UPI: A revolution for real-time payments in India

Continuing its series on real-time payments beyond Europe, the European Payments Council has delved into the National Payments Corporation of India (NPCI) and its widely acclaimed Unified Payments Interface (UPI), a mobile-based real-time payment system facilitating instant personal and merchant transactions.

The EPC interviewed Ritesh Shukla, CEO of NPCI International Payments Limited (NIPL), to learn more.

How would you briefly describe UPI and what role does the NPCI play?

UPI is India’s popular mobile-based real-time payment system, which enables instant personal and merchant payments. It processes over 75% of the country’s retail digital payments, registering over 14 billion transactions in May 2024 alone.

UPI with its complete interoperability has truly democratised payments in India, providing financial services access to every Indian with a mobile device.

UPI has become a pivotal force in India’s digital economy as an architecture framework with a set of standard Application Programming Interfaces (APIs) that facilitate easy integration.

Its interoperability enhances financial access, and its real-time capabilities ensure swift fund transfers. Moreover, NPCI employs a cost-effective merchant-deployment model which supports merchant network expansion.

At the ecosystem level, NPCI adopts an industry-led approach to ownership and governance, guided progressively by the regulator – the Reserve Bank of India (RBI).

It works on the principles of collaboration and inclusion among ecosystem participants, driving innovation through its platform-centric approach.

What are the key numbers and growth trends for UPI?

Currently, there are ~350 million active UPI users in India and over 340 million QR codes at various merchant locations to facilitate real-time payments in a seamless digital manner.

The UPI ecosystem is expansive, featuring over 77 mobile applications including players like Google Pay, WhatsApp, Amazon Pay, PhonePe (Walmart-backed), and BHIM.

Additionally, more than 550 banks are integrated into the UPI framework, contributing to its extensive reach and utility.

In 2023, UPI handled 117 billion financial transactions totalling 2.19 trillion dollars

in value. To quote the most recent data, in May 2024 the UPI platform processed transactions valued at around 245 billion dollars.

Notably, the share of person-to-merchant (P2M) transactions has been consistently growing, comprising approximately sixty-two percent of the total transactions as of May 2024.

What were the main reasons behind the decision to develop UPI in India?

UPI represents a successful collaboration between India’s public and private sectors in the financial industry.

It was developed by NPCI, a not-for-profit organisation founded by the RBI and the Indian Banks’ Association (IBA) under the Payment and Settlement Systems Act of 2007.

While NPCI is regulated by the RBI, it has 65 shareholders, and these include several banks and fintech companies.

The extraordinary growth story of UPI can be attributed to three essential factors:

The Indian government’s vision of transforming country into a digitally empowered society has provided the necessary impetus for digital payment systems such as UPI to thrive;
The RBI’s forward-thinking, progressive approach towards payments and financial technology; and
The collaborative efforts at the eco-system level of banks, financial institutions, fintechs, and merchants.

What are the main use cases supported on UPI?

UPI supports multiple use cases such as Person-to-Person (P2P), Person-to-Merchant (P2M), Request-to-Pay, UPI on Delivery, Standing Instructions, IPO investments etc.

To elaborate on a few, request-to-pay enables individuals or merchants to request money from the payer via UPI, simplifying transactions.

With recurring payments, UPI supports auto-debit functionality for utilities, entertainment subscriptions, and other services.

Users can also link their RuPay credit card to UPI apps for secure transactions without needing the physical card.

Additionally, with UPI for international payments, Indians can currently pay select merchants in Bhutan, France (ecommerce), Mauritius, Nepal, Singapore, Sri Lanka, and the United Arab Emirates (UAE).

Opportunities for stakeholders:

Consumers: UPI opens up a more inclusive financial ecosystem, enabling instant, 24/7 transactions at virtually no cost. It supports a range of transactions from high-value payments to micro-transactions, increasing financial accessibility.

Merchants: For merchants, UPI simplifies the collection of payments directly from the customer’s bank account without needing to handle cash or store sensitive customer information, mitigating risk and enhancing customer trust.

Payment Service Providers (PSPs): PSPs benefit from the growing volume of transactions and the expanded market reach. UPI’s framework allows them to innovate on top of its infrastructure to develop customized payment solutions for diverse market needs.

What major factors are likely to drive the evolution of Indian payments ?

UPI aims to provide a secure and seamless payment experience, striving to make India a ‘less cash’ society by ensuring that every citizen has access to digital payment options.

The goal is to become a leading global payments network through continuous innovation, improving UPI’s accessibility for everyone, including those in rural areas with limited internet, and Indians abroad.

For Indians residing in India: Features such as UPI Lite X, UPI 123PAY and Hello! UPI are designed to address the diverse financial and literacy levels across the Indian population.

For Indians abroad: NIPL is actively working to build interoperability for UPI to facilitate both cross-border P2M payments and P2P remittances. This initiative aims to provide Non-Resident Indians (NRIs) and outbound travellers with seamless, real-time access to UPI, their preferred payment method.

For the global payments landscape: NIPL is also working with foreign central banks and governments to help develop sovereign, interoperable, and robust payment systems like UPI.

Given the rise, could you explain NPCI’s role in preventing fraud?

In the fast-growing digital world, some customers may become victims of fraudsters employing social engineering tactics.

Although the UPI ecosystem is fortified with multiple layers of security controls at NPCI and banks, and is supported by extensive fraud awareness campaigns to protect users, incidents of fraud typically occur due to factors like greed, coercion, or appeals for help.

NPCI ensures the security of the UPI payment system throughout the customer lifecycle by implementing comprehensive fraud prevention and detection strategies, covering everything from UPI registration to transaction processes.

The first layer of security binds the user’s device and mobile number to the bank account using an out-of-band factor of authentication (the last six digits of the debit card and a one-time password), while the second layer of security involves creating a four- or six-digit UPI PIN to authenticate every transaction using the registered mobile device.

NPCI has developed and implemented artificial intelligence (AI) & machine learning (ML) based real-time fraud risk monitoring and management solution (FRM) as a value-added service for its member participants.

NPCI also collaborates with multiple stakeholders including law enforcement agencies, member banks, partners, and government bodies to conduct public awareness campaigns on security practices. These collective efforts significantly enhance the security of UPI, supporting its growth and maintaining its secure status.


The interview was originally published in the European Payments Council (EPC) Newsletter

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