Case Study: Banking Operations & Process

Research Project on:-

UPI Payment Apps and their applicability and Market Share in India

Supervisor: Submitted By:

Dr.. Shivani Kushwaha Devesh Jaiswal

Assistant Professor 822686

B.Voc(B&F)-II

Head of Department:

Dr. Deeksha Sharma

Department of Banking and Finance,

Deen Dayal Upadhyay Kaushal Kendra
National P.G. College, Lucknow.
 ACKNOWLEDGEMENT

First, of all I want to express my humble thanks to God who is very

sensitive about each and every activity of all his men and without
whom, I wouldn’t be able to accomplish any objective in my life.

Secondly, I would like to pay my gratitude to HOD Dr. Deeskha

Sharma. She was very supportive and helpful and always encouraged
me.

I am also very grateful to my parents and friends for their moral

boosting and support and their confidence in me.

At last, I end up by thanking all who helped me in finishing this project

within limited time frame.
 4.1 INTRODUCTION

UPI stands for Unified Payment Interface (UPI). It enables money to be immediately
transferred via your smartphone from one bank account to another. Payments can be
rendered via supporting mobile phone apps. The cash transactions through UPI are
available 24x7. Eventually, to streamline the digital payment market within the
country, NPCI (National Payments Corporation of India) was established.

Unified Payments Interface (UPI) is a portal developed by the National Payments

Corporation of India (NPCI) to facilitate interoperability between banks. This is a
one-stop solution for using separate bank accounts to carry out transfers from a single
app. It allows all account holders to send and receive money through their
smartphones with a single identifier – the Virtual Payment Address (VPA) commonly
known as the UPI ID – without needing any bank account information. Customers
often do not need to know the IFSC code of the beneficiary or payer, bank account
details, etc., and this allows the transaction to be quicker. So customers will make
quicker transactions to their friends and merchants.

In view of all the above, NPCI conducted a pilot launch with 21 member banks. Dr.
Raghuram G Rajan, Governor of RBI in Mumbai, launched the pilot on 11 April
2016. Banks began uploading their UPI powered Apps to the Google Play store on
August 25, 2016.

UPI currently has around 100 banks and more than 20 third-party payment partners
that offer UPI payment facilities to their users. The Unified Payment Interface (UPI)
is a mobile centric, real time interbank payment system which has the potential to
transform and 1uthorized1n digital payments in India. The UPI system facilitates a
customer to pay directly from their bank account which is linked to UPI to the
accounts of other parties (merchants) or account holders both online and offline. The

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UPI interface has the benefit of assisting the customers in transferring funds
without having the hassle of typing credit card details, IFSC code, or
remembering the login ID of net banking or wallet passwords etc. or even the
account details to the account holder in who’s account the individual intends to
the transfer funds.

Indian Government also understands the role it can play to increase

2uthorized2n2n of economy. In order to promote the usage of digital payment
the government has announced waivers on convenience charges, surcharge and
service charge on digital payments made through debit cards, BHIM UPI and
Aadhaar-enabled payments system (AEPS). To motivate the public further in
making payment by using digital modes the government had also launched
several lucrative schemes, for example 0.75 % cashback for the payments made
on petrol pumps through Rupay debit cards.

A Unified Payment Interface (UPI) is a smartphone application that allows

users to transfer money between bank accounts. It is a single-window mobile
payment system developed by the National Payments Corporation of India
(NPCI). It eliminates the need to enter bank details or other sensitive
information each time a customer initiates a transaction.

The Unified Payment Interface is a real-time payment system. It is designed to

enable peer-to-peer inter-bank transfers through a single two-click factor
authentication process. The interface is regulated by the Reserve Bank of India
(RBI), India’s central bank. It works by transferring money between two bank
accounts along with a mobile platform.

The system is said to be a safe and secure method of transferring money

between two parties and eliminates the need to transact with physical cash or

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through a bank. The pilot system was launched in India on April 11, 2016.
Banks across the country started to upload their interface in August 2016.

UPI, expanded as Unified Payments Interface, is gaining popularity and is

becoming one of the most preferred methods of digital transactions in India.
There are many apps that provide users this facility and apart from this, many
banks have tied up with UPI and customers can use this platform through bank
apps as well. UPI is being offered by many chat platforms and mobile wallets
in the market.

UPI is a digital payment system through which a user can both send and receive
money through a Virtual Payment Address (VPA). The money will be directly
debited from the customer’s bank account.

UPI is a unique payment product that allows real time settlement of funds
between two bank accounts. The foremost advantage of using UPI is that it
removes the need for remembering your bank account details while doing a
fund transfer. All you need is the VPA ID of the sender and the receiver to
transfer funds instantly. Here are some of the salient features of UPI;

• Immediate money transfers via mobile device 24*7 days and 365 days.

• One mobile application for access to different bank accounts.

• Single Click 2 Factor Authentication – Compliant with the Regulatory

Guidelines, but offers a very strong feature of convenient single-click payment.

• Virtual Payment Address (VPA) for Pull & Push offers enhanced protection
also with the customer not expected to enter information such as Card No,
Account Number, IFSC etc.

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 • Bill Sharing with your friends.
 Proper approach to Cash on Delivery hassle, race to ATM, or giving the exact
amount.

 Enable payments at your merchant establishment through a single app or in-app

payments.

 One stop shop for your Utility Bill Payments, Counter Payments, Barcode (Scan
and Pay related payments.

 Use this feature for all your needs like Donations, Collections and Scalable
Disbursements.

 Allows you to raise Complaint directly from the Mobile App.

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 1.2 HISTORY OF UPI

Unified Payments Interface (UPI) is a mobile-based payments system developed by

the National Payments Corporation of India (NPCI). It was launched in 2016 and has
since become one of the most popular and widely-used payment systems in India.

Before the introduction of UPI, India had a fragmented digital payments ecosystem,
with multiple players offering different solutions that were not interoperable with
each other. This made it difficult for users to make digital payments, and hindered the
growth of digital payments in the country.

