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How UPI changed transactions?

The pandemic might have provided the right nutrients for Unified Payment Interface (UPI) to bloom into a gigantic success, but if we want to look at its birth, we have to go back a couple of years. In 2016, the RBI introduced its Vision 2018, to promote less cash and more digital payments. This dream of digitization was fanned when the smartphone revolutionized in 2015 with affordable and accessible data plans.

Birth of UPI

The National Payments Corporation of India (NPCI) launched UPI in April 2016. UPI is a mobile-based, real-time payment interface that allows users to send and receive money between bank accounts. Both Peer-to-Peer and Peer-to –Merchant financial transactions are supported by UPI. Apart from that, UPI Apps provide non-financial services like balance check, tracking transaction history, rewards and cashback.

Simple design and the ability to operate all accounts under a single app is what made UPI stand out in the field of digital payments. It is easy to set up a UPI app. Download the available application from the Google Play Store or Apple App Store, register the device linked with the bank account, and set up the UPI PIN to start digital transactions.  

The key players

With the advent of Unified Payment Interface (UPI), Google Pay and Phone Pay owned by Walmart have dominated the market. These phone-based applications are simple and allow functionalities like bringing all accounts of customers under a single umbrella, where they can choose the primary account to send or receive money, also switch between accounts seamlessly.

These apps support multiple payment options like direct bank transfer, transferring money to a phone number registered for UPI transaction, self-transfer functionality where a customer can send money from one account to another, QR scan payment – is the most prominent feature while paying a merchant or seller, where customers just have to scan the merchant’s QR code and directly transfer money to their bank account.

Many banks have introduced scan and pay feature in their Mobile Banking app, so customers don’t have to switch between apps to deal with transactions.

Merchant Discount Rate

Initially, there was a transaction fee MDR (Merchant Discount Rate) associated with UPI transactions. In December 2019 the government decided to scrap the MDR. This led to a sporadic growth in UPI payments. In 2020 there was a talk to reinitiate MDR, but the finance ministry and the government are yet to take a call.

Current standing of UPI payments in India

The below infographics is a depiction of the high shift in UPI transactions from February 2021 till January 2022.


The future of Digital Payments

The scope of digital and real-time payment is a welcome move. Peer-to-Peer and Peer-to-Merchant transactions have gained a lot from this move. Further expansion of technology will surely invite new and advanced banking and payment options to transform India into a completely cashless economy.

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