What is UPI and how to use it ?

In our regular day to day transactions we want to move our money across our accounts, make payments and transfer it to others.

However it isn't very convenient in the old technologies like NEFT, RTGS, IMPS.
One has to know the IFSC code, Bank Name, Name of the account holder and a number of details to make the money transfer happen.

To simplify this experience and work seamlessly between a number of accounts NPCI (National Payments Corporation of India) has come up with a technology that makes it easy for consumers.

UPI (Unified Payments Interface) is the interface that allows it.
According to NPCI below is the description for UPI

Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.

I will briefly explain the method and how to use it taking an example of PhonePe which is one the UPI apps available.

PhonePe is a wallet/UPI application associated with flipkart.
You can have a look at the website here and install the app from here.

Once you install the app it asks you to do some initial setup and set a password for security.

You should create a VPA (Virtual Payment Address) using the app. This is key as it resolves most of the problems with money transfers.

To give you an analogy VPA is like an email address. Once you sign up with your UPI app and create a VPA anybody can simply send you money by using your VPA address.


Next step is to associate bank accounts you want to operate UPI app with. When you goto Bank Accounts menu and select Add New Bank Account it presents you an option to add your bank to associate with PhonePe. The screen looks like below.

It shows you a list of banks to add from which support UPI.
Select a bank account and it will automatically fetch the details of the bank account based on the mobile number associated to your PhonePe account.

All you have to do is set a mpin for the bank account if its not already set so that you can use that bank account securely for your UPI transactions.

You are all set now. You can do a slew of things a shown below:

You can send money / request money which are basic operations.

To send money you just click on send, add a VPA or a bank account and just send money to them. It's that simple.

Feel free to explore the app. It is intuitive and you can use it to pay your bills, recharge mobile/DTH etc.

Similar to PhonePe there are a number of UPI apps that banks now offer. Some of the banks are Yes Bank, SBI, Axis Bank, ICICI.

What is digital currency and cashless transactions ?

Whether demonetisation achieved anything or not, one thing it brought into the conversation is cashless economy and digital currency.

So let's have a quick look at what that means and how it can be useful for us.

A quick search on what currency means reveals below:

A system of money in general use in a particular country.

So we know that money can be various forms cash, deposits, cards.
For convenience sake what people call as digital currency or cashless is anything that involves not using physical notes. 

Below are some of the ways to do cashless transactions

Debit cards:

All the bank accounts now offer debit cards associated to the savings account.
The cards are a way to use the money available in your account.

It's simple. You receive your debit card. You either will receive a PIN with the card or you can set one and then you are all set to go.

Most of the decently big setups now accept transactions through debit card.

You can use your money to the limit available in your bank account.


Credit cards:

Credit cards as the name says offers you money on credit.
Many banks and financial institutions offer customers credit cards based on their credit score.

The concept with credit cards is that you can use money to a pre-specified limit as agreed by your issuing institution and spend that amount.

You will have to pay back the money on a pre-specified billing date + x days. 
Attraction with credit cards is that you can spend money which you don't own.

Also that you get a time of about close to 30 days to repay the amount spent.
So one can easily see the allure of it.

You don't have to wait for money to be available to make your purchases. However it also has the downside that your impulse purchases are that much easier.

So one needs to judge the type of expense correctly and use it judiciously so that credit cards are useful.


Debit and credit cards are the major form of transactions when one buys things online.
All the major e-tailers or e-commerce companies offer payments with these.


Now there is a new category of payments that came into light recently.

Wallets:

Wallets you can consider them an analogy of your physical wallet. There is some amount in your wallet and you can spend it as necessary.

Same with e-wallets like PayTM, Mobikwik, Freecharge.

Wallets can store money (10K without KYC) and you can use them for any of your purchases or money transfers.

Wallets have least resistance as there is no two factor authentication required.

Two factor authentication is basically where there are two factors involved in authenticating a transaction. For Ex: a password and a secure code using OTP

While that has a lot of value by being secure it offers resistance as one has to wait for transaction has to happen.

Wallets solve this by not having a two factor authentication and they are gaining wide popularity.

