Unified Payment Interface (UPI) is a system that powers multiple bank accounts, several banking services features like fund transfer (P2P), and merchant payments in a single mobile application. UPI allows a customer to pay directly from a bank account to different merchants, both online and offline, without the hassle of typing credit card details, IFSC code, or net banking/wallet passwords. It was launched by National Payments Corporation of India with Reserve Bank of India's (RBI) vision of migrating towards a 'less-cash' and more digital society.
How does UPI work?
It will completely simplify your financial transactions. In other words, it will just simplify your netbanking experience. As of now, you need to enter your credit/ debit card number, expiry date and security code to be able to complete a transaction. Or in case of netbanking, you need to go through an equally longer process of confirming the payment.
UPI will just do away with the need to do all that hectic work.You will only need to share your UPI with your vendor and that's it. The vendor will then request your bank for the payment on receipt of which you will receive a confirmation message on your phone. You can either accept the transaction by providing your password, or reject it.
Your bank needs to be UPI enabled if you want to use this service. If your bank does, you just need to request your bank to register for the service. As per the current plans, you can perform a transaction with two types of addresses - a Global address which includes your bank account number, Aadhaar number and bank account details, and a Local address. The local address will be your Virtual address which can be used for making payments. This is the address you will share with your merchants.
How it is different from NEFT, RTGS, IMPS?
First up, NEFT and RTGS both involve a pretty significant delay, so you don't need to bother about that. UPI is based on IMPS, so in a basic sense, there's no big difference. UPI apps basically feature IMPS system designed for a mobile world - it's much more convenient to use, and easier to set up.
Right now, using IMPS, you'll have to go to your bank's app and go to the funds transfer section. Then you'll have to add a recipient; you have to authorise a recipient before you can send them money, and then until you manually remove them, you're stuck with them in the recipients list where you could accidentally select them at any time. Adding a recipient means entering a lot of details about them as well - you need to know their bank account number, and IFSC code, which are all long strings of numbers. It's confusing and painstaking.
With UPI, just open a UPI app that's linked to your account, enter the payee ID, the amount, and click transfer.