In 2015, the RBI constituted a committee to look into the possibility of creating a
single platform for digital payments in India. The committee recommended the
creation of a common platform that would allow users to make payments directly
from their bank accounts using a mobile app. This led to the development of UPI.

The UPI system was developed by NPCI in collaboration with a consortium of banks,
including State Bank of India, ICICI Bank, HDFC Bank, and Axis Bank. It was
launched in April 2016 with 21 participating banks.

The launch of UPI was a significant milestone in the evolution of digital payments in
India. It was the first time that a single platform had been created that allowed users to
make payments from multiple bank accounts using a single app.

The UPI system is built on the Immediate Payment Service (IMPS) platform, which is
a real-time interbank electronic fund transfer service in India. IMPS allows users to
transfer funds instantly from one bank account to another using mobile phones or

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internet banking. UPI builds on the IMPS platform and adds a layer of abstraction,
making it even easier for users to make payments.

UPI allows users to create a virtual payment address (VPA), which is a unique
identifier that can be used to send and receive payments. A VPA is a user-friendly
way of representing a bank account number and can be easily shared with others.

To use UPI, users need to download a UPI-enabled app from their bank or a third-
party provider. They then need to link their bank account(s) to the app by providing
the required details such as bank account number, IFSC code, etc. The user also needs
to set up a UPI PIN, which is a four to six-digit secret code used to authenticate
transactions.

Once the registration process is complete, a user can initiate a transaction by selecting
the UPI option on the mobile app. The user then needs to enter the recipient’s UPI ID
or mobile number and the amount to be transferred. The user also needs to enter their
UPI PIN to authenticate the transaction.

Once the transaction is initiated, it is processed instantly, and the amount is debited
from the user’s bank account and credited to the recipient’s account. The user and the
recipient will receive a notification confirming the successful completion of the
transaction.

One of the key advantages of UPI is its interoperability. UPI is an open platform that
allows users to transfer money between different banks and payment service
providers. This means that users can send and receive money from anyone who is on
the UPI platform, regardless of which bank they use.

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UPI also offers a number of other benefits to users. It is easy to use, with a simple and
intuitive interface that makes it accessible to anyone with a smartphone. UPI
transactions are processed instantly, allowing users to transfer money in real-time.
UPI transactions are also highly secure, with multiple layers of authentication and
encryption to protect user data.

In addition, UPI transactions are low cost, with most banks and third-party providers
offering UPI transactions for free. UPI also supports both P2P and P2M transactions,
making it a versatile payment solution for individuals, businesses, and merchants.

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1.3 Apps with UPI Feature in India

Below is the list of App that provides UPI Feature:

1. Google Pay : Google Pay is a digital wallet and mobile payments app developed
by Google that allows users to send and receive money, pay bills, recharge mobile and
DTH accounts, book tickets, and much more. Google Pay uses Unified Payments
Interface (UPI) to facilitate instant money transfers between bank accounts, and is
available for download on both Android and Ios devices.

2. Bhim app: BHIM (Bharat Interface for Money) is a mobile payments app
launched by the National Payments Corporation of India (NPCI) in 2016, which
allows users to send and receive money using Unified Payments Interface (UPI) and
other digital payment methods.

3. Paytm: . Paytm also offers a Unified Payments Interface (UPI) service called
“Paytm UPI” that allows users to instantly transfer money between bank accounts
using their mobile phones.

4. MobiKwik : MobiKwik is a digital wallet and financial services platform in India

that offers a range of services including mobile recharges, bill payments, money
transfers, and more. MobiKwik also offers a Unified Payments Interface (UPI) service
called “MobiKwik UPI” that allows users to transfer money between bank accounts
instantly.

5. PhonePe: PhonePe is a popular mobile payments and financial services app in India
that allows users to transfer money, pay bills, recharge mobile and DTH accounts,
book flights and hotels, buy gold, and much more. It uses Unified Payments Interface
(UPI) to facilitate instant money transfers between bank accounts, and is available for
download on both Android and Ios devices.

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Youngsters has a special concern about technology. The Government of India
has been taking several measures to promote and encourage digital payments
in the country. As part of the “Digital India” campaign, the government aims
to create a “digitally empowered” economy that is “Faceless, Paperless, and
Cashless”. There are various types and modes of digital payments. Some of
these include the use of debit/credit cards, internet banking, mobile wallets,
digital payment apps, Unified Payments Interface (UPI) service,
Unstructured Supplementary Service. Digital payment methods are often
easy to make, more convenient and provide customers the flexibility to make
payments from anywhere and at any time. These are a good alternative to
traditional methods of payment and speeded up transaction cycles. Post
demonetization, people slowly started embracing digital payments and even
small-time merchants and shop owners started accepting payments through
the digital mode.

Unified Payments Interface (UPI) is a system that powers multiple bank

accounts into a single mobile application (of any participating bank),
merging several banking features, seamless fund routing & merchant
payments into one hood. It also caters to the “Peer to Peer” collect request
which can be scheduled and paid as per requirement and convenience. Each
Bank provides its own UPI App for Android, Windows and Ios mobile
platform(s). The advanced cloud computing features provide the youth a
flexible and an easy usable platform for resource sharing, information
storage and for world-wide interactions. This facility is provided by National
Payments Corporation of India (NPCI).

National Payments Corporation of India (NPCI) is an umbrella 9uthorized9n

for operating retail payments and settlement systems in India, it is an
initiative of Reserve Bank of India (RBI) and Indian Banks’ Association

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 (IBA) under the provisions of the Payment and Settlement Systems Act,
2007, for creating a robust Payment and Settlement Infrastructure in
India.Considering the utility nature of the objects of NPCI, it has been
incorporated as a “Not for Profit Company” under the provisions of Section
25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an
intention to provide infrastructure to entire banking system in India for
physical as well as electronic payment and settlement systems. The
Company is focused on bringing innovations in the retail payment systems
through the use of technology for achieving greater efficiency in operations
and widening the reach of payment systems.

