Working of Unified Payments Interface

What is UPI?

UPI stands for Unified Payments Interface is a digital payment infrastructure which used by more than 66% of the Indian population. It's known to serve 491 million individuals as of July 2025 and accounts for 85% of all digital transactions in India. It is an epitome of technological advancement in the finance sector which allows us to transfer money from entity to another within a few seconds. NPCI (National Payments Corporation of India) is the umbrella organisation which is responsible for all the retail payment settlements in India. NPCI was established in the year 2008 under the initiative of the RBI (Reserve Bank of India). NPCI develops and maintains the UPI infrastructure.

How digital payments were done before UPI?

Digital payments were also relevant in the pre-UPI era in the form of NEFT (National Electronic Funds Transfer) , RTGS (Real-Time Gross Settlement) and IMPS (Immediate Payment Service). These services are different from each other as they vary in different parameters like payment speed, service availability, minimum and maximum payment limits. For instance, IMPS payments were done instantly, RTGS payments took minutes to complete while NEFT took hours to complete. The entire system was centrally controlled and monitored by the RBI.

For these type of payments we need the following details of both the sender and the receiver :

• Account Number

• Bank Name

• IFSC code

For example, a user (sender) who is having an account in ICICI Bank will use its payment portal to send money to the user (receiver) who is having an account in HDFC bank. In this process both parties will use their Account Number, Bank Name and IFCS code for identifying each other and helping the system to authenticate them.

How UPI entered the game and changed it completely :

After the launch of UPI on April 2016, the online money transfer scenario was changed completely.

NPCI acts as the central controlling entity of the entire UPI infrastructure. It can be regarded as the “brain” of the UPI’s infrastructure. It interacts with the secured private APIs whose access are limited only to the trusted banks (e.g. SBI, ICICI, HDFC etc). Those APIs are cannot be accessed by the public systems. This internal NPCI orchestrates the backbone of the digital payment, it defines the flows how the amount will be deducted from the sender’s account and added to the receiver’s account ensuring a transparent transaction system in real time.

Some entities which are involved in this entire process of UPI are :

1. CPSPs (Customer Payment Service Provider) : Products like Google Pay and PhonePe which are used by the end user (sender as well as receiver) to interact and utilise the UPI system. These PSPs do not have direct access to the NPCI’s internal system through NPCI’s APIs. PSPs have their interaction with the banking systems which in turn communicates with the internal system of the NPCI.

2. Banking systems : These are the individual technological entities handled by the banks independently. For example banks like SBI, ICICI, and Axis have their individual systems. These systems acts as a middleware between the CPSPs (like Google Pay and PhonePe) and the internal system of the NPCI. These banking systems are the only entity in the entire UPI pipeline which can access the highly secure private APIs of the NPCI’s internal system which handles the core backbone functions of the UPI pipeline.

3. VPA (Virtual Payment Address) : VPAs servers as the unique identifier of each UPI user. It can be considered as a sole substitute of the informations like Bank name, branch code, IFSC code etc which was used in the previous system to identify the sender and the receiver. The VPA is generally in the form username@bank_code for example johndoe@okasbi.

Because of this simpler function and usage of UPI it has been widely adapted and used even among the rural population of India.

Process in which the UPI pipeline works :

1. User request for payment through the CPSPs (like Google Pay, PhonePe etc) by choosing the VPA of the receiver. This VPA selection either can be done directly or by scanning receiver’s QR Code or entering receiver’s number (which ultimately translates to the VPA of the receiver).

2. The CPSPs communicates to the Bank system with the the sender’s payment request. The Bank System verifies whether there is sufficient balance in user’s account to transfer the requested amount and passes the request to the NPCI internal system.

3. NPCI’s internal system verifies with bank server about sender’s balance . It also verifies whether the VPA of the receiver is valid or not.

4. After successful verification of all the mentioned information, finally the NPCI requests for the user approval/authentication to proceed forward. This is the segment where the end user (sender) enters his UPI PIN into the PCSP.

5. After the completion of the authentication process the NPCI’s internal system does all the internal backend stuff i.e., deducting money from the sender’s account and adding money to the receiver’s account.

If any of the checks and validations in the above steps fails, the transaction automatically fails and rolls back. If every check and validation passes, the transaction also completes successfully.

I have tried to explain the process of sending money, similar pipeline follows in the receive payment function also.

Acknowledgement :

Thanks to Piyush Garg sir to explain the concept behind the pipeline of UPI, this article is possible only because of this efforts. I tried my best to replicate and document what I understood and grasped from this video.