Skip to content
Go to GoCardless homepage
Pricing
LoginSign up

What Is UPI and How Does it Work?

UPI stands for unified payments interface. It’s used to transfer money between bank accounts via one single application. This means that you can send and receive money, pay bills and authorise payments on one interface in a single step, thereby simplifying the whole online transaction process. In this post, we’ll go into detail about UPI, how it works and whether or not it’s a safe payment method.

What is UPI payment?

UPI is a single-window mobile payment system created by the National Payments Corporation of India (NPCI). It makes sending money simpler as it removes the need to enter bank details and other personal information when making transactions. 

UPI is also a real-time payment method which facilitates peer-to-peer bank transfers between account holders from different banks. The interface is regulated by India’s central bank, RBI and is widely used in the country. For 2022, however, plans are in place to introduce UPI internationally, starting with Singapore, Malaysia, Thailand, Philippines, Vietnam, Cambodia, Hong Kong, Taiwan, South Korea, and Japan. This means it may be used for transaction banking.

How does UPI work?

Now we’ve answered the question “what is UPI?”, let’s get into how it works. 

To get started, you need to download the UPI application and create a profile. An essential part of this is creating your virtual ID, as this is the credential you’ll need to receive UPI payments. You then link your bank account to the app and you’re ready to go.

UPI transactions are free and instantaneous no matter the time of day or day of the week.

The only caveat, however, is that your bank needs to be a participant. At the moment, most banks in India are members of UPI, with a total of 216 participating banks.

Are UPI transactions safe?

According to the National Payments Corporation of India (NPCI), UPI is a secure and safe platform for carrying out cashless transactions. This is due to following safety measures in place:

Verification

When registering with the platform, you will complete a mobile phone number verification. This number will then be linked to your UPI account, making it a form of identification. Every time you change your phone number, you will be required to recommence verification.

If you lose or break your phone, you can block the number and therefore block any transactions from your bank account. This helps prevent anyone using your identity to make payments.

Safety when making transactions

When you register, the application will ask you to set up a four to six-digit pin called MPIN. You will then be required to type in this MPIN every time you make a transaction to authenticate your identity. This will prevent anyone from being able to use the app on your phone to carry out transactions. Naturally, the MPIN should be known only by you.

Authentication of other parties

The interface also comes with an in-built feature allowing you to verify the authenticity of merchants and therefore prevent fraudulent payments. This is done via a Quick Response (QR) code which will tell you whether or not a merchant is UPI-verified. 

Are UPI payments the future of mobile banking?

It seems the National Payments Corporation of India (NPCI) has produced a solid system for simplifying payments and reducing the need for complicated account numbers and IBANs. The interface is easy to access and understand, and with a large number of participating banks, it is set to revolutionise mobile banking. While the platform is currently very popular in India, time will tell if this proves true in the rest of Asia and even Europe at some point in the future.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

Get StartedLearn More

Interested in automating the way you get paid? GoCardless can help

Contact sales