What is UPI : Meaning, Full Form, Features & Benefits

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24 SEPTEMBER, 2024

The Unified Payments Interface (UPI) has revolutionised financial transactions by simplifying and streamlining the process. Developed in India, this innovative system enables easy and fast money transfers directly between bank accounts using a mobile app. UPI ID means integrating various banking services into a single platform, making it easier for users to manage their transactions. UPI offers a seamless way to handle payments, transfers, and more for those with current accounts. This guide will explore what is UPI ID , how it works, and its key benefits.

What is UPI ID & Full Form

UPI full form is Unified Payments Interface. A UPI ID, also known as a Virtual Payment Address (VPA), is a unique identifier used to receive payments directly into your bank account. This UPI ID simplifies transactions by eliminating the need for traditional bank details.

Features and Benefits of UPI

Unified Platform: UPI is a one-stop solution for various payments, covering peer-to-peer transfers, merchant payments, and bills. Users can avoid the hassle of managing multiple apps.
24/7 Accessibility: UPI operates round the clock, allowing users to make payments anytime, even on weekends and holidays. This enhances convenience by eliminating restrictions based on banking hours.
Security Assurance: UPI priorities security with a two-factor authentication process, ensuring only authorised individuals can access and initiate transactions.
End-to-end Encryption: UPI transactions are safeguarded by end-to-end encryption, providing a robust layer of protection against unauthorised interception or tampering with transaction data.

How does UPI ID work?

Here’s a simple breakdown of how a UPI ID functions-

Link Your Bank Account - First, link your bank account to a UPI-enabled mobile app.
Create a UPI ID - Generate a unique UPI ID as your digital payment address.
Make a Payment - Enter the recipient's UPI ID or mobile number along with the payment amount.
Authorise the Transaction - Use your PIN or biometric authentication to approve the payment.
Instant Transfer - Funds are swiftly transferred from your bank account to the recipient’s.

How many Participants are involved in the UPI transaction?

When it comes to a UPI transaction, several participants are involved in the process.

Remitter Bank: Initiates the UPI transaction on the payer's behalf, marking the process's first step.
Beneficiary Bank: Ensures the payment reaches the correct account, which is pivotal in crediting funds to the beneficiary.
NPCI: The National Payments Corporation of India oversees and governs the UPI system, serving as an intermediary between banks for seamless fund transfers.
Merchants: Businesses or individuals accepting UPI payments, such as online platforms, retail stores, or service providers, contribute significantly to UPI transactions.
Bank Account Holder: Individuals or entities holding a bank account and utilising UPI for payments, either initiating or receiving funds within the UPI system.
PSPs: Payment service providers acting as third-party platforms facilitating user-friendly UPI transactions. PSPs serve as intermediaries, simplifying the process for users while connecting with banks.

Multiple participants are involved in a UPI transaction, including remitter and beneficiary banks, NPCI, merchants, bank account holders, and PSPs. Each participant plays a crucial role in ensuring smooth and secure payment through UPI, making it a convenient and efficient payment method for users.

How to Send Money Through UPI- Step-by-Step Process

To send money through UPI, you must first ensure that you have a UPI-enabled bank account linked to your mobile number. Most banks offer this feature so you can check with your bank for clarification. Once you have confirmed that your bank account is UPI-enabled, you can proceed with the following steps.

Download a UPI-enabled app: Choose from apps like Google Pay, PhonePe, Paytm, or BHIM on Google Play or Apple App Store. Install the chosen app on your smartphone.
Set up your UPI ID: Open the installed app and follow the on-screen instructions to create your UPI ID. This unique identifier links to your bank account for transactions.
Add your bank account: Post-UPI ID setup, add your bank account details. Input your account number and IFSC code, and verify using the OTP sent to your registered mobile number.
Choose the recipient: Choose the recipient from your contacts or manually input their UPI ID or bank account details.
Enter the amount and remarks: Specify the amount to send and, optionally, include remarks for tracking or personalisation.
Authenticate the transaction: Review transaction details and authenticate using your UPI PIN or the app's authentication method. Once confirmed, the money instantly transfers from your account to the recipient's.

What is a UPI PIN?

A UPI PIN is a 4 or 6-digit code users set during UPI application registration. This confidential PIN confirms transactions and should never be shared to prevent fraud.

How to Generate a UPI PIN?

