India: UPI: The Big Leap Towards A Cashless Economy

Last Updated: 11 April 2017
Article by Devika Chadha

The introduction of ground-breaking banking solution through the launch of the Unified Payments Interface ("UPI") by National Payments Corporation of India ("NPCI"), has provided an impetus to India's move to incentivize digital payments with the vision to transform India into a digitally empowered economy and reduce dependence on cash transactions. NPCI is the umbrella body for all payment systems in India, which makes digital transactions as effortless as sending a text message.

UPI makes cutting-edge changes by supporting real time transfer of money (although limited to 1 lakhs rupees) between accounts across banks using smartphones by use of just one single interface besides creating interoperability and superior customer experience. Embracing the smartphone boom in India and the inclination of customers to move to digital mobile-based solutions, UPI addresses the challenges and limitations of the existing payment systems, wherein customers are required to disclose sensitive financial details like bank account details, IFSC code, credit/debit card details and sensitive PIN numbers while initiating transactions and juggle between different mobile banking applications with their different user IDs and passwords.

One of the most innovative features of UPI, which makes it a game changer among the existing payment systems such as mobile wallet, NEFT (national electronic fund transfer), RTGS (real time gross settlement), is the introduction of a 'virtual payment address', which eliminates the need to provide sensitive information like a bank account details, debit/credit card details and CVV numbers. Also, unlike a mobile wallet, a customer is not required to set aside funds upfront in the mobile wallet setup with the service provider and all transfers under the UPI are made from the bank account linked with your virtual payment address. A virtual payment address is an identifier that will be mapped to a customers bank account, enabling the bank providing the UPI services to process transactions through the bank account linked with the respective virtual payment address.

Another key feature of UPI, which aims at capturing the small scale merchants, is that it provides such merchants and local shopkeepers, the option to accept non-cash payments without having to bear the infrastructure costs related to acceptance of card payments and costs linked with charges payable to Banks or commission payable to mobile providers for each transaction. Currently, the UPI services are being offered by the banks free of any charge, however it is expected that with the growth in the user base, the banks may impose a nominal charge for availing the UPI services.

In terms of data security, UPI provides for a single click two-factor authorization, which implies that with one click, the transaction is authenticated at 2 levels, compliant with the existing regulatory guidelines issued by the Reserve Bank of India ("RBI"), without disclosing banking or personal information. As UPI primarily works based on an individual's 'virtual payment address', one can send and receive payments solely based on their 'virtual payment address' without providing any additional details. For example if you need to make a payment to a merchant for purchases made at a store, you will need to provide him only your 'virtual payment address', the merchant will then enter your 'virtual payment address' into his UPI app, the UPI app will send an authentication messages to the 'virtual payment address' linked to your mobile device, once your receive and acknowledge the message by entering your password will the transaction be completed and the amount payable to the merchant will be debited from your bank account.

Prior to the launch of UPI, mobile wallets were the most sought-after product in the digital-payment system in India, which also attracted significant amounts of venture capital funding. However, with the introduction of UPI, which is currently being offered only by banks, digital wallet service providers are likely to hit a major roadblock and witness a decline in their growth trajectory. UPI is likely to significantly reduce the need for mobile wallets by providing a single, seamless and interoperable platform where unlike wallets (where customer cannot transact with someone who is not using the same mobile wallet) money can be transferred across banks to merchants, friends or family, instantly a single click. Some digital wallet service providers are already working on collaborating and partnering with banks to provide the UPI services to create a non-conflicting business model and to co-exist with UPI.

UPI acts as an aggregator of all accounts held by a customer enabling such customers to make transactions from multiple accounts owned by them, from one single mobile application or web interface and a customer is free to choose to use any bank's UPI application. Consequently, a customer can own multiple virtual payment addresses wherein each virtual payment address can be linked to a specific account and organise payments or collections, the way it suits them. Moreover, special instructions like setting an upper limit for payments on certain handles, and restriction of merchants or outlets at which a certain handle can be used, and standing payment instructions make the whole process very useful to customers. 

The banks offering UPI services are required to be authorised by the RBI to provide mobile banking services. It is significant to note that even though the RBI has not issued any specific guidelines on the provision of UPI services, the transactions undertaken through use of UPI are required to be compliant with the guidelines issued by RBI including but not limited to, customer registration process and KYC guidelines.

UPI fits well in the move to migrate towards a cashless economy in the long term by making provisions for payments for even very small amounts digitally, which would in turn help reduce the amount of cash in the system and create a trail of all transactions. Though UPI is still at a nascent stage, it seems to be a win-win for all stakeholders and once UPI turns fully operational, it would act as a seamless facilitator for online payments in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.