1.4 Benefits of UPI payment method

UPI offers a lot of benefits that are listed below:

 UPI enables real-time money transfers via mobile devices 24 hours a day, 365
days a year.
 It gives access to multiple bank accounts through a single mobile application.
 It offers single-click two-factor authentication while also offering single-click
payment.
 The customer’s virtual address offers incremental security because the
customer is not required to enter details such as Card number, Account
number, IFSC code, etc.
 This application allows you to share bills with your friends.
 It is a highly useful alternative to the hassles of Cash on Delivery or running to
an ATM to withdraw money for making payments.
 UPI can be used to pay utility bills, make online payments, and make barcode
(Scan and Pay) payments.

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1.5 Things to know about UPI payment method
 Both senders and recipients must have downloaded a UPI app on their
smartphones to conduct UPI transactions.
 The user needs the beneficiary’s UPI ID and their own to initiate a fund
transfer.
 The receiver’s UPI ID is visible in the UPI app to the user.
 The user needs to enter the UPI ID and the amount that needs to be transferred.
Next, they need to click on the ‘Pay’ button for the funds to be transferred
instantly.
 The user can also enter the recipient’s phone number, which must be associated
with their bank account. This is another straightforward method of transferring
funds directly to the beneficiary’s bank account.
 Users can choose the UPI payment option when making online payments
through any service provider apps that offer this paymode. It will launch the
UPI application on their smartphone. The user must enter their UPI PIN for the
funds to be deducted from their bank account.
 Users can also receive money via UPI by simply providing the sender with
their UPI ID or the phone number associated with their UPI app and bank
account.

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1.6 What is UPI ID?

UPI ID is a unique virtual address assigned to each user that uses the UPI interface to send or accept payments. It is a Virtual
Payment Address (VPA) that the sender must enter when transferring money to the recipient’s account.

One can generate a UPI ID using your bank’s mobile app or other UPI-enabled digital payment apps.

How to create a UPI ID

In five simple steps, users can create their UPI ID. They are as follows:

Step #1: Users install their preferred UPI app on their smartphones.

Step #2: They log in to the app.

Step #3: They select ‘create UPI ID’ from the main menu.

Step #4: Upon doing so, the users are taken to a new screen where they must enter the ID prefix.

Step #5: Finally, users need to link this payment address to their bank account.

And it is done!

1.7 How to register for the UPI payment method

Step #1: The user downloads a UPI app of their choice from the App Store or the
bank’s website.
Step #2: The user creates their profile by entering information such as name, virtual
ID (payment address), password, and so on.
Step #3: The user selects “Add/Link/Manage Bank Account” to link the bank and
account number with their virtual ID.

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1.8 How to generate PIN for UPI payment method
To use UPI as a payment method, the user must sign up for the service via a UPI app.
It can be done through their bank’s mobile banking app or a third-party UPI app. Post
that, they need to follow the steps explained below to create a UPI PIN:

Step #1: Users need to open the UPI app of their choice.
Step #2: They need to go to the ‘Bank Account’ section. This section displays all of
the bank accounts associated with this app.
Step #3: Users choose the bank account for which they wish to create a UPI PIN.
They will see a ‘SET’ option if they have never set a UPI PIN for the bank account.
Step #4: Users enter the last six digits and expiry date of their Debit/ATM card.
Step #5: Their bank will send an OTP to their registered mobile number. Next, the
user enters the OTP and UPI PIN for the account and clicks on the ‘Submit’ button.
Once done, users will receive a message congratulating them on the successful
generation of their UPI PIN. Post this, users can send money and make payments
directly from their bank account by authenticating with their UPI PIN.

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 1.9 Payment Service Provider (PSP)

PSPs (also known as Merchant Service Providers) are third-party companies that
assist business owners in accepting online payments via several payment methods,
such as online banking, credit cards, debit cards, e-wallets, cash cards, and more.
Essentially, they ensure that your transactions get from point A to point B safely and
securely.

PSPs ensure that transactions are completed – from the beginning, when a customer
enters their information and initiates a payment, to the end, when you receive it.

2.1 Who are the primary participants in UPI?

UPI is constituted of the following players;

 Payer PSP

 Payee PSP

 Remitter Bank

 Beneficiary Bank

 NPCI

 Bank Account holders

 Merchants

UPI – Benefits to the participants in this ecosystem

What are the benefits for banks?

 Single click 2 Factor Authentication

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 Universal Transaction Application

 Leverage of existing infrastructure

 Safer, Safe and Creative

 Single/One Identifier Payment Base

 Enable seamless transactions for merchants

What are the benefits for customers?

 Available round the clock

 One application for access to various bank accounts

 Virtual ID use is more safe, no password sharing is necessary.

 Authentication of a single click

 Present Complaint directly from the Mobile App

What are the benefits for merchants?

 Seamless collection of funds from customers-single identifiers

 No hazard of storing the virtual address of the customer as in the Cards

 Tap consumers who do not have credit or debit cards

 Suitable for e-Com & m-Com transactions

 Resolve the problem of collection of COD

 Single click 2FA Customer Facilities-Seamless pull

 Payment In-App (IAP)

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2.2 Financial transactions Available through UPI

The primary objective of UPIs is facilitating seamless transfer of funds between two
bank accounts. Here are the transactions you can perform through your UPI App;

Send Money: This function allows the user to send money using the Virtual Payment
Address (VPA) or a combination of Account Number and IFSC, or even by scanning
the QR code.

Request Money: This function allows the user to initiate a collection request by
entering the Virtual Payment Address (VPA). In addition, using your UPI App,
money can also be transferred using Mobile if it is registered with BHIM or *99#. It is
also mandatory that the mobile number of the customer be connected to the bank
account.

Scan & Pay: Customers can pay by scanning the QR code using ‘Scan & Pay’ and
creating QR codes in the Payment Program.

Transaction Records: This option allows a user to search the history of transactions.
It also highlights pending UPI collection requests (if any) so that the user can accept
or deny payment requests. There is a report problem tab if the consumer is able to
make a query about transactions.

Profile Management: The profile management option in any UPI app lets users
display the static QR code and payment addresses generated. The QR code can be
downloaded and exchanged via various messaging applications such as WhatsApp,
Email, etc.

