NPCI), the country’s regulatory authority for retail digital payments launched UPI in 2016.
  • The NPCI was formed as an initiative of the RBI and the Indian Banks’ Association (IBA) with the goal to create a robust payment and settlement infrastructure.
• Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood.
• UPI was initially used mostly for P2P (person-to-person) transactions but has seen a significant shift towards P2M (person-to-merchant) transactions in recent years. 

Read more about Unified Payments Interface in the linked article.

Success of UPI in India 

UPI has made a major contribution to ushering in the digital payment revolution in the country. The constant surge in the figures of digital transactions shows that UPI has been successful in proving itself in the FinTech landscape. Digital transactions through UPI recorded phenomenal growth during the pandemic year 2020-21. 

• In December 2022, UPI crossed 7.82 billion transactions worth Rs 12.82 trillion.
• As per NPCI, in the calendar year 2022, UPI processed over 74 billion transactions worth Rs 125.94 trillion.
• UPI has grown rapidly in the last five years and more than 40% of all retail digital payments (non-cash and non-paper payments) in India happen through UPI now. UPI brings us one step closer to the age of digital fintech nirvana.
• The popularity of UPI is evident — from tiny roadside shops to large brands, many merchants accept UPI-based payments. The primary reason for this penetration is that UPI accepts transactions as small as one rupee and for merchants, the absence of MDR (Merchant Discount Rate) that they have to pay to their banks is a significant incentive to accept UPI payments.

Benefits of UPI 

• Simplified, hassle-free online payments
• Safe and secure mode of money transfer
• Allows  a person to make payments towards  bills, shop on e-commerce websites, etc.
• Lets a person make payments by scanning QR codes at nearby departmental stores, chemist shops, etc.
• Regularly paying through UPI also helps you earn discount vouchers, cash back, and other rewards.

General UPI Limit

• One can only transfer an amount up to the limit set by the bank and NPCI on the transactions via UPI (at present, it is 2 lakhs and for some banks -only 1 lakh).
• It is important to note that the limit may change from time to time. 
• If one needs to transfer more than the limit set, they can use different payment applications like IMPS (Immediate Payment Service),  NEFT (National Electronic Fund Transfer) and bank payments.

e-Rupee/Digital Rupee/Central Bank Digital Currency (CBDC)

• Digital Rupee or Digital Currency is a digital form of paper money. The value of the e-Rupee and cash money is equal.
• With the launch of the RBI’s CBDC (Digital Rupee), the country has taken a step ahead to Digital India.
• It is like cash consumed out of the digital wallet instead of physical wallets and it would bear the sovereign stamp.
• Simply put, instead of withdrawing money from an ATM, a person is transferring money into a digital wallet. The amount transferred would assume the exact denominations of physical cash and will not earn interest when placed in an e-wallet.
• e-Re will be tested on closed user groups or CUGs. Four banks – SBI, ICICI Bank, IDFC First Bank and YES Bank – will participate in the first phase of the pilot and four more banks – HDFC Bank, Bank of Baroda, Union Bank and Kotak Mahindra Bank will subsequently be added to the plan, which would cover 13 cities in a phased manner.
• E-Re is also targeted at those who don’t have a bank account, but can use digital currencies similar to a pre-paid mobile recharge card. Likewise, it is not aimed at just smartphone users, but every person with a mobile phone.

In the coming years, users could shift to e-Re from UPI, if it proves efficient and trustworthy, and does not have technical glitches.

Read previous AIR Spotlight articles in the link.

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