What is UPI ?
- UPI is an interface developed by national payment corporation of India (NPCI) in order to mitigate the shortcomings of individual core banking solution (CBS) which are incapable of communicating with each other. For example a bank is capable of communicating all transactions happening between various branches across the nation but it is not capable of communicating directly with any other bank . You can also say that it was lack of foresight of policy makers that no one though about that when banking was going digital.Had a proper policy has been put in place a fully connected banking system could have solved lot of current problems ranging from real time money transfer to stopping black money accumulation in multiple bank accounts. All This make CBS a kind of close end system and put in hurdles in free flowing of money across banks. UPI address this to an extent by creating a wrapper around Immediate Payment Service (IMPS) so that bank accounts can be identified by simple Virtual payment addresses (VPA) and people can transfer money using those VPA in real time.
If IMPS is there what was need of having UPI ?
In order to transfer money using IMPS customer need to know the account number and the IFSC code which is very cumbersome to remember.This was a major shortcoming of this system which was holding it back. UPI address this by identification of beneficiary via simple Virtual payment address so if i need to send money to someone i just need to enter his/her VPA and it will be resolved in the background to his/her account number. For example our VPA can be something like OExxxxxx@sbi and if anyone need to make us any payment through UPI then s/he just need to enter this without worrying about our account no and the IFSC code. This whole process makes money transfer as easy as sending as whatsapp message and thats the reason that UPI has been described as whatsapp of payment system by Mr. Nandan Nilekani.
What was the Need for BHIM then ?
UPI was launched in around early 2016 but response to the same has been very mute. One of the reason behind same was complexity around the system and lack of public awareness. The onus of popularising the same was left on the banks and every bank came up with their own UPI app. Though UPI being an open ended system was suppose to work across each bank app but there were many hurdles and complexity around that. It was because of this reason that even during the demonetisation when all other mobile wallets transactions was skyrocketing there was not proportionate shoot up in the UPI usage. It was because of this reason that govt and NITI Ayog came up with the proposal of having a single UPI app in order to let it realise it’s true potential and this is how our BHIM was born….
What are advantages of using BHIM ?
BHIM can be labelled as unadulterated and uncontaminated form of UPI. it is a very simple yet robust app to enable UPI based payments. It is fast because of it’s very small size (2-3 MB on android and 4-5 MB on iOS) and amazing yet simple UX/UI design. Unlike mobile wallets BHIM operates directly on your bank accounts and any money you send is transferred from your bank account directly and whatever you receive goes directly to you account and you earn interest on same. On top of that transactions are free and there is no cost involved. So apart from making money transfer easy this will also help to bring down the cost of digital transaction which is a major bottleneck and encourage people to go with cash. In addition to this BHIM create a default VPA for every user which is mobileNumber@upi. For example if my number registered with bank is 999999999 then as soon as i download BHIM a default VPA 999999999@upi will be created for me and any other BHIM user can send me money using same.
What is the Role of Aadhar in BHIM ?
Latest version of BHIM has also been integrated with Aadhar. Now apart from sending money using VPA and account + IFSC code there is an additional option to send using Aadhar number. This is quite important from rural area perspective and many rural folks don’t have phone so this option will come handy in all such cases. In order to transfer money using Aadhar , you simple need to punch in the Aadhar number of the beneficiary and money will be directly transferred to his/her bank account if mentioned Aadhar number is linked to beneficiary bank account and all this happens within seconds on real time basis with ZERO transaction fees. The future version of the BHIM will bring in real time integration with Aadhar through biometric authentication. with advent of this India will really leapfrog in terms of payment ecosystem by many years and paying to merchant will become quite easy without any need of even a debit card. All you will need will be your Aadhar number and your thumb print to validate your identity as owner of account linked to your Aadhar. There is currently pilot project going on and this will be rolled out on pan India basis very soon.