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UPI Payment – India’s Journey Towards a Cashless Future

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Imagine a situation where you visit a vegetable shop and after buying vegetables, you make the payment by scanning the payment link (QR). The vegetable vendor immediately gets notified on his mobile phone and uses the same to pay his daughter’s school fee, even before leaving for home. This is not a scenario in the future, but today’s reality. We are already witnessing this with the help of digital payment systems like Unified Payment Interface (UPI) or UPI payment.

Despite being predominantly a cash-based economy, India has been moving towards a cashless future with the advent of the Unified Payment Interface. UPI Payment merges various banking services and features into one platform.

A UPI ID and PIN are the only two elements required and sufficient to send and receive money. Many experts believe that UPI technology is a financial revolution that post-independence India has witnessed.

India’s Digital Payments Revolution

Since its introduction in 2016, UPI Payment has clocked an all-time high of 3.2 billion transactions in July 2021. The total value of transactions between April 2020 to August 2021 stood at INR 68.81 lakh crore, about 69 percent of the total value of UPI transactions done since its inception. The above stats tell us that India is moving towards becoming a cashless society.

It was during the 2016 demonetization when digital payments first picked up with a huge boost. The pandemic has also acted as a catalyst in making digital payments paramount for several industries and the general population.

During this period, many payment gateways in India, such as Zaakpay, have seen a rise in their user base and revenues.

The problems associated with cash circulation are:

  • Difficult to trace
  • Inconvenient to carry
  • Expensive to print
  • Timely withdrawal of duplicated currency
  • Corruption

The challenges with physical cash in India are different and are far more significant as seen in other countries, which led India to adopt digital payment systems.

What earlier was known as a cash-based country, online payment systems have helped India build a complete digital ecosystem.

  • This journey towards a cashless future began with the introduction of plastic money in the form of Debit and Credit Cards. Though convenient to use, they have their drawbacks like loss of a card, physical damage to the card, theft, and security lapses ranging from cloning of cards to selling data on the internet.
  • However, the primary reason for this transitioning to a cashless economy has stemmed from way more advanced and meaningful reasons. India aims to eradicate intermediaries, thus transferring the benefits and subsidies directly to the beneficiaries. The country aims to ensure banking access to all people, curb corruption, etc.
  • This is a step towards gaining complete control over industries and independence from imports. Digital payments have been a key player in making India one of the most desirable countries in terms of commerce and development.
  • This led India to the innovation of even advanced and safer modes of online payment. Hence, India came up with a solution in the form of UPI. UPI transactions are highly secure, hence making them difficult to tamper. UPI uses a two-factor authentication system, similar to OTP, for verifying every transaction. However, UPI PIN will be replaced by OTP for validation.
  • Events like demonetization and the Covid crisis gave momentum to this revolution. With no fringe accounts, 24*7 real-time basis payments, and zero servicing costs, many payment gateways in India, like Zaakpay, have come forward to offer their services to the people.

UPI 2.0: A Complete Digital Landscape

To provide more context to the underlying transactions, India had launched an upgraded version of the United Payments Interface, i.e., UPI 2.0, in 2018. This update included the features that we use today, such as:

  • Linkage of overdraft account
  • One-time mandate
  • Invoice in inbox
  • Signed intent and QR (payment link)

UPI 2.0 has introduced many features that will make customer payments convenient and ensure better security during transactions. With better UI/UX, the users can now enter the UPI PIN and approve the transaction. It has enabled higher transaction limits to SMEs and educational institutes to ensure a better future for the country.

Benefits and Challenges

Although India has many growing internet users, there’s a significant portion of the population still in the shadow, without access to bank accounts and internet naivety. Additionally, high illiteracy in the rural population has made them prone to digital fraudulence.

Hence, there is a need for India to bring out more policies and schemes to educate and provide banking access to all of its citizens.

However, there is more scope than challenges. With digital payments, the printing cost of currency and many other expenses would become non-existent. The government spends approximately INR 4.15 to print every 2000-rupee banknote and INR 2.90 – 3.10 for every 500-rupee note. The savings with paperless currency would be enormous.

The most important driving force for India to become a cashless economy is the convenience and security of monetary transactions. As eKYC will be mandatory for digital transactions, traceability and eliminating tax evasions are easily possible.

If we dig into how various digital payment gateways in India, with the likes Zaakpay and others, gained a lot in the recent past, the following observations are made:

  • UPI made the real-time payment process easy while also saving time.
  • A minimum requirement like a phone number and bank account details to start digital payments.
  • Providing multiple modes of payments, seamless and secured transactions
  • Special benefits, rewards for timely payments, and high-volume transactions

In conclusion, India has come a long way in the development of the digital economy with an advanced market infrastructure, banking technology infrastructure, and networking infrastructure.

India is changing the way it deals with money is changing, and the pace of change will only accelerate from here on. In a nutshell, India is significantly ahead of most developing economies. However, the road is neither short. India needs innovations and regulations that bridge the gaps in the payment space.

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