What is UPI and how does it work?

You must have had many people asking for your UPI ID when you ask for payments. And nothing to worry if you don’t know why this new kid in the block is so popular. You aren’t alone. Even Raunak didn't have a clue.

Technology troubled him, and it took him months of practice to be able to use online banking and NEFT without fumbling. Then digital wallets took over. But while he was getting comfortable with his wallet app, BHIM UPI became the talk of the town. And it brought another level of intricacy in his already stressful life.

However, once he knew the details, he too started using it for online money transfers. And you're going to initiate your chain, soon.

And why not? It’s fast.

So, let’s explore what BHIM UPI is all about and how can you use it to send and accept payments.

What is BHIM UPI all about?

Well, let me first breakdown U-P-I. UPI stands for Unified Payment Interface. Launched in April of 2016, UPI facilitates easy (and quick) inter-bank funds transfer through mobile.

The UPI payment system uses a unique ID which you can create while setting up your account. You will use this ID to transfer money, receive payments or pay for products/services directly through your account.

And you will have a separate ID for each bank account you want to use, something similar to email IDs.

And the best thing is whichever UPI app you prefer to use, it can send money to any UPI ID, known as Virtual Payment Address (VPA, in short). It is faster than any other funds transfer service and is available 24x7.

OK, now what is BHIM?

Oh, BHIM (Bharat Interface for Money) is an app which uses the UPI technology. It has a simple interface to facilitate smooth money transfer from one bank account to another. And you can use this payment gateway for other apps too.

PayTM and Google Pay, for example, use BHIM’s UPI system to bring instant money transfer among their services. Do terms like BHIM and UPI sound a little familiar now? They indeed are something that you can control, effortlessly.

How can you start using UPI?

You know what, you probably won’t need to do much if you already use payment apps on your mobile. Popular digital wallet apps like Paytm, MobiKwik and PhonePe already have BHIM UPI added in their interface.

Google Pay, Airtel Payments Bank and PayTM Payments Bank support it too. Moreover, many brick-and-mortar banks’ apps facilitate instant money transfers and payments through UPI. As of March 2019, there are 142 banks live on UPI.

The process of setting up your VPA can be a little different in different apps, but in almost every app, it starts with clicking on UPI or BHIM UPI. But, before you do that, make sure you have the mobile number which is registered with your account. And your debit card.

Another thing to take care of is to register your app and bank account with the same mobile number. Let me explain with an example.

Suppose you have PhonePe activated with your Jio mobile number, and you want to link your bank account for UPI. But in your bank account, you listed your Vodafone number. You can’t activate UPI in PhonePe in that case.

That’s a real-life experience with PhonePe, one of my friends came across. He then, signed into PhonePe with the Vodafone number to have a seamless UPI experience.

And that’s it. Once registered, you can use your new Virtual Payment Address to accept and send money, without further delay.

What are the benefits of UPI?

One of the biggest advantages of using UPI is the ease with which you can perform the transactions. Here are the others –

• Unlike NEFT, RTGS or IMPS, UPI is free to use. There are transaction limits though, which differ across apps.
• The transactions take place between bank accounts without the need for account details. All you need is the Virtual Payment Address.
• Using UPI, you can transfer money instantly, 24x7
• You can use a single app to handle multiple accounts.
• Your smartphone is capable of approving payments or initiating transfers with a click.

Those were the major benefits that UPI offer.

With UPI, you don’t need to keep money in a digital wallet; instead, send money instantly from your bank account. Moreover, you don’t even need to add details of a new payee and then, wait for the bank’s approval.

Just key in the VPA and transfer the money, right away. With UPI, you can receive instant payments too.

Which banks support UPI payments?

As mentioned earlier, there are 142 banks which support UPI (in March 2019). Some banks like Canara, HDFC, SBI and 46 others have their own app while other banks rely on third-party apps for UPI transactions.

You can check the list of all UPI supported banks on NPCI’s website.

NPCI, National Payments Corporation of India, is an organisation that handles digital payment systems in India. It controls and facilitates RuPay transactions, Aadhaar Enabled Payment System and a few others including UPI payments.

And with that, I hope you got some more information about UPI to stock. There still are developments going on with this new payment system, but even at this stage, it looks quite promising.

It’s faster, easier and also more secure than the other methods in which you need to share many details. So, are you ready to start using it?