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How Does UPI(Unified Funds Interface) Work?

UPI – Unified Cost Interface was first launched in 2016 with simply 21 banks and had nearly 0 transactions for straight 3 months and is now main the chart globally. The mastermind behind this strategy was Dr. Raghuram G Rajan (RBI Governer).

From April 2016 to August 2022, the graph has considerably modified, now there are above 345 Banks dwell on UPI and a complete variety of transactions has crossed 10,72,792 crores (as of August 2022) and this determine itself is proof that how folks have develop into adaptive on making increasingly cashless UPI funds.

How UPI Works


The distinctive half about UPI is that it holds the ability of discarding ATM machines and likewise permits prospects to hyperlink a number of financial institution accounts in a single cell software. It gives 2 modes of cost i.e. P2P (Peer to Peer) and P2M (Peer to Service provider)

Sooner banks began selling the usage of cashless transactions and it unfold like a fireplace (YOY). Most of you have to be questioning how truly this complete ecosystem works in only a few clicks. Properly, we’re right here to reply that. Let’s see the insights of UPI and its working metrics.

Advantages of UPI

At present, everyone seems to be shifting in the direction of UPI transactions for making any small funds, and likewise behind this, there’s a record of advantages of doing so. Having mentioned, since its first introduction available in the market, the variety of transactions has crossed 6.2 Billion (stats of July 2022). Why the demand is rising day-after-day? Let’s take a look at a number of the main key pointers beneath:

  1. UPI is the most affordable mode of cost and that’s why most banks have declared it Freed from Price. (not like different modes of funds)
  2. It permits instantaneous cash switch and that too 24×7
  3. Since VPA (Digital Cost Deal with) is the entrance face of the UPI subsequently, it helps in sustaining the privateness of any particular person
  4. A single UPI software holding a number of accounts makes it extra dependable and also you additionally get the liberty to decide on your desire for “Default Account”
  5. UPI is not only about sending cash but additionally you possibly can “Request for Cash” too
  6. Over a time frame, many Third-Get together purposes have entered the market with hefty cashback and that makes it extra interesting for purchasers to carry out extra transactions.
  7. Not like different modes of cost, all you want is simply both VPA, QR scanner, or cell quantity to provoke the transactions (relevant for each receiving and sending cash). 

How Does UPI Work?

UPI gives 2 sorts of transactions i.e. P2P and P2M ~ Peer-to-Peer and Peer-to-Service provider

For each real-time transaction, sure events are concerned and that’s why it’s additionally known as the 4 Get together Mannequin, the fashions are:

  1. Payer – Ther one who is initiating the cost
  2. Payee – The one who receives the cost
  3. Beneficiary Financial institution – Involvement of receiver’s checking account
  4. Remitter Financial institution – Involvement of Payer’s Financial institution and connected account


  • Obtain the PSP (Cost Service Supplier) app (GooglePay, PhonePay, and many others.)
  • Register 
  • Add Account particulars
  • Generate UPI PIN

* For each PSP app, the cell SDK is supplied by NPCI solely.


For Exhausting Binding or Machine Finger Printing Course of (acts as a First-Issue authentication in UPI)

  • Obtain the PSP app and ship an SMS for cell quantity verification and make sure that you’re performing this motion with the identical cell quantity that’s registered with the financial institution.


Buyer Registration 

  • Obtain the PSP app and choose your most well-liked financial institution
  • Now the request can be despatched to the PSP server and it’ll ahead the identical request to the NPCI (of the identical cell quantity)
  • Now NPCI UPI server will ahead the request to the Issuer Financial institution 
  • Financial institution will retrieve the account particulars to confirm whether or not the quantity is linked to that particular person or not
  • Now, the UPI will move the identical data to the PSP server 

*PSP shops the IFSC and Account Variety of the shopper to the cell apps (together with system info)

  • Now, the shopper will get all of the linked financial institution accounts of his/her triggered SMS quantity and from there he/she will select the desire 
  • PSP will now create the VPA to proceed forward.


PIN Technology

  • Out of your Cellular software, choose the choice to Generate a PIN
  • Now, the PSP server will request an OTP of that checking account to NPCI
  • NPCI will ahead the identical request to the Issuer Financial institution 
  • The OTP can be forwarded again to the shopper
  • The client will now be required to enter the final 6-digit debit card quantity (together with the expiry date and OTP)

* The carried out motion can be securely captured by NPCI SDK

  • PSP will now ahead the OTP validation request
  • UPI will decrypt the small print (together with PIN) from the PSP key and encrypt with the Issuer key
  • Now, the Issuer financial institution will decrypt the information and can begin validating the small print (reminiscent of debit card no.) and OTP and can retailer the PIN

* Neither the PSP server nor the NPCI could have the authentication to save lots of the PIN

Transaction Circulation

There are usually 2 sorts of transactions PUSH and PULL, beneath we are going to perceive the PUSH methodology that’s majorly used available in the market.