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 Check Bank Account Balance: Use this option to check the bank account that is
connected to the UPI app along with the status of the PIN. The customer can
set/change UPI PIN, a bank account linked to their UPI App, by clicking the ‘Change
Account’ tab given in the menu. This feature also allows a user to review their
balance of accounts.

2.3 What is an UPI Mandate?

UPI Mandate is a feature that allows you to pre-authorize (Mandate) transactions to

be debited from your bank account later. The mandate of the UPI is to be used in
situations where money is to be transferred later, but the commitment to that is to be
made now. It is likely that the sender will forget to send money later in order to
establish a mandate or to make a service/merchant payment where this feature may be
necessary. The account of the consumer shall be debited when the mandate is
fulfilled.

Benefits of UPI Mandate:

 Allows you to create mandates for payments that are to be done on a future date.

 It serves as a promise to both the customer and the merchant in the case of
payment/service by the merchant.

How to use UPI mandate on your UPI App?

 Open the UPI app on your phone

 Click on the UPI mandate option

 It will give you four tabs; My Mandates, Create, Scan, and Request Receive

 My Mandates will show you all the mandates that you have created

 Scan option will let you create one using the recipient s QR code

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 Request receive will show the mandate request received.

2.4 UPI Transaction Charges: The National Payments Corporation of

India (NPCI) said that it has now permitted the Prepaid Payment Instruments (PPI
wallets) to be part of the interoperable UPI ecosystem and there is no charge for
customers. There will be no charges for the bank account to bank account-based UPI
payments (normal UPI payments). “The interchange charges introduced are only
applicable for the PPI merchant transactions and there is no charge to customers” the
NPCI said in a statement.

2.5 What is PPI?

With the use of Prepaid Payment Instruments, one can send and receive money
without any physical exchange of cash or card. Prepaid payment instruments
examples include smart cards, online accounts, online wallets, stripe cards, paper
vouchers, etc. The primary objective of these instruments is to get access to the
amount already prepaid According to recent regulatory guidelines, the PPI wallets
have been permitted to be part of the interoperable UPI ecosystem, according to the
NPCI.

Ameet Venkeshwar, Business Head, LoanTap said that customers will not be
impacted by the latest development as the extra charge will be borne at the merchant’s
end.

“Any transaction above Rs 2000 and done through UPI using PPI mode only that is
using any digital wallets like Paytm, PhonePe, etc will be charged at 1.1 per cent. This
will also be applicable while loading the digital wallets using the UPI mode. All bank-
to-bank transactions will still remain free of any charges. This only applies to UPI

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transactions made to a merchant. The extra charge will be borne at the merchant’s
end,” Venkeshwar said.

Many have a common question that will it impact people using payment options like
Gpay, Paytm and PhonePe? Ameet Venkeshwar further said, “it will not impact
customers. All peer-to-peer transactions using Gpay, Paytm and PhonePe shall remain
unaffected. It is also not likely to affect small merchants as most of the normal day-to-
day transactions are below Rs 2000. Only the UPI transactions that are above Rs 2000
made to a merchant through PPI wallets while shopping, dining, etc will have an extra
charge at the merchant’s end.”

How PPI is different from UPI payments?

UPI transactions are real-time transactions between two bank accounts, whereas PPI
transactions involve prepaid payment instruments like mobile wallets, gift cards, and
other virtual payment modes. UPI is primarily used for Peer to peer transfers and
merchant payments, while PPIs are often used for bill payments, online shopping, and
other transactions. UPI also has a high payment limit as compared to PPI.

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 2.6 GROWTH OF UPI PAYMENT IN INDIA

Starting with 21 banks in 2016, the UPI ecosystem has today expanded to 381 banks,
enabling billions of digital transactions each month. According to the National
Payments Corporation of India (NPCI), the entity that manages the UPI, the country’s
digital payments ecosystem includes the following participants:

 Payer Payment Service Provider (PSP)

 Payee PSP
 Remitter Bank
 Beneficiary Bank
 NPCI
 Bank Account holders
 Merchants

To put it into context, apps that are used to make UPI transactions, such as PhonePe
or Google Pay, are called third-party app providers (TPAPs) in the value chain. Banks
are called payment service providers (PSPs) in the value chain, while they also double
up as remitters and beneficiaries in most transactions.

TPAPs can’t directly access the UPI network and need PSPs to connect with the UPI
network and enable transactions.

Currently, there are 381 live members on the UPI network, with 57 PSPs and the
remaining remitters or beneficiary banks.

Industry experts say that over the next 12 months, the UPI will continue to see steady
growth on the back of the proliferation of the payments ecosystem throughout the
country. Further, a fall in the average ticket size of transactions indicates that UPI

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payments are getting smaller due to the increased penetration of the technology across
the country.

Although the year 2022 largely favoured the UPI in terms of growth, a slowdown in
the transaction value in the second half of the year hints at an ecosystem-wide
maturity, as UPI users reach saturation.

However, with the international expansion of the technology and the upcoming credit
card linkage, the UPI is expected to further consolidate its position in the world as the
leading digital payment technology.

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Some major growth highlights of UPI are listed below:

The UPI transactions touched new heights when they crossed Rs 5 lakh crore mark in
value in March 2021.

NPCI has mentioned that it will ban all gaming transactions via UPI on April 20,
2021.

Unified Payments Interface (UPI) crossed the 4 billion mark of transactions for the
first time ever in October. These transactions concluded 2021 at a record high, where
it recorded Rs 456 crore worth of transactions at Rs 8.26 lakh crore ($111.2 Bn).

The UPI payments recorded around 4.53 billion transactions, which is worth Rs 8.26
trillion in February 2022. It has almost doubled since the same time last year. Besides,
the total value of UPI transactions was measured to be at Rs 41 trillion.

UPI recorded 6+ billion transactions in July 2022, which is the highest ever volume
since it was founded in 2016. The 6.28 bn transactions that UPI platforms have seen
amounted to Rs 10.62 trillion.

