Unified Payments Interface (UPI)

The Unified Payments Interface (UPI) for real-time transactions in India is a good case study for other nations in the payment space.

What’s UPI?

UPI is an instant real-time payment system developed by the National Payments Corporation of India.

It accounts for 60% of digital retail transactions in India today and is still growing.

UPI = payment markup language + standard for interoperable payments

Let's take a look at how it works.

Registration

• • Bob wants to open an account and provides his phone number +91 12345678

• • Bob performs OTP (One-Time Password) phone verification

• • Bob sets up VPA (Virtual Payment Address) bobaxis

• • Bob’s payment app creates VPA with the acquiring bank

• • The acquiring bank returns with VPA

• • The payment app returns VPA to Bob

Link to Bank Account

• • Bob wants to link his SBI bank account with VPA bob at the axis. The request is forwarded to NPCI (National Payments Corporation of India).

• • NPCI acts as a switch between acquiring banks and issuing banks. It resolves the account detail from VPA with different issuing banks.

• • Bob authenticates with account details and sets the PIN, which is used for 2FA. This goes all the way to the issuing bank.

Direct payment

• • Alice enters Bob’s UPI ID bob and the amount INR 100

• • PhonePe verifies and forwards the request to NPCI via ICICI bank

• • NPCI requests Axis Bank to resolve detail for bob at axis

• • NPCI deducts Alice’s HDFC bank account by INR 100

• • NPCI sends an instruction to SBI bank and add INR 100 to Bob’s account in SBI bank.

• • Upon success, NPCI notifies the payment apps via acquiring banks.