top of page

Understanding UPI

UPI simplifies the process of transferring money by enabling transactions with just a few taps on a mobile device, without the need for traditional banking methods such as entering bank account numbers and IFSC codes. UPI has indeed revolutionized digital payments in India by offering a convenient and efficient way to transfer money between bank accounts using mobile phones.

Here are some key points to elaborate on its unique features:

  • ATM Independence: UPI eliminates the need for physical ATM machines for many routine banking transactions. With UPI, users can perform various banking activities, such as transferring money, checking account balance, and making payments, directly from their mobile phones, without needing to visit an ATM.

  • Multiple Bank Account Linking: One of the distinctive features of UPI is its ability to link multiple bank accounts within a single mobile application. This allows users to manage and access funds from different bank accounts seamlessly through a single interface, simplifying the banking experience.

  • P2P (Peer to Peer) Payments: UPI facilitates instant fund transfers between individuals or peers. Users can send and receive money from friends, family, or anyone else with a UPI ID or linked bank account, without the need for bank details such as account numbers or IFSC codes.

  • P2M (Peer to Merchant) Payments: Apart from P2P transfers, UPI also supports payments to merchants or businesses. Users can make seamless payments at offline stores, online platforms, or for various services using their UPI-enabled mobile applications.


Unified Payments Interface (UPI) operates on a 4-Party Model involving the payer, payee, beneficiary bank, and remitter bank. Here's a summarized breakdown of how UPI works:

  1. Registration

    1. Download a Payment Service Provider (PSP) app (e.g., Google Pay, PhonePe).

    2. Register and add bank account details.

    3. Generate a UPI PIN.

  2. Device Fingerprinting (Optional)

    1. Perform mobile number verification via SMS using the same number registered with the bank.

  3. Customer Registration

    1. Select preferred bank in the PSP app.

    2. PSP forwards request to NPCI, which in turn forwards it to the Issuer Bank.

    3. Issuer Bank verifies account details linked to the mobile number.

    4. PSP stores IFSC and account number details for customer's mobile app

    5. Customer selects preferred bank account and creates Virtual Payment Address (VPA).

  4. PIN Generation

    1. Generate PIN via mobile app.

    2. PSP requests OTP from NPCI, forwarded to Issuer Bank.

    3. Customer receives OTP and enters last 6 digits of debit card, expiry date, and OTP.

    4. PSP forwards OTP validation request to NPCI.

    5. UPI encrypts PIN and other details, Issuer Bank validates and stores PIN securely.

There are generally 2 varieties of transactions PUSH and PULL.

Push method: (You scan and decide the amount)

  1. Initiation 

    1. Customer initiates transaction with Payee's mobile number, VPA, or QR code.

    2. Payer's PSP forwards request to NPCI.

    3. NPCI UPI server forwards request to Payee's PSP for address resolution and authorization.

    4. Payee's PSP resolves address and provides account details (with Remitter bank).

  2. Transaction Processing

    1. Payee's PSP provides bank details to UPI, forwarded to NPCI

    2. NPCI checks with Remitter bank to debit funds from payer's account.

    3. Once funds are debited, credit request is sent to beneficiary's bank.

    4. Beneficiary bank credits Payee's account and responds to NPCI UPI.

    5. NPCI UPI server passes transaction status response to Payer's PSP, then to the customer.



Pull method: (Payee decides on amount and sends a request):

  1. Initiation

    1. Payee initiates the transaction by requesting funds from the Payer.

    2. Payee's PSP sends a pull request to NPCI UPI server for authorization.

  2. Authorization and Confirmation

    1. NPCI forwards the pull request to Payer's PSP for authorization.

    2. Payer's PSP authenticates the request and obtains confirmation from the payer.

    3. If confirmed, authorization is sent to NPCI.

  3. Transaction Processing

    1. NPCI checks with the Remitter bank to debit funds from the payer's account.

    2. Upon successful debit, a credit request is sent to the beneficiary's bank.

    3. Beneficiary bank credits the payee's account.

    4. Confirmation of transaction status is sent to both PSPs and the involved parties.

The growth of UPI from April 2016 to August 2022 has been remarkable. By August 2022, the number of banks live on UPI has surpassed 345, indicating widespread adoption among financial institutions. Moreover, the total value of transactions conducted through UPI has exceeded 10,72,792 crores, demonstrating the increasing trend towards cashless payments in India. This surge in transactions reflects the growing acceptance and usage of UPI among consumers and businesses, highlighting its convenience, security, and efficiency as a payment system.

1 view0 comments


bottom of page