Mobile payments and UPI

Detail

1. Mobile payments: the basic idea

• Mobile payments are payments made through a phone. There are three routes:
• bank apps (the bank's own mobile banking app)
• wallets (prepaid apps that hold money you have loaded into them)

• UPI apps such as BHIM

• What they let you do:

• send money instantly, at any hour
• check your balance at any time

• skip "physical passbook updates" and "track transactions anytime" (Class 7)

• Where they sit in the payment story: cash → cheques → cards and net banking → mobile/UPI (2016 onwards). At each step, payments became faster, cheaper and easier to reach.

2. Unified Payments Interface (UPI): what it is

• Timeline:
• April 2016: NPCI (National Payments Corporation of India, the body that runs India's retail payment systems) launched UPI.
• August 2016: UPI opened to the public.

• December 2016: NPCI launched the BHIM app (Bharat Interface for Money).

• Definition: UPI is a real-time, 24×7, interoperable system for bank-account-to-bank-account payments.

• Real-time: the money moves in seconds.
• 24×7: it works on holidays and at night.

• Interoperable: any UPI app can pay any bank account through any other UPI app. You do not need the same app or the same bank as the person you pay.

• Two main types of payment:

• P2P (person-to-person): for example, sending money to a friend.

• P2M (person-to-merchant): for example, paying a shopkeeper.

• Why interoperability mattered: an IMF study found that interoperability played a central role in India's digital-payments growth. Users mostly chose UPI, and UPI grew fastest because people could pay across apps [4].

3. How you address a payee

• You can reach the person you are paying in three ways:
• a UPI ID, also called a virtual payment address (VPA), for example name@bank
• a mobile number

• a QR code

• You do not need the account number or IFSC. (IFSC is the 11-character code that identifies a bank branch.) This hides the account details and makes typing mistakes less likely.

4. Security design

• Device binding: the account is tied to one phone and its SIM card. A stranger with a different phone cannot simply log in.
• UPI PIN: a secret number that the user types to approve each payment.
• No wallet in between: money goes straight from one bank account to another. It is not first loaded into a prepaid wallet.

5. How a UPI payment works (Class 7, Fig. 8.18: Kumar pays Piyush)

1. Kumar (the buyer) scans Piyush's QR code or enters Piyush's mobile number.
2. Kumar types the amount.
3. Kumar enters his UPI PIN.
4. Kumar's account is debited (money goes out). Piyush's account is credited (money comes in). This takes a few seconds.
5. Both get a confirmation message.

6. QR code

• Definition: a QR (Quick Response) code is a square barcode that a machine can read. In payments it stores the payee's details, such as a UPI ID or merchant ID. The payer scans it with a smartphone camera.
• Class 7 (From Barter to Money): Krishnappa, a fruit-seller, keeps a QR card on his cart. "The payment then goes directly into Krishnappa's bank account."
• BharatQR (2016): one common QR code that accepts both card payments and UPI payments. A shop needs only one code.
• Why it matters: a printed QR card costs almost nothing, so a street vendor can accept digital payments without a card machine (POS terminal).

7. Add-ons to UPI

Feature	Year	Purpose	Current limit / detail
UPI AutoPay	2020	Recurring mandates (subscriptions, EMIs)	A mandate is a standing permission to debit an amount on a schedule
UPI 123PAY	2022	UPI for feature phones (basic phones without internet): IVR, missed call, no app needed	Limit per transaction raised to ₹10,000 [5]
UPI Lite	2022	Small payments from a balance stored in the app on the phone, with no PIN for each payment	Wallet limit ₹5,000; limit per transaction ₹1,000 [5]
RuPay credit card on UPI	2022	Pay merchants from a credit card through UPI	RuPay is India's own card network, run by NPCI
Pre-sanctioned credit lines on UPI	2023	Use a credit line already approved by a bank through UPI	Brings credit, not just deposits, onto UPI
UPI Circle	2024	Delegated payments: a primary user lets a trusted person (such as a parent or child) pay within set limits	Helps people who have no bank account of their own

• Worked example (UPI Lite):
• You load ₹5,000 into UPI Lite.
• You buy tea for ₹20 and a bus ticket for ₹50. No PIN is needed.
• Balance left = ₹5,000 − ₹20 − ₹50 = ₹4,930.
• A ₹1,500 payment cannot go through UPI Lite, because it is above the ₹1,000 limit per transaction [5]. It must go through normal UPI with a PIN.
• Why this helps: many small payments no longer clog the banks' main systems.

8. Why UPI spread

• COVID-19: UPI allowed contactless, cashless payments when people wanted to avoid touching cash (Class 7).
• Easy to use: it works in many Indian languages.
• Interoperability: any app can pay anyone, so the network grew fast [4].
• Low cost for users: payments are free for customers, and a small QR card is enough for a merchant.

9. Scale (latest official data)

• Unit conversion (for exams): 1 billion = 100 crore. So 20 billion = 2,000 crore.
• Monthly volume:
• UPI crossed 2,000 crore (20 billion) transactions in a month for the first time in August 2025, with 2,001 crore transactions [2].
• December 2025 set a record of 2,163 crore transactions in one month [2].

• (NCERT scaffold: "about 20 billion a month by 2025". This is confirmed.)

