According to the National Payments Corporation of India (NPCI), the contactless digital payment framework, UPI (Unified Payment Interface), achieved more than 14 billion monthly transactions in July 2024. UPI has gained immense popularity in India and is now continuously expanding to countries like France, Sri Lanka, UAE, and Nepal. In this article, we will explore both the advantages and concerns surrounding UPI.
What is UPI?
UPI (Unified Payment Interface) is a real-time payment system developed by the National Payments Corporation of India (NPCI). It allows instant money transfers between bank accounts using a mobile device. UPI simplifies transactions by allowing users to link multiple bank accounts to a single app and transfer funds using just a phone number or virtual payment address, without the need to input detailed bank information.
UPI has become a widely-used platform for digital transactions in India, offering seamless money transfers for everyday use, bill payments, online shopping, and more. Its ease of use, interoperability across banks, and zero-cost transactions for merchants have helped it gain widespread popularity.
Impact of UPI on the Payments Industry
UPI has completely revolutionized how payments are made in India. It has posed a significant challenge to US card giants like Visa and Mastercard, which charge merchants fees for consumer transactions based on amounts. In contrast, UPI operates at no cost to merchants. This zero-cost model has made UPI highly attractive for businesses and merchants in India.
Mastercard’s CFO, Sachin Mehra, highlighted the disruptive nature of UPI during an address on October 11, 2023, referring to UPI as an “incredibly painful experience” for ecosystem participants due to its free structure for merchants. This disruption has forced traditional payment providers to rethink their strategies, as UPI continues to dominate the digital payments space in India.
As with anything in this world, UPI has its positives and negatives. Let’s look into its key advantages and major concerns.
Key Advantages of UPI
1. Financial Inclusion: UPI has made it easier for a large portion of India’s population to access digital financial services, especially those who were previously excluded from the traditional banking system. It allows people to make digital transactions using just a mobile phone and a bank account, fostering financial inclusion.
2. Ease of Use: UPI offers a simple, user-friendly interface that even those with limited technology literacy can use effectively Users only need a smartphone and can transact, send money, pay bills, and make any online purchases with ease.
3. Interoperability: UP works across different banks and payment service providers. Hence, it is designed to be interoperable. This ensures that users can transact with anyone, regardless of the bank they are associated with.
4. Lower Costs: The cost of UPI transactions is typically lower than traditional methods like NEFT or RTGS, making it an attractive option for both consumers and businesses. For individual users, it operates at no cost.
5. Reduction in Cash Transactions: UPI has contributed to a significant reduction in cash transactions, which is beneficial for the economy by reducing the informal economy and improving transparency. It is also easier to keep track of digital payments rather than traditional cash payments.
6. Business and Entrepreneurship: UPI has opened up new opportunities for businesses and entrepreneurs. It enables small businesses to accept digital payments without the need for expensive point-of-sale terminals, and it has led to the growth of numerous fin-tech startups in India.
7. Government Initiatives: Government campaigns like “Digital India” and “Make in India” have played a key role in UPI’s adoption. Moreover, UPI is now seen as a successful model globally, with several countries considering similar frameworks to enhance their own digital payment infrastructures.
Major Concerns Regarding UPI
1. Potential for Addiction: UPI’s ease of use can lead to overuse. People now use it even for small transactions, often less than 50 rupees. rupees. Unlike limited cash in our wallet, UPI gives us the full power to use our balance in bank accounts. UPI may help in an emergency when we don’t have cash, but now, an emergency keeps coming. Additionally, quick e-commerce platforms like Blinkit, Zepto, etc., and food delivery platforms like Zomato, Swiggy, etc., have been just like the cherry on the cake, encouraging frequent small transactions.
2. Transaction Limit: Different apps and banks have imposed several restrictions on the number of transactions and the maximum amount in a transaction. While this may not affect the common man, it is a problem for transactions involving high volume and value for business purposes.
3. Security and Fraud: With the growth of digital transactions, there is an increased risk of cyber crimes and fraud. Malicious actors can attempt phishing attacks, unauthorized access, or other fraudulent activities. UPI providers need to continually enhance security measures to protect users.
Conclusion
UPI has indeed been a game changer for India in the realm of digital payments. It has made our lives easier. From small shopkeepers to large utility bill payments, UPI is accepted almost everywhere. However, its addictive ease of use requires caution. Monitoring your spending habits and limiting unnecessary transactions can help you make the most of this powerful tool without falling into the trap of overspending.
How many UPI transactions did you make this month? Share your experience with UPI in the comments below!