UPI boasts of a network of 330+ banks and an average ticket size of INR 1,730 per
transaction. This makes UPI the most popular digital payment system in India.

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 2.7 LIMITATION OF UPI TRANSACTION

UPI (Unified Payments Interface) has become a popular mode of digital transactions
in India. However, like any other system, it has its limitations. Some of the limitations
of UPI transactions are:

Network Connectivity: UPI transactions require a stable and reliable internet

connection. In areas where there is poor network connectivity or no internet, UPI
transactions cannot be performed.

Transaction Limits: UPI transactions have transaction limits in terms of the

maximum amount that can be transferred per transaction and per day. These limits
vary from bank to bank and can range from Rs. 1 lakh to Rs. 2 lakh per transaction
and Rs. 1 lakh to Rs. 10 lakh per day.

Security: While UPI transactions are generally considered safe, there is always a risk
of fraud or cyber attacks. UPI users should be careful while sharing their UPI ID, PIN,
and other details with anyone.

Merchant Acceptance: Although UPI transactions have gained wide acceptance, not
all merchants accept UPI as a payment mode. This may cause inconvenience to users
who prefer to use UPI.

Transaction Failure: UPI transactions may fail due to technical glitches, server
issues, or network connectivity issues. In such cases, the amount may get debited
from the user’s account, but the transaction may not be completed, causing
inconvenience to the user.

It is important for users to understand these limitations while using UPI for
transactions and take necessary precautions to ensure safe and secure transaction

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2.8 UPI 2.0

On 16 August 2018, UPI 2.0 was launched which enabled users to link
their overdraft accounts to a UPI handle. Users were also able to pre-authorise
transactions by issuing a mandate for specific merchant. This version also included a
feature to view and store the invoice for the transactions. An AutoPay facility for
recurring payments was also added. As of August 2021, State Bank of India, Bank of
Baroda and Paytm Payment Bank are live on UPI AutoPay each registering 660,000,
204,000, and 186,000 mandates, respectively. From 15 March 2022, Government
removed the need of debit card for UPI registration. NPCI is planning to expand
AutoPay to international markets and operationalize real-time payment dispute
resolution mechanism covering 90% of the complaints by September 2022.

From 8 June 2022, RBI allowed linking RuPay credit cards with UPI. Customers can
now make credit card payments using UPI, in the absence of a physical card NPCI is
working on a real-time feature that will reduce the 24 hours time period taken by
banks to unblock funds over time-out or transaction decline to 30 seconds. The
service was officially launched on 20 September 2022. On 7 December 2022, RBI
announced that UPI will upgrade from single-block-single to single-block-multiple
debit for recurring transactions and investments in securities. The feature will help the
user block funds for specific purpose and release it when needed.

RBI on 6 April 2023 proposed allowing credit on UPI through pre-approved bank
lines which will help customers reduce dependence on Credit Cards.

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2.9 Market Share

From 93,000 transactions in August 2016 valued at ₹30 million, UPI generated
800 million transactions in March 2019 with a total value of ₹1330 billion. In June
2021, UPI recorded 1.94 million IPO mandates that increased to 7.66 million in
July.This was the highest ever since UPI was made mandatory by Securities and
Exchange Board of India for domestic retail investors for IPO process.[By late August
2020, with 18 billion annual transactions, UPI surpassed American Express in
India. NITI Aayog predicted that UPI will also surpass Visa and Mastercard by
2023.UPI took three years to reach 1.14 billion in October 2019 while by the end of
October 2020, the payment system registered 2.07 billion transactions. In 2020,
$457 billion worth of value was moved on UPI platform which was 15% of
India’s GDP.

As of July 2021, UPI registered 432.5 million transactions that accounted for
₹567,345 million with highest average daily transaction of approximately 100 million
that is double the amount from July 2020.As of August 2021, UPI forms 10% of all
retail payment in India PhonePe and Google Pay both recorded 1 billion transactions
in August with a market share of 45.94% and 34.45% respectively in the UPI payment
ecosystem while Paytm took 11.94% share with ₹387.85 million transaction.

From the financial year 2015–21, the domestic retail payment by value on UPI grew
at 18% at a compound annual growth rate (CAGR) while between 2017 and 2021, the
collective payment on all forms of UPI grew at 400% CAGR. In the financial year
2021, ₹41 trillion (short scale) worth of money was exchanged on the UPI platform
that is 2.8 times the value of debit and credit card payment at point of sale (POS)
terminals and 20 times the value of digital wallet and prepaid instruments in India.

UPI registered 3.55 billion transactions in August 2021, a growth of 9.56% from the
previous month. In terms of value, ₹6.39 trillion worth of money was transacted in

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August alone. From ₹3.2 trillion to ₹6 trillion, the growth in value terms doubled
between September 2020 to July 2021. It had reached an all-time high of 3.65 billion
transactions worth ₹6.54 trillion in value since inception in the month of September.
By now the total transaction for the year 2021, reached ₹50 trillion.

UPI touched value of ₹7.71 trillion in October 2021 which is a 56% jump from
September. As per NPCI, daily UPI payment for the month of October is between
₹250 billion to ₹300 billion. Out of all UPI transactions done in the month of October,
54% are Person-to-Person (P2P) while 46% were Person-to-Merchant (P2M). UPI
reached $844 billion in value until November 2021.In December, the total transaction
value on UPI reached ₹8.27 trillion with 99% annual growth rate. The largest share in
$2 trillion of annual digital payment in India comes from UPI. The Q2 of 2022 saw
20.57 billion transactions worth ₹36.08 trillion as per Worldline SA. P2P accounted
for 49% in volume and 67% in value while P2M accounted for 34% in volume and
17% in value.As per CEO Dilip Asbe of NPCI, P2M as of November 2022 accounts
for more than 50% of UPI transaction volumes.In 2019, UPI accounted 17% of
₹3,100 crore digital transactions which in 2022 accounted 52% of ₹8,840 crore of
digital transactions.

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Is KYC Required For UPI Money Transfer?