Part – I

  • The client initiates the transaction both with Payee’s cell quantity, or VPA / QR
  • Now, the Payer PSP will ahead the identical request to the NPCI
  • Following that, the NPCI UPI server will ahead the identical request to the Payee’s PSP for handle decision and authorization
  • The payee PSP resolves the handle and offers the account particulars (works with the Remitter financial institution)

Part – II

  • The Payee PSP will present the financial institution particulars to UPI and the identical can be forwarded to NPCI
  • Now, the NPCI will verify with the remitter financial institution to debit funds from the payer’s account
  • As soon as cash will get debited, a credit score request is distributed to the beneficiary’s financial institution  
  • The beneficiary financial institution credit the Payee’s account and later responds to NPCI UPI
  • Now, the NPCI UPI server passes the response to the standing of the transaction by way of Payer’s PSP to the shopper
Working of UPI


Key Terminologies

  • VPA – Digital Cost Deal with (supplied by PSP). For instance, <identify>@psp. <identify> might be supplied by both PSP or prospects can select as per their desire
  • PSP – Cost Service Supplier (supplied by NPCI)

What’s the position of PSP?

PSP works with the financial institution to accumulate new prospects and facilitate cost.

Their main work is to supply front-end cell purposes to the shopper and works intently with NPCI and banks. In addition they guarantee the entire ecosystem of the transaction movement goes flawless.

*They can not work by themselves as a person physique so they’re certain to work with NPCI.

Who might be PSP?

  • Banks
  • Third-Get together Purposes

NPCI – Nationwide Funds Company of India

A checking account can have a number of VPA handles-

  • Instance: HDFC Financial institution has a number of VPA’s. HDFC App – @hdfc, GooglePay – @okhdfc, PhonePay – @ybl

1 PSP can have a number of Financial institution handles-

  • Instance: GooglePay. AXIS Financial institution – @okaxis, HDFC – @okhdfc, ICICI – @okicici, SBI – oksbi

QR – Abbreviated as “fast response”. It’s a metric that holds info horizontally and may carry out each horizontal and vertical motion.

Obligations of the Concerned Events 

  1. Payer PSP
    • Buyer onboarding
    • To create a UPI ID
    • Create system binding (first-factor authentication)
  2. Payee PSP
    • On-board buyer/service provider
    • facilitate cash switch/cost to the recipient utilizing UPI
  3. Remitter Financial institution
    • Maintain & Debit Checking account for the transaction
    • Retailer and confirm UPI PIN
  4. Beneficiary Financial institution
    • Course of incoming credit and funds into the beneficiary account

The place You Can Make Cost Through UPI?

After doing profitable motion to arrange the account, you are able to do the next job along with your UPI software.

  • Now you can merely enter contact particulars to switch funds (additionally to those that usually are not in your contact guide) 
  • Cash might be transferred by way of VPA as properly. (VPA is like an e-mail id for each particular person’s account)
  • You possibly can carry out each actions i.e. sending and receiving funds (by way of Contact quantity, VPA, or QR)
  • A person can carry out different options like doing financial institution transfers to self and others’ accounts, checking balances, and many others. 
  • Now retailers are permitting customers to make invoice funds for his or her wants (reminiscent of broadband, electrical energy, and many others.)

How Secure Is It?

With the rising digitalization, it’s simply to be sure that the transaction you’re doing is protected. Whereas performing any UPI transaction, there are possibilities that phishers might attempt to breach and do any fraudulent actions. To reply this right here’s a fast information to stop any unavoided actions.

  • You should all the time keep away from sharing your credentials (reminiscent of PIN, Password, or any delicate info)
  • By no means save your card particulars (debit/credit score) whereas performing any transaction
  • There are a bunch of fraud apps accessible available in the market in the present day, keep away from downloading them in your cellphone as they may get entry to your pockets or different associated apps.
  • Should you’re about to obtain any funds, carry out protected strategies for doing so (reminiscent of QR, Telephone numbers solely) and make sure that you’re not sharing any OTP
  • Sure instances have been reported of fraudulent actions (reminiscent of cloning, unsecured hyperlinks, and many others.) so it’s greatest to keep away from visiting such web sites.

As per the Authorities’s Cybersecurity division, greater than 60,000 fraud actions had been concerned alone within the month of Might 2022. Amongst these 30,000+ complaints had been straight concerned with UPI transactions dented greater than 150 crores. 



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