What Is a Unified Payment Interface (UPI)? The Ultimate Guide
Jun 18, 2022 By Triston Martin

The Unified Payment Interface (UPI) is one of the many flagship services being developed by India's central bank. Introduced in November 2016, it provides a unified mechanism for settling payments between businesses, thus reducing the cost of transactions and increasing efficiency. The UPI has been designed to facilitate domestic digital payments and reduce friction in remittances, ensuring smooth functioning across multiple modes of payment, including cards, online wallets, and mobile apps with support for over 70 banks. In addition, users can also use their Aadhaar number as identity proof while transacting on the interface.


The UPI network allows payment service providers (PSPs) to make instant payments or receive funds from customers through an online or mobile app. As of now, the UPI is an opt-in feature and can be used to facilitate both one-time and recurring transactions.


UPI enables payments between two bank accounts without requiring details of the beneficiary's bank account. The system can also transfer money from one bank account to another by scanning a QR code. It offers many other features such as inviting others for money transfers, paying merchants for online purchases, receiving direct credit into your bank account through the "Pay to Account" option, etc.



How does UPI work?


The UPI is a unified interface for mobile wallets and banks. The system allows a bank account holder to receive payments from any Indian banks that are part of the UPI network. These include large private and public sector banks such as SBI, HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank. It also enables merchants to accept digital payments from customers through their existing line of business apps, including online marketplaces like Amazon, Flipkart, and Snapdeal.


Major benefits of the UPI


From a customer’s point of view, here are some major benefits of the UPI:


  • While most countries have around 100 banks in their country at any given time, India has over 2500 commercial banks – each offering many products and services. UPI aims to simplify banking transactions by reducing the number of payment processes and services required in a transaction. The UPI system currently consists of over 70 banks.
  • Banks can create new end-to-end solutions for payment requirements and eliminate the need for their customers to visit multiple outlets and operate multiple accounts. No facility charges are involved even if a consumer has several accounts with the same bank. This allows bank customers to consolidate their banking activities without having an additional account with multiple cards or other accounts for each supply chain entity (merchant, e-commerce company, or aggregator).
  • It allows merchants to plug their websites directly into the UPI-enabled banks' end-to-end solutions. Through UPI, merchants can accept payments from numerous customers simultaneously through a single merchant app. The merchant will not be able to get payments from customers across different modes of payment without the use of the UPI platform.
  • In addition to facilitating cross-border remittances, it allows Indian workers to send money to their families within India or abroad through UPI. This is a far faster process than traditional bank transfers and can be completed within seconds.
  • India's payments landscape is too complex and fragmented, comprising four major channels (debit, credit, prepaid, and ATM), each with its own network. This makes it difficult to issue a consistent customer experience across channels. As per RBI data of 2010, there were 1.8 billion card transactions in India, while the number of mobile transactions was 3 billion in 2010, and up to 85% of transactions were cash-based. The payment landscape is set to change as UPI makes it possible to integrate all channels and ensure a consistent customer experience across all touch-points.
  • The UPI has been designed to function at the network level and create the common identity of a customer across different banks. In its current form, it allows interoperability between banks, enabling users to transfer money from one bank account to another while selecting beneficiaries across multiple banks. This will not only facilitate a single customer identity but also allow customers of any bank to receive payments from customers of any other bank.
  • The UPI also allows banks to offer payment solutions within their existing consumer applications, such as bank apps and wallets. UPI-enabled applications can be developed by banks themselves or by third-party developers and can be downloaded by customers. This will facilitate the requirement of having multiple cards across different payment channels. These applications include bill payments, digital wallets, and acceptance of payments at retail locations. It also enables innovators to create new business models that promote financial inclusion and enable a new class of 'non-bank' entities to offer financial services cost-effectively. Banks have also started to offer UPI payment services within their mobile apps with the launch of BHIM.
  • The UPI allows banks to offer a consistent experience to their customers while availing multiple products, addressing customer experience, and driving financial inclusion. Customers can see a single balance on the mobile application irrespective of where the money comes from – a bank account or other channels. This makes it easy for customers to manage their finances from a single application without requiring them to maintain separate applications for each channel.


Payment Address


The UPI facilitates a "Payment Address" for initiating payments to another user. The Payment Address is set up through the UPI application on a customer's phone. It does not require using any particular device, network, or domain. A user can use the same address to receive funds from anyone, irrespective of whether they have a bank account.



UPI is based on the IMPS (Immediate Payments Service) – a real-time payment system operated by the NPCI since 2010. IMPS allows transfers between banking channels, eliminating the need for physical cash or checks. The UPI enables transactions between bank accounts within India, where a customer can transfer funds to another bank's customer without needing a UPI-enabled application. It also enables interoperability between banks, thus facilitating an account-to-account swap while allowing customers to receive funds from customers of multiple banks using a single "Payment Address."