Not only that wallets make it easy to do person to person transfers. Most of the wallets have their identity as mobile numbers. So as long as you know the other persons mobile number you can easily transfer money to them. No need to remember complex account numbers and IFSC codes.

Netbanking/NEFT/RTGS/IMPS:

I am grouping together other forms of banking into one.

Netbanking is form of banking that is online. You can perform all your banking operations that you can do with a physical bank branch with the convenience of online facility.

It can also be used for making online transactions in portals.

NEFT, RTGS, IMPS are different ways to transfer your money to other accounts. While NEFT is not realtime RTGS and IMPS are realtime.

So if you have to give somebody money there is no need to withdraw to physical notes. You can just do an online transfer using these mechanisms.

A special mention here is for UPI (Unified Payments Interface)

UPI:

UPI is a new facility which makes payments a lot easier.
Instead of using complex account numbers and IFSC codes now one has the ability to choose a VPA (similar to an email id) and make transfers.

So if one has to make payments all one has to know is the other person's VPA.
Think of it as sending an email. You open a browser, login to your email account, type in other person's email id and you can send them an email.

Similarly to use UPI, you open an app which supports UPI type in other persons VPA and type in the amount you need to transfer and voila. 


So above are some of the ways currency is taking digital forms. It has a lot of advantages and convenience as you can see.

Demonetisation and getting back your money

OK. Let's address the elephant in the room. Demonetisation.
What about it ? You may ask.

So RBI has demonetised two big notes in circulation 500 and 1000 INR. Objective is to dig up the black money that's in circulation and encourage digital currency.

Without going into the actual merits of it, I just want to touch on the impact of it in our lives.

For convenience sake I am assuming that most of the readers of this blog are the ones who are reasonably well off and have bank accounts and are savvy with digital transactions.

So let's see the impacts in the short term in our personal life.

Money Exchange:

If you are like any other family who has daily expenses and have domestic help at your home, do your grocery shopping at your neighbourhood stores chances are you have some money in the 500 and 1000 denominations lying at your home.

You might also have cash handed over as gifts and children's pocket money.

And maybe as many of us do you might have some handy emergency cash.

Your top priority is to exchange this cash so it becomes useful once again and has legal tender.

Options when this exercise started were 

• Goto a bank or post office and exchange the notes.
• Deposit the money in your bank account.

However by 24th November the option to exchange notes is no more and the only option would be for you to deposit them in a bank.

So Money Exchange is no more an option.

Money deposit in a bank:

Money deposit in a bank is an option that is available for all citizens and bank account holders.

The way to deposit the money is no different than how we used to do earlier.

Goto a bank branch, pick up a deposit slip and handover the money to a cashier.

Money in the old notes can be deposited in a branch until December 30th 2016.

Get your receipt and check if the money shows up in your account balance.

That's it.

Use Cash Deposit Machines:

Some of the savvy banks offer Cash Deposit Machines (CDMs).

These are available with some specific SBI branches as well.

So got a Cash Deposit Machine, login to your account and put in the old notes.

These are accepted and the balance shows up in your account.

So above are the ways you can get your cash back to you in some form.

Remember that if you have nothing to hide in terms of money and everything is accounted for you don't have to fear for depositing any amount of cash.

Yes, there will be additional scrutiny on large deposits made above 2.5 lakhs but that should not deter you and use alternate means to do your deposits.

In my next post I am going to address on how to use digital currency.

What can you expect ?

I am on a financial journey myself and I am interested to learn and share about all things related to finance.
As an analogy, the financial journey is very similar to any journey. When you want to go from a place a to place b, we start planning. A journey involves a lot of things:

• Know where you are

• Figure out where you want to go

• Find out the routes possible on reaching your destination

• Research the best route

• Consider the obstacles, short cuts, useful tips

• Zero in on an optimal route according to your expectation

• Make decisions and change your plan as you go so you reach your destination

And most important of all is to make a start. One can plan forever and keep improving it, but it will not make you move towards your goal unless you make a start.

Financial journey is a learning that one has to undergo through his entire life and figure out what works and what doesn't. Keep tweaking things based on your goals and figure out the path.

There will be obstacles in the journey and one has to deal with them.

There are various ways of investing and I hope I can help share my experiences and maybe help you in learning a few things on the way.