The United Payments Interface (UPI), an initiative of National Payments Corporation of India (NCPI), has witnessed a rapid rise in transactions in India. This upsurge in UPI transactions demands a need for continuous improvement and development of banking infrastructure and technological capabilities. However, this growth has also resulted in various daily limits by banks and apps, creating a complex landscape of limitations.
Daily Limitations on UPI Payments
NPCI had set a limit of 20 transactions per day and ₹1 lakh per day in 2021. However, the landscape is made more complex as individual banks and apps impose their own limits. For example, ICICI Bank allows 10 transactions in 24 hours, while Bank of Baroda and HDFC Bank allow 20 transactions during the same time-frame. Additional categories of transactions such as capital markets, collections, insurance, and forward inward remittances have a higher limit of ₹2 lakh.
National Payments Corporation of India (NPCI)
NPCI plays a pivotal role as an umbrella organization for all retail payments systems in India. Conceived with the guidance and support of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA), its objective is to integrate existing multiple systems into a nationwide standard business process, thereby facilitating affordable payment mechanism for everyone and promoting financial inclusion.
Growth of UPI Payments Over Time
Since demonetization, UPI became a popular alternative to cash in India. The surge in UPI transactions between May 2018 and May 2023 was primarily in volume rather than value. There has been a noticeable decrease in the value per transaction over time, indicating the growing use of UPI for smaller transactions replacing petty cash.
New rules, collaborations, the introduction of fees for specific transactions and features like UPI AutoPay added to the dynamism of the UPI ecosystem.
Impacts of UPI Trends on Users and Banks
The rise in UPI transactions brought both positive and negative effects. While it introduced convenience and efficiency in digital transactions, promoted financial inclusion, reduced cash dependency, and gave a boost to digital economy, it also posed significant challenges.
For users, the complex limitations set by different apps and banks resulted in transaction failures and led to limited transaction flexibility. For banks, the major challenge lies in upgrading their infrastructure to handle increased volume and frequency of transactions, and preventing security breaches and fraudulent activities.
Ahead: The Need for Agile Infrastructure Development and Technology Integration
To overcome these challenges, investment in robust infrastructure and advanced technology is crucial. Additionally, exploring the integration of technologies like edge computing, distributed ledger technology (DLT), blockchain technology, data analytics, artificial intelligence and machine learning can offer effective solutions. These technologies can ensure scalability, security, real-time transaction processing, personalized financial insights, and automating transaction processes.
UPSC Civil Services Examination, Previous Year Question (PYQ)
This article provides answers to previous years’ questions related to digital payments and NPCI from the UPSC Civil Services Examination. In 2018, it was asked whether BHIM app allows the user to transfer money to anyone with a UPI-enabled bank account and if it has only two factors of authentication. The correct answer was that BHIM app does allow this functionality. In 2017, another question was about the likely consequence of implementing the ‘Unified Payments Interface (UPI)’ where the correct answer was that mobile wallets will not be necessary for online payments. There was another question regarding the role of NPCI in promoting financial inclusion and launching RuPay, both of which are true.