UPI 101 — Exploring the Native Payment Method-Part 2

Backspace Tech
6 min readSep 1, 2023
UPI Transaction

Stepping into the next chapter of our blog series, let’s journey deeper into the realm of UPI. In our inaugural installment, we delved into the roots and growth of UPI, exploring its essence and impact on the Indian payment ecosystem. Now, brace yourselves as we venture further into part 2 of this UPI series.

Part 2 unravels the intricate and interconnected web of players — each with a unique role in this financial symphony. From regulators to customers, every participant’s responsibilities harmonize to create the UPI magic. To navigate this landscape, we’ll equip you with the fundamental jargon, and your compass to comprehend the inner workings of UPI.

Participants in the UPI ecosystem and their roles:

The UPI ecosystem consists of the main participants: NPCI, PSP Bank, and TPAP. Let’s see what each of them does and how they interact with each other.

  • NPCI is the owner and operator of the UPI platform. It sets the rules and regulations for UPI, approves the participation of banks and other service providers, provides online transaction routing and settlement services, conducts audits on UPI participants, and provides access to reports and dispute resolution mechanisms.
  • PSP Bank is a bank that connects to the UPI platform and provides UPI payment service to TPAPs, who in turn offer it to customers and merchants. PSP Bank registers and authenticates customers on UPI, links their bank accounts to their UPI IDs, verifies the security of TPAPs’ systems, stores payment data, gives customers an option to choose bank accounts from the list of banks available on UPI, and handles customer grievances.
  • TPAP is a service provider that participates in UPI through PSP Bank. It offers UPI payment services to customers and merchants through its app or website. TPAP ensures its systems are secure, complies with NPCI’s rules and regulations, stores payment data only in India, facilitates audits by RBI, NPCI, and other agencies, and provides a grievance redressal facility for customers.

Next, comes the transaction flow, where we dissect how a UPI transaction happens step-by-step. But, before we do, here are the basic terminologies for a better understanding!

  • Payer- individual/