Follow these steps to generate a UPI PIN:

Install a UPI-enabled app and create a UPI profile.
Open the app and tap 'Profile' in the top left corner.
In 'Payment Settings,' choose 'UPI & Linked Bank Accounts.'
Select a linked bank without a set UPI PIN.
Click 'Set PIN' and enter the last 6 card digits and expiry date.
Receive an OTP and enter it with your preferred UPI PIN.
Click 'Submit' to set your UPI PIN. A confirmation notification will follow.

Note – Steps may differ from platform to platform.

How to Create your UPI ID at kotak Bank?

How to Find Your UPI ID?

Let’s see the steps to help you find your UPI ID.

Open the app and go to your profile settings.
Look for 'Bank accounts,' ‘Profile,’ or a similar option.
Select the specific bank account.
Find your UPI ID under 'UPI IDs' or a similar section.

These steps apply universally across different UPI apps.

What are the Benefits of UPI for Merchants

UPI offers some great perks for merchants, making it a popular choice-

Instant Payments - Payments are processed in real-time, so you get your money immediately.
Cost-Effective - UPI usually has lower fees than traditional payment methods, saving you money.
Convenience - You can accept payments easily through your mobile phone or POS system using a UPI ID.
Enhanced Security - UPI transactions are secure with robust authentication methods, minimising fraud risks.
Broader Reach- UPI works with various banks and financial institutions, so more customers can pay you easily.

What are the Benefits of UPI for Customers

UPI offers several advantages that enhance the convenience of managing finances-

Instant Transfers - Money can be sent and received instantly, any time of day.
Convenient Payments - You can easily pay bills, make purchases, and transfer money through your mobile phone.
Secure Transactions - UPI ensures high-level security with strong authentication methods, keeping your transactions safe.
No Additional Fees - Most UPI transactions are free, so you save on transaction costs.

UPI streamlines financial activities, making daily transactions simpler and more efficient.

What is the UPI transaction limit

UPI has a specific transaction limit to ensure user security and manageability. Here is an overview-

Per Transaction Limit - Generally, you can transfer up to Rs. 1 lakh per transaction.
Daily Transaction Limit - The total amount you can send in a day may also be capped at Rs. 1 lakh, though this can vary by bank.

These limits are set to balance convenience with security, ensuring safe and manageable transactions. Always check with your bank for current limits and applicable variations.

What is a UPI Reference Number?

A UPI reference number, also known as a UTR (Unique Transaction Reference), is a 12-digit code created automatically for each UPI transaction. This unique number is shown underneath the amount you deposited. It's a tracking tool that allows you to monitor and identify your transactions. If you need to contact customer service or your bank to address an issue or check the progress of your payment, use this reference number. It makes handling your transactions easier and more transparent.

Read Also: What is EBITDA

Related Information

FAQ’s About UPI

Are there any charges for UPI?

UPI payments for personal transactions are free of extra charges. However, digital wallet transactions above Rs 2,000 may have associated costs.

Is UPI safe?

UPI payments are highly secure and regulated by the Reserve Bank of India and NPCI. Mobile payment apps strictly adhere to the guidelines set by these regulators, ensuring the safety and reliability of UPI transactions.

What is an example of UPI?

An example of UPI is transferring money using the Paytm app to a friend’s phone number linked with their UPI ID. Enter the recipient’s UPI ID or mobile number, input the amount, and authenticate the payment with your PIN.

How to UPI payment?

To make a UPI payment, open your UPI-enabled app, enter the recipient’s UPI ID or phone number, specify the payment amount, and authorise the transaction using your PIN or biometric authentication. The payment is instantly processed and transferred directly from your bank account.

Who is the owner of UPI?

UPI is owned and developed by the National Payments Corporation of India (NPCI). NPCI is an organisation that operates retail payments and settlement systems in India, and it manages UPI as part of its efforts to streamline digital payments.

Do you need a bank for UPI?

Yes, you need a bank account to use UPI. Your bank account must be linked to a UPI-enabled mobile app, which allows you to make and receive payments through the UPI system. The app facilitates transactions directly from your bank account.

Can I use UPI without a sim?

No, you need a SIM card with an active mobile number to use UPI. The SIM is essential for receiving OTPs and other transaction-related notifications on your mobile device, ensuring the security of your UPI transactions.

How is UPI working?

UPI works by linking your bank account to a UPI-enabled app. The app uses your UPI ID to process the payment when you initiate a transaction. Transactions are authenticated with a PIN or biometric data, and funds are transferred directly from your bank account to the recipient’s.

What is UPI (Unified Payments Interface): Full Form, Meaning, Features & Benefits