How Does It Work?

UPI merges multiple bank accounts into a single mobile application (of any participating bank) and allows seamless fund routing and merchant payments. The UPI mobile application allows a user to send money to any bank account through their mobile phone, without having to enter debit/credit card details, without net-banking/wallet password, or even without knowing the recipient’s bank account number. Thus, it can serve as an enabler to existing wallets and can be used to fund the wallets.

Built on the existing IMPS system, UPI basically makes transactions between two virtual addresses much simpler than what we have been used to so far.

Suppose you want to pay your driver Ram Chandra through your mobile phone. Until now, this would have meant sending the amount through NEFT to Ram Chandra, Account No. 12345678, with XYZ bank, Delhi branch, with IFSC code: ABC00999.

The UPI has simplified the process. It plays the role of a central registry and allows complicated account information to be converted into a simple address. In the above example, if you and your driver have their respective virtual address under the UPI, the user would make the payment from ‘user@ xyzbank’ to ‘ramchandra@xyzbank’.

The central registry system converts virtual addresses into the information needed to make a transfer. This simplification means almost anybody will be able to provide their bank account information in an understandable manner, and have one ID/address where the money can be sent from and received.