The banking coverage might be poor in rural parts but in cities many people have at least two bank accounts. Keeping a tab on them is a hassle. More so, if you are managing them on a smartphone. You would then have multiple apps on your handset, and for any transaction you select one of them and then enter the details and remember the right password. What if all of them were combined into one?

That is the idea behind the unified payment interface (UPI) system of the National Payment Corporation of India (NPCI), the umbrella organisation for all retail payment system in India, launched by RBI governor Raghuram Rajan in Mumbai in April. The aim is to make online banking less cumbersome – or more user-friendly. Soon to be available for individual users, UPI can make the smart banking smarter.

“UPI is a channel that powers multiple bank accounts into a single mobile application (of any bank) of a participating bank, merging several banking features, seamless fund routing and merchant payments into one hood. It also caters to the peer-to-peer collect request which can be scheduled and paid as per requirement and convenience,” according to NPCI.

A unique feature of UPI is that it would allow you to make and collect payment from another user of any bank through a single application. Thus, the user will not have to manage multiple m-banking apps.

Another unique feature is users will not have to punch in debit or credit card details every time to make payment online to any e-merchant, or for any banking transaction. Instead, the user will have to link his bank details with a payment address, using which he can make or receive payment on his m-banking or payment application. The payment address here could be your mobile number, Aadhaar number, RuPay card, or virtual payment address.
At present, banks are offering electronic payment services through National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS) and recently launched Immediate Payment Service (IMPS).

Both NEFT and RTGS functions during bank hours, unlike IMPS that allows account holders to transfer money anytime. NEFT allows transaction of small amount of money, while RTGS allows transfer of money more than two lakhs. Now with UPI coming into existence, m-banking users will able to perform all these banking services along with its UPI’s unique features.

“This unified layer, which offers next generation peer-to-peer immediate payment just by using personal phone, uses existing systems such as IMPS, AEPS, to ensure settlement across accounts. The usages of existing systems ensure reliability of payment transactions across various channels,” says AP Hota, managing director and chief executive officer, NPCI.

How will it work?

You will have to first download the UPI-enabled banking application, or update the current application that will support the UPI interface. Then you will create your profile by entering your details like the name, virtual ID, Aadhaar number and password. Once the profile is created, you will get an option to add or link or manage a bank account. You can then add or manage different bank accounts on this single platform. You are then set to receive or make payment from any of your bank accounts using the respective virtual ID or registered mobile number.

For every bank account added in the UPI enabled banking application, a separate profile has to be created, meaning each bank account will have its own virtual ID.

On validating the user, UPI will send a one-time-password (OTP) to the user’s registered mobile number. The user will also be asked to set an m-pin for each bank account.

As for verification, the NPCI will soon explore the option of biometric verification. However, for the biometrics feature to get successfully implemented, an ecosystem for an advanced smartphones has to be developed that could be afforded by masses. That can take time.

You can also collect cash on the UPI-enabled m-banking app. Suppose you have to collect money from a friend. You will log in to your m-banking app and generate a collect request by providing the friend’s payment address. The request will reach to his UPI-enabled m-banking app, and with his confirmation, the amount will be debited from his account and get credited to your account.

When you need to make payment at an online portal, you only have to provide your payment address, linked to your bank account. Through your payment address, the transaction will reach to your bank account for validation via UPI and a request to debit will pop up on your phone for confirmation. With your confirmation, payment to the online merchant will be processed – and you will not have to enter your bank details.

Implementation

By now, 29 banks have agreed to adapt UPI into their current applications, including State Bank of India, Bank of India, Panjab National Bank, HDFC Bank and Citi Bank. They also have an option to launch a separate application that is UPI compliant. NPCI however envisages connecting m-payment applications (Paytm, Oxigen) and online merchants (Amazon, Flipkart) with UPI to move towards a unified cashless society.

“Banks are in the process of changing their current applications to make them UPI compliant. Merchants and payment apps will also soon integrate UPI into their interface. We are targeting to launch UPI application for public use by June,” says Dilip Asbe, chief operating officer (COO), NPCI.
The backend process for handling requests made by users using the payment address will be handled by NPCI.

Financial inclusion

With UPI, NPCI is also targeting financial inclusion. So if a daily wage labourer has to transfer money from his m-banking app to a family member’s bank account, he can do it by entering that person’s Aadhaar number linked to his or her bank account.

But, even as more and more people are turning to smartphones, there are millions who either can’t afford a smartphone or still depend on SMS- or unstructured supplementary service data (USSD)-based m-banking. UPI, for the time being, will cater only to the smartphone users.

“The UPI architecture supports USSD- and SMS-based transactions that will allow us to reach to the non-smartphone user base. However, we are still in talks with TRAI [Telecom Regulation Authority of India] as more approvals are required. It will take at least another six months to make UPI available for the non-smartphone user base,” says Asbe.

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(This article appears in the May 16-31, 2016 issue of Governance Now)