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With the introduction of UPI aided cash withdrawals from ATMS, India is emerging as the leading country in digital payments in 2023, with a staggering 89.5 million transactions. This figure surpassed the combined digital payment transactions of the other four leading countries. The data further revealed that India accounted for 46% of global real-time payments, solidifying its position as a front-runner in the digital payment space.
So, what is a UPI?
Unheard of or unbelieved before April 2016, United Payment Interface (UPI) is now the standard-bearer of India's ongoing financial revolution.
Who could have predicted that a large influx of digital payments would occur in a country with a strong cash-based economy like India?
The history of UPI
In April 2009, the National Payment Corporation of India (NPCI) was formed to integrate and standardise payment mechanisms in the country. By March 2011, India had only six non-cash transactions per year per citizen, while 10 million retailers accepted card-based payments. Moreover, 145 million families lacked access to banking services, and cash transactions facilitated black money and corruption.
To address these challenges, the Reserve Bank of India (RBI) released a vision statement in 2012, aiming to build a secure, efficient, and inclusive payment system. In 2016, the Unified Payments Interface (UPI) was launched, providing a simple, fast, and interoperable payment system. UPI quickly became a successful deep-tech innovation, drawing global attention.
UPI's success prompted Google to suggest its adoption as an example for the development of the United States' real-time payment system. India became the world's largest real-time payment market, surpassing China and the United States in annual transactions.
According to the Economist Intelligence Unit, UPI made India a global leader in real-time payments, with countries like Brazil, Bahrain, Saudi Arabia, Singapore, the United States, and the European Union seeking to replicate its success. Since January 2019, UPI has been a popular payment option for initial public offerings (IPOs), with transaction limits gradually increasing. The RBI is considering implementing a merchant discount rate (MDR) on future UPI transactions. In addition, innovations like cardless cash withdrawals using UPI-based QR codes and voice-based UPI payments have been introduced.
Where does this UPI system stand on a global level?
Previously recognized for its cash-based economy, India has undergone a dramatic transition!
The country is now one of the financial economies with the quickest growth rates in the world thanks to the introduction of digital payment systems. To ensure its success, this transformation needs a robust policy framework and an authoritative system, therefore it is currently a work in progress.
The payment procedure underwent a revolution with the advent of the UPI, which made it simple and effective. Customers might start electronic payments with just their phone numbers and bank account information. It made people worry less worried about keeping change and one can do payment at any time.
Demonetization and the COVID-19 epidemic, two major occurrences, were crucial in boosting India's digital economy. Because individuals were looking for convenient and contactless alternatives to cash transactions, these events led to a spike in the use of digital payment options.
Digital payment providers in the UPI market tapped into the power of incentives by providing cashback and awards at the time of sale. This is known as incentive-centric demand. This tactical manoeuvre drew in a sizable consumer base and accelerated the uptake of digital payment systems.
Now withdraw cash from ATMs using UPI!
Taking a step forward, Bank of Baroda announced the availability of its Interoperable Cardless Cash Withdrawal (ICCW) service, which allows customers to use UPI to make cash withdrawals from the bank's ATMs. Customers of Bank of Baroda and other participating issuer banks who use BHIM UPI, World UPI, or any other UPI application enabled for ICCW on their mobile phone can withdraw cash from a Bank of Baroda ATM without using their debit card, according to the lender, which described itself as the first public sector bank to offer the service.
A QR code is displayed on the ATM screen once the customer enters the withdrawal amount after selecting the 'UPI Cash Withdrawal' option at a Bank of Baroda ATM.
The customer will use a UPI app that is enabled for ICCW to scan the QR code, and will then authorise the transaction by entering their UPI PIN on their mobile device to withdraw cash from the ATM.
Customers can choose which bank account should be debited using the ICCW capability if numerous bank accounts are linked to a single UPI ID.
The new ICCW option being provided by the bank allows consumers to withdraw money without the need for a physical card, making it an easy, practical, and secure way to do so - Akhil Handa, Chief Digital Officer, Bank of Baroda.
Customers may withdraw up to Rs 5,000 per transaction, with a daily restriction of two transactions per account. There are around 11,000 ATMs operated by the Bank of Baroda in the nation.
What’s in it for us?
The simplicity and convenience it offers for digital transactions is one of its main benefits. Users who utilise UPI can instantly send or receive money using their mobile phones by connecting several bank accounts to a single UPI ID. As a result, there is no need to carry actual money or credit cards, making transactions simple and convenient.
UPI also utilises the Immediate Payment Service (IMPS) technology, which permits real-time fund transfers between bank accounts even outside of usual business hours and on weekends and holidays.
The interoperability of UPI is another important benefit. Users can transact with numerous banks and payment service providers because of its single interface that smoothly combines diverse banking systems.
UPI places a high priority on security by using robust authentication procedures. Secure transactions are guaranteed by two-factor authentication (2FA), which includes a distinct UPI PIN and device authentication. Users can feel secure knowing that sensitive data is further protected by encryption and secure methods. Additionally, UPI allows a variety of payment methods, including account numbers with IFSC codes, virtual payment addresses, and QR code payments.
Several banks and payment service providers offer cashback incentives and prizes to UPI users. Because they can obtain discounts on purchases, rebates on transactions, and other benefits, UPI is a financially sensible method of payment. UPI has also been instrumental in encouraging financial inclusion in India. Millions of unbanked or underbanked people now can engage in the formal economy and take advantage of digital transactions thanks to the availability of digital payment systems.
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