In 2016, UPI, or United Payments Interface, wholly revolutionised India’s digital payments scenario. UPI has enabled the seamless transfer of funds between banks, wallets, and merchant payment systems through a single-window payment system. This platform has emerged as a common platform for a real-time, interoperable system for all kinds of digital payments.
The popularity of the UPI payment system can be gauged from the fact that in March 2022, there were over 540 crore UPI transactions happening across the country. In FY 2022, total transactions worth $ 1 trillion took place through this UPI payment gateway.
The front end of the UPI payment system could be custom-made apps or third-party apps for eCommerce sites or social media. However, at the core of the UPI, transactions are routed through banks, also known as PSPs. These third-party apps communicate with banks to facilitate transactions. As a result, banks have the dual role of securely transferring funds from one bank to another and using core-banking systems to facilitate these transactions on a real-time basis.
Role of UPI Service Providers
To facilitate such a high volume of transactions in banks, it is imperative for banks to securely connect their core banking systems with the UPI’s payments interface created by the NPCI. This is where the role of UPI Solutions Providers becomes essential. UPI service providers help build a flexible platform to facilitate real-time fund movement via the UPI network for various use cases like P2P (Between Person to Person) or P2M (Person to Merchant) and so on. It is expected that by 2023 over 55 billion UPI transactions will take place over the UPI network.
To facilitate the growing number of transactions, banks need to upgrade their systems and adopt new use cases continuously.
Growing Use Cases
The next phase in the growth of the UPI volumes shall be driven by new use cases that UPI could help enable. Service Providers would be at the forefront in exploiting the new use cases that could be used in different industries. The Service Providers shall provide custom solutions for banks to cater to specific industries. As new use cases for UPI emerge, banks would need solution providers to integrate with the current existing payments infrastructure. This is where Service Providers shall play a key role.
Future of Digital Payments
UPI Solutions Providers will help the payments industry grow exponentially by focusing heavily on building solutions that enhance customer experience. Service providers are working on solutions that offer users numerous payment options, enhanced security, innovations for digital ledger technology (DLT), and emerging technologies like the Internet of Things (IoT). UPI Solutions Providers shall help banks build these new generation solutions on top of the already working digital payments infrastructure.
Service Providers are working on solutions that enable recurring payments, IPO subscriptions, cross-border remittances, and solutions for parking, fuel payment, etc. This shall lead to a rise in UPI payments Growth in India. For example, Service Providers have been at the forefront in enabling banks to adopt the UPI123PAY that allows feature phone users to transact via the UPI network.