NO, KYC is not required for making UPI money transfers on Paytm. Any user can
make UPI-based transactions on the Paytm app without any concerns on the safety
and security of user data. All the users registered on Paytm have to link a bank
account with the Paytm app in order to perform UPI money transfers. Users become
automatically verified when they link their bank account with the Paytm app since
banks have already performed the KYC-check for all their users.

UPI Transaction Limit

To ensure the safety and security of transactions, all the UPI payment applications
like Paytm are regulated by the guidelines of RBI. Owing to the current rules and
regulations, the present UPI transaction limit per day on the Paytm app is Rs. 1 lakh
per account, every 24 hours. However, it is important to note that the actual UPI
transaction limit varies from bank to bank, which may also restrict the amount that
can be sent at a lower amount too.

The maximum UPI transaction limit for the users is set by the bank itself. In case, a
user tries to transact for the amount exceeding the daily limit, he/she will be notified
with a message stating that “the maximum limit has been reached”. In such cases, the
user will have to opt for another method of payment. Also, you can do a maximum of
10 payments from any bank account in a span of 24 hours.

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3.1 How to Make a UPI Transaction?

To make a UPI transaction, you must have a mobile payments application that
supports the UPI service. After downloading the application, you can follow either of
these ways-

 Selecting a Contact/Entering Mobile number – Sending money is as simple

as sending a message. Just select a phonebook contact or enter a mobile
number, specify the amount to be transferred and enter your PIN. That’s it!
Your payment will be completed in a few seconds.
 Scanning a UPI QR code – You can also send money through UPI by
scanning the receiver’s QR code. All you need to do is open the Paytm mobile
payment application on your phone, click on ‘Pay’, and select ‘QR code’. Scan
the QR code of the receiver and enter the amount to be paid. Now enter your
PIN and your payment will be completed in a few seconds.

 Entering UPI ID – To send money through UPI ID, all you need to do so is
open the mobile payment application, and enter the receiver’s UPI ID. After
this, you need to enter the amount that needs to be transferred and verify the
transaction by entering your MPIN. Your transaction will be completed in a
few seconds.

 Entering Account Number & IFSC – This the traditional way of payments
and it is also supported on UPI. You may enter the account number & IFSC of
the person you want to send money to, specify the amount and enter your PIN.
Your payment will be completed in a few seconds.

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3.2 UPI – Services

The UPI payments or Unified payments interface is a payment mechanism that allows
instant money transfer without bank details. The UPI is developed by the NPCI and
rather than a bank account number and IFSC code, the virtual payment address is
utilized to pay through the UPI.

Some of it’s services include-

The most cost-effective way of money transfer.

Fund transfer via NEFT entails a minimum charge of Rs 2.5 per transaction while the
IMPS charges Rs 2.5 per transaction. On the other hand, UPI only charges 50 paise or
less per transaction through the Unified payments interface. As such it has the
potential to promote non-cash transactions of small amounts throughout India, which
it is currently taking up seriously.

Cash-free functioning

UPI payments have made it a possibility for you to transfer a small amount to your
vegetable vendor in a matter of seconds. Think Paytm or BHIM cards hanging on the
local grocery store replacing the trouble you went through earlier to get a proper
change. Think of the lesser time spent in the ATM lines. Going cash-free removes
many hassles from your life and makes everything smoother in the age of digital
India.

Security

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People have stuck with their cash payments because primarily they couldn’t rely on
online transactions and card payments as they ask for bank account details. However,
the UPI method of payment cracks the deal here. The payment through the UPI does
not require card details or the details of a bank account. You just need to enter your
virtual payment address this way (think about the mobile number linked to your UPI
app).

Real-Time Fund Transfer

Everything about the UPI app is an instant formula. Traditionally, adding new pay for
the online fund transfer takes some time. This time varies from half an hour to 24
hours. In UPI, you can add a new payee instantly and transfer funds. Also, the process
of fund transfer takes a few seconds with the help of a good data connection, which is
very accessible for everyone now!

Cheaper Alternative to POS Machine

It is difficult to pay with the help of a banking card (debit or credit) everywhere you
go. Most of the merchants don’t have a card swiping machine or sometimes the
machines fail to catch signals. The machine in question is known as the POS terminal,
which is a costly affair for the billing party involved. They have to pay the service
charge for each transaction, which varies from 1.25% to 2.5% of the transaction value.
This is why the UPI apps for merchants were introduced. You would have also faced
the situation when the vendor asks for the service charge from you. It happens in a
competitive market. Keeping the POS terminal is not very beneficial for small traders.
However, UPI would help you do the same job without any cost incurred. As UPI
operates through the smartphone, anyone can collect money without spending time
and money on such machines. Also, the transaction cost is a mere 50 paisa, which is
very low compared to the POS terminal.

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One UPI app works for all the bank accounts

One might think that Axis Pay only supports Axis Bank accounts but the user gets to
choose the UPI app they want to use and link all their Axis and Non-Axis bank
accounts with them without any limitation. Be careful to choose the app that gives
you maximum ease and options.

One-Stop Solution

The digital wallet has eased online payments. Opting for mobile recharges, buying rail
tickets, shopping online and more have become very smooth because of the
emergence of digital wallets. However, the number of such wallets is increasing by
the day. Paytm, Freecharge, Flipkart, and IRCTC want you to keep the digital wallet.
Naturally, it becomes a hassle to maintain more than one wallet. The UPI ends this
problem as well. The payments through the UPI are as simple as payments through
wallets, and only one app is enough to pay anywhere. Also, the UPI does not ask for
money in advance. Rather, your money remains in the bank account and keeps
earning interest. Digital wallets, on the other hand, don’t give us any interest as well.

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3.3 UPI – Challenges

The UPI apps and the sector, as a whole, have faced many challenges already
overcoming which it is treading on the path of glory. One of the major challenges of
the UPI industry was when the world witnessed one of the most dreadful diseases of
modern times in the form of the coronavirus pandemic.

Due to the lockdown imposed to contain the spread of COVID-19, UPI has recorded
transactions of less than one billion for the month of April after 12 months of constant
growth. This is the first time in the past seven months that UPI volume went below
the one billion mark. According to the National Payments Corporation of India
(NPCI), UPI has registered 0.99 billion transactions amounting to Rs 1,51,140
crore(Rs 1.51 trillion).