• Calendar year 2025: about 22,000 crore transactions, or about 60 crore a day [2].

• Annual growth:
• FY 2016-17 → FY 2025-26: volume rose from 2 crore to 24,162 crore transactions, a rise of almost 12,000 times [2].

• Over the same period, value rose from ₹0.07 lakh crore to about ₹314 lakh crore [2].

• Daily comparison: UPI handles more than 64 crore (640 million) transactions a day. Visa handles about 63.9 crore [8].

• Users: about 55.49 crore users were onboarded on UPI as of June 2026 [7].
• Share within India: UPI accounts for about 85% of all digital transactions in India [6].
• Share in the world:
• The IMF report Growing Retail Digital Payments: The Value of Interoperability (June 2025) called UPI the world's largest retail fast-payment system by transaction volume [3].

• UPI had about 49% of global real-time payment volume (2024), as per ACI Worldwide data cited in that report [3].

• All digital payments in India: over 18,000 crore transactions in 2024-25 [9].

10. UPI abroad: "India's gift to the world of payment systems" (Class 7)

• NPCI International Payments Ltd (NIPL), set up in 2020: the NPCI arm that takes UPI and RuPay to other countries [6].
• Country milestones:

Country	Milestone
Bhutan	Accepted BHIM-UPI QR in 2021, the first country to accept UPI QR
Nepal	First country to adopt UPI as a payment platform, 2022 (the NCERT framing)
Singapore	PayNow–UPI link, February 2023: the first cross-border link between two fast-payment systems
UAE	Accepts UPI
France	February 2024: the first country in Europe
Sri Lanka and Mauritius	February 2024
Trinidad and Tobago	First in the Caribbean
Qatar	Accepts UPI [6]

• Current count: UPI is live in more than eight countries, including the UAE, Singapore, Bhutan, Nepal, Sri Lanka, France, Mauritius and Qatar [6]. More countries are joining.

• UPI One World: a prepaid wallet linked to UPI for foreign visitors to India. It lets them pay by UPI without an Indian bank account.

• Technology partnerships: NPCI helps countries such as Namibia build their own UPI-like systems. India shares the design; the country runs the system itself.
• BIS Project Nexus: a plan by the Bank for International Settlements to link many national fast-payment systems through one hub. With a hub, each country connects once instead of making separate links with every other country.

• India joined in 2024, along with Malaysia, the Philippines, Singapore and Thailand.

• Strategic angles:

• Soft power and DPI diplomacy. DPI (Digital Public Infrastructure) means shared digital systems, such as Aadhaar and UPI, that anyone can build on.
• Cheaper remittances. Remittances are money that migrants send home. Direct links between fast-payment systems cut out costly middlemen.
• Internationalising the rupee. If trade and payments are settled in local currencies, more of them can happen in rupees and fewer need the US dollar.

Prelims Hooks

• NPCI launched UPI in April 2016. It opened to the public in August 2016, and BHIM came in December 2016.
• UPI moves money bank account to bank account. No wallet is needed, and the payee's account number and IFSC are not needed.
• Two-factor security: device binding (phone + SIM) + UPI PIN.
• UPI 123PAY is for feature phones (IVR, missed call, no app). Limit per transaction: ₹10,000 [5].
• UPI Lite needs no PIN for each payment. Wallet limit ₹5,000, limit per transaction ₹1,000 [5].
• BharatQR (2016) is one QR code for both cards and UPI. It is not UPI-only.
• Trap: Bhutan was the first to accept UPI QR (2021). Nepal was the first to adopt UPI as a platform (2022, NCERT). Singapore's PayNow was the first link between two fast-payment systems (February 2023). France was the first in Europe (2024).
• NIPL (2020) is the NPCI subsidiary that takes UPI abroad. It is not an RBI body.
• IMF (June 2025): UPI is the world's largest retail fast-payment system by volume, with about 49% of global real-time payment volume (2024) [3].
• UPI is about 85% of India's digital transactions by volume [6]. It first crossed 2,000 crore transactions in a month in August 2025 [2].

Mains Points

• Public digital infrastructure as a model:
• UPI is an open, interoperable public system run by a non-profit (NPCI). Private apps compete on top of it.
• Interoperability drove growth, as an IMF study found [4].

• This makes UPI a model for other countries (Namibia, Project Nexus) and a tool of DPI diplomacy (GS-II/III).

• Financial inclusion and formalisation:

• QR cards let street vendors and small shops accept digital payments.
• 123PAY brings UPI to feature phones. UPI Circle lets people without their own account pay within limits.

• Credit lines on UPI can build a digital record of payments, so small firms can more easily get formal loans.

• Risks and trade-offs:

• Concentration risk: about 85% of digital transactions pass through one system [6], so any outage hits the whole country.
• Growth in fraud: scams trick people into approving payments with their PIN.
• Funding: users pay no fee, which raises the question of who pays to run the system (the government has run incentive schemes for low-value BHIM-UPI payments).

• Data privacy.

• External-sector gains:

• Links between fast-payment systems (Singapore, Nexus) cut remittance costs. This matters because India is the world's largest receiver of remittances.
• Local-currency settlement supports rupee internationalisation and reduces dependence on the dollar.