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A functional view of NPCI - UPI

This post will tell the functional level of UPI, not at a complete level but yes at least to a level where common public or software people will get a better understanding of what is happening with UPI. But before this let's get to some stats and views on the UPI growth and how widely getting accepted in India and outside countries. At least it can be said a great initiative by NPCI, RBI, and Govt of India.

Growth of UPI:

  1. It has got widely accepted in india due to its ease of use with a mobile app , with many users now accepting getting mobile phones, and with the spread of good speed internet all across India. (Thanks to JIO and Airtel).\

  2. The COVID pandemic has become a boon for the payment transaction type which in the environment of good acceptance by the public and retail industry.

  3. As per the BCG-Phonepe report and NPCI report, every four transactions in India diaspora is UPI payment transaction making it as one of the primely used applications after Youtube, Instagram , money control and other social /financial platform.

  4. the UPI framework and UPI initiative for settling the payments has been so widely accepted by other countries that now UPI is available in below countries and also these countries are providing a way to settle foreign currency transactions.

5. Acceptance by UK via third party and other countries are also in progress.

Who uses UPI and how it works :

The UPI was created by NPCI (National Payment Council of India) and they created it for Indian users to use it via mobile apps, NPCI has created libraries or APIs which are used for the registration of user, authenticating the user , initiating the payment request, collection requests, balance or status check , account /address resolution and so on.

Though the payment looks processed real time but eventually, the payment is settled via IMPS settlement and thus member banks needs to have UPI or IMPS RTGS account .

The UPI payment will be used by public and common users via phone and can also be utilized by merchants to initiate the payment for collection. UPI payment in india can be done with

  1. Virtual address like : pranavscollection@PSP

  2. Mobile phone number and MMID (Mobile money Identification*)

  3. Adhaar (UIDAI)

  4. Account number + IFSC code

MMID is another initiative by Indian government for mobile based payment.

NPCI -UPI has created an environment for banks and private players to create application to facilitate the UPI payment with some adherence to policies for security, authentication, transaction limit, and transaction amount limit. the Usage limit for a customer to do payment is same as IMPS account limit and thus can change when IMPS updates its limit value in coming time.

PSPs are mainly Payment service providers who facilitate in customer registrations, user authentication, and calling UPI /NPCI to initiate beneficiary resolution and transaction initiation. Banks in india have to register to UPI and thus have to follow norms, Some banks which are only member of IMPS are also allowed by UPI to receive payments and thus UPI initiates payment via IMPS system.

Lets take one common flow of UPI payment transactions considering a PSP (Private), Remitter bank (having UPI system ), Beneficiary bank (having UPI system) and user uses virtual address given by beneficiary bank ; other scenarios can be followed in another blog created specifically.

Flow Diagram for scenario number 1-UPI

  1. User logs in to the mobile application (GPay, Phone pay , Paytm etc) and thus authenticates himself based on norms set by NPCI.

  2. The user enters the beneficiary's virtual address and amount .

  3. PSP makes a request call to NPCI-UPI to find the bank for which the registered user is mapped to, PSP will send either the phone number or virtual address and /or user details in encrypted form to UPI.

  4. UPI will decrypt it and identify the bank associated with the user, UPI will then send this request Remitter Bank in encrypted form and remitter banks post decrypting the request will validate and make a debit posting to customer account. Posting entries will look like below

Credit to : UPI account created by bank remitter bank

Debit to : Customer account configured to user id.

5. After debit posting done, remitter bank makes a request to UPI and UPI then resolves the virtual address and identifies the beneficiary bank and account details and makes a call beneficiary bank PSP.

6. Beneficiary bank PSP will be validating the recipient user and also the account and will do credit to the beneficiary user account.

Debit to : UPI account created by bank remitter bank

Credit to : Customer account configured to virtual address.

7. Beneficiary bank PSP will respond back with confirmation of payment to UPI and UPI will then send to payer PSP which is eventually given back to the payer.

8. Later in the day the UPI and Banks does the net settlement via IMPS settlement route.

The main point to look at here is that NPCI or UPI will be a database or mapper-matching which will hold virtual address to account OR virtual address to bank user identification, and NPCI -UPI will act like a switch to request to beneficiary bank properly. The request can be to identified beneficiary bank PSP or via IMPS system request to the beneficiary bank

The various participating PSPs, Banks that are a member or nonmember but still accepts UPI payment will require to follow norms audited by NPCI and RBI. All of these processes happen in less than 3 seconds (correct SLA and start-end point I will still try to find out).

Thus from a strict authentication model via Bank PIN, 2 Factor, Biometric to channel definition for payment initiation and notification to payment completion, NPCI team has done a good job with UPI .

again plus thanks to COVID-19 which led to this innovation spread, and truly in sorrow for lives, it has taken.

NEXT BLOG on different other flows for UPI and what is happening with other countries accepting UPI structure.

Source Credit: NPCI UPI procedural doc

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