Unified Payments Interface (UPI) is an instant payment system developed by the

National Payments Corporation of India (NPCI), an RBI-regulated entity. UPI can be
used through various apps like Google Pay and PhonePe to make direct payments
from one bank account to another.

The lockdown imposed by the government due to COVID-19 has caused everything
to shut down or be just semi-operational. The coronavirus outbreak has devasted
many sectors of human life, let it be the financial sector, industrial sector, etc.
resulting in an economic crisis. Yet, India’s success with a unified payments interface
(UPI) has continued to bring essential services to consumers amid the lockdown as
well.

Though the government was able to transfer the relief money through UPI in the bank
accounts of crores of Indians, UPI witnessed a 20.8% drop in volume and a 26.7% fall
in value as compared to the month before. As corona effect, UPI had registered a little

32
drop in payments volume in March resulting from 1.25 billion transactions worth Rs
2,06,462 crore or Rs 2.06 trillion.

Moreover, along with UPI, NPCI’s real-time payments service IMPS has also
registered a sharp fall in volume as well as the value of transactions. In April, IMPS
processed 122.47 million payments worth Rs 1,21,140.79 crore which is almost half
of the previous month. In the previous month i.e. March, the figure was 216.82
million transactions worth Rs 2,01,961.70 crore.

The decline is shocking as in February 2020, the RBI governor, Shaktikanta Das,
highlighted that digital payments accounted for almost 97% of the daily payment
system transactions in terms of volume. He also mentioned that digital payments had
accelerated by 50% in terms of volume in the last five years.

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3.4 Different types of a UPI scam

With the increase in the number of UPI transactions, there has also been an increase in
the number of online financial attacks, UPI fraud complaints, hacking, cyber-frauds,
and other hazards. Given below are a variety of ways in which the UPI scams take
place:

Phishing Scam

This is a scam in which payment links are sent by fraudsters in the form of an SMS.
These fake bank URLs will look almost identical to the original URL. Upon clicking
on that link, it will take you to the UPI payment app on your phone, where any app
can be chosen for an auto-debit. Upon giving permission, the money will be deducted
from the UPI account immediately. Also, the phone will be infected by a virus or
malware that can steal the financial information that has been stored on the phone.

Unverified Links

Many users are unaware that receiving money via the UPI app does not require
scanning a QR code or entering your UPI pin. Hackers frequently send fake links with
the option to request money. Once you click on this link, it will ask for your UPI pin
or to scan a code. This exposes your financial information to hackers.

Remote screen monitoring

Downloading an unverified app from the app store can sometimes result in a privacy
breach and data leak. These third-party apps can collect personal information from
your phone and access UPI app information, which can lead to UPI fraud.

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Deceptive UPI handles

Fraudsters are always coming up with new ways to deceive people, and one of them is
using social media. On social media, there may be false pages with names that sound
similar to real ones, and people may fall for it. It’s risky to put your personal
information on such sites. You can be cheated using screenshots of your UPI handles.
It is wise not to upload these in the public domain.

Fake Calls

Fraudsters will contact you claiming to be bank employees, asking for your UPI pin,
or requesting you to download a third-party app for verification purposes. This
provides them access to your personal information and account information. It’s better
to ignore such inquiries unless they are from verified sources.

Money Mule

Money Mule is a more sophisticated scam in which fraud rings get the victim’s data
and then transfer money to an intermediary account to store the plunder. This account
serves as one of the money mules, storing funds obtained from many victims.

SIM Cloning

SIM cloning is a relatively new innovation that has exploded in popularity since
banks made OTP essential. A scammer can even modify the UPI PIN if he/she clones
your SIM. To reset the PIN, the fraudster obtains the victim’s bank account
information and ID proof.

Malware

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Malware is one of the most common types of cybercrime, and it can be downloaded
by accident via a phishing email attachment or an unprotected website. Malware is
created with the intention of extracting and copying data from the infected device.

3.5 Various methods to prevent and control UPI scam

Some measures have been given below to control UPI frauds:

No government or financial institution will seek personal information through text

messages or phone calls. If you suspect UPI fraud, block the e-wallet as soon as
possible by phoning the bank. This will avoid further losses. The scam should be
reported to the police or the cybercrime cell immediately.

Unverified communications or phone calls from anyone pretending to be bank

representatives should be ignored. SMSes in the name of the Employee Provident
Fund Organisation (EPFO) or the Insurance Regulatory and Development Authority
of India can also be delivered (IRDAI). It’s worth noting, though, that they don’t send
messages to users.

Instead of using Google to look for customer service numbers, try using the official
website. Scammers frequently post illegitimate phone numbers on websites that
appear to be authentic or 36uthorized but are not.

On UPI, users should not accept payments from unknown accounts. If you receive
money demands that aren’t identifiable, simply deny them.

UPI payment apps have an excellent feature that alerts users if they receive a request
from an anonymous account, which helps to avoid fraud. Do not disregard this
warning, as doing so could cost you thousands of rupees.

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Always keep your laptops and desktops safe by installing anti-virus software in them.

Some other preventive measures taken by NPCI to ensure safety in UPI

transactions are as follows:

Strong Authentication: UPI transactions require two-factor authentication, including

a mobile phone number and a UPI PIN. The UPI PIN is a six-digit code that the user
sets during registration. The UPI system also supports biometric authentication,
including fingerprint and iris recognition, for added security.

Encryption: All UPI transactions are encrypted using industry-standard encryption

protocols, including Secure Sockets Layer (SSL) and Transport Layer Security (TLS).
This ensures that the data transmitted during the transaction is secure and cannot be
intercepted by unauthorized parties.

Risk-Based Transaction Monitoring: The NPCI has implemented a risk-based

transaction monitoring system that monitors transactions for suspicious activity,
including large transactions, transactions to new or unverified accounts, and
transactions to high-risk merchants. The system also identifies and blocks transactions
that violate the UPI rules and regulations.

Multi-Layer Security: The UPI system has multiple layers of security to prevent
unauthorized access to user accounts. This includes security measures such as session
management, device fingerprinting, and location-based authentication.

24x7 Monitoring: The UPI system is monitored 24x7 by a dedicated team of security
experts who are responsible for identifying and responding to any security incidents.

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 4.1 CASE STUDY

Unified Payment Interface (UPI) is a real-time payment system that facilitates inter-
bank transactions in India. Launched in 2016, UPI has transformed the digital
payment landscape in the country, allowing users to transfer funds instantly using
their mobile phones.

One of the most significant advantages of UPI is that it eliminates the need for users
to remember their bank account number or IFSC code. Instead, they can simply use a
Virtual Payment Address (VPA) to send and receive money. UPI also allows users to
make payments using their mobile number or Aadhaar number, making the process
simple and convenient.

The following is a case study of how UPI transactions have impacted the digital
payments market in India.

Case Study: UPI Transactions in India

India has one of the world’s largest unbanked populations, with millions of people
excluded from formal financial services. The Indian government has been working to
address this issue, promoting digital payments as a means to increase financial
inclusion and reduce the country’s reliance on cash.

In 2016, the National Payments Corporation of India (NPCI) launched UPI as a way
to simplify digital payments and increase their adoption in the country. UPI was
created as an open-source platform that could be used by any bank or payment service
provider, making it easy for users to transfer money between different accounts.

38
Challenges

One of the biggest challenges facing the adoption of UPI was the lack of awareness
among users. Many people were unfamiliar with digital payments and were hesitant to
try out new payment systems. Moreover, there was a general perception that cash was
more reliable and secure than digital payments.

Another challenge was the need for widespread availability of digital payment
infrastructure. To use UPI, users needed to have a smartphone and internet access,
which was still not available to a significant portion of the population. In addition,
many merchants did not have the necessary infrastructure to accept digital payments,
making it difficult for users to make purchases using UPI.

Solution

To address the challenges facing UPI adoption, the government launched a massive
campaign to promote digital payments. This included creating awareness about the
benefits of digital payments and incentivizing merchants to adopt digital payment
systems.

In addition, the government launched several initiatives to increase access to digital

payment infrastructure. For example, it launched the Bharat Interface for Money
(BHIM) app, which allowed users to access UPI services without needing to
download multiple apps.

Another key factor in the success of UPI was the simplicity and convenience of the
system. With UPI, users did not need to remember their bank account details, making
it easy to transfer money between accounts. Moreover, UPI allowed users to make
payments using their mobile number or Aadhaar number, which made the process
simple and convenient.

39
Results

The launch of UPI has transformed the digital payments landscape in India.
According to data from the NPCI, UPI processed over 2.7 billion transactions worth
over $51 billion in January 2021 alone. The number of UPI transactions has grown
exponentially over the past few years, with a CAGR of 785% between 2017 and 2021.

The success of UPI has been driven by its simplicity and convenience, as well as the
government’s efforts to promote digital payments. In addition, the COVID-19
pandemic has accelerated the adoption of digital payments, as people have turned to
contactless payment methods to reduce the risk of infection.

Conclusion

UPI has emerged as a game-changer in the digital payments market in India. Its
success has been driven by its simplicity and convenience, as well as the
government’s efforts to promote digital payments. With the continued growth of UPI
transactions, it is clear that digital payments are here to stay in India.

40
 CONCLUSION

UPI transactions have revolutionized the digital payments landscape in India. The
launch of UPI in 2016 has played a significant role in increasing financial inclusion
and reducing the country’s reliance on cash. UPI has made it easy for users to transfer
funds instantly using their mobile phones, eliminating the need for bank account
numbers or IFSC codes.

One of the key factors contributing to the success of UPI has been the simplicity and
convenience of the system. With UPI, users can make payments using their mobile
number or Aadhaar number, which makes the process simple and easy. The
government’s initiatives to promote digital payments and increase access to digital
payment infrastructure have also contributed to the success of UPI.

The COVID-19 pandemic has accelerated the adoption of digital payments in India.
With people turning to contactless payment methods to reduce the risk of infection,
the use of UPI has grown exponentially. In January 2021, UPI processed over 2.7
billion transactions worth over $51 billion.

The success of UPI has also led to the launch of several other digital payment
platforms, such as Google Pay, PhonePe, and Paytm. These platforms use UPI as the
backbone of their payment systems, making it easy for users to transfer money
between different accounts.

Despite the significant progress made in the adoption of digital payments in India,
there are still several challenges that need to be addressed. For example, there is a
need to increase awareness about digital payments among users, especially in rural
areas. There is also a need to increase the availability of digital payment infrastructure
and improve the security of digital payments.One of the biggest advantages of UPI is

41
its simplicity and convenience. Users no longer need to remember their bank account
details, as they can use a Virtual Payment Address (VPA) to send and receive money.
This has made digital payments accessible to a wider audience, including those who
were previously excluded from formal financial services.

The success of UPI can be attributed to several factors. The Indian government has
played a crucial role in promoting digital payments, launching several initiatives to
increase awareness and access to digital payment infrastructure. The simplicity and
convenience of UPI have also made it an attractive option for users, with many opting
to use digital payments instead of cash.

Despite the success of UPI, there are still challenges that need to be addressed. One of
the biggest challenges is the need for widespread availability of digital payment
infrastructure. While smartphones and internet access are becoming more widespread,
there are still many people who do not have access to these resources. In addition,
many merchants still do not have the necessary infrastructure to accept digital
payments.To address these challenges, the Indian government needs to continue its
efforts to promote digital payments and increase access to digital payment
infrastructure

In conclusion, UPI transactions have transformed the digital payments market in

India, increasing financial inclusion and reducing the country’s reliance on cash. The
simplicity and convenience of UPI, as well as the government’s efforts to promote
digital payments, have been key factors in its success. With the continued growth of
digital payments in India, it is clear that UPI and other digital payment platforms will
play an increasingly important role in the country’s economic development.

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3) https://www.npci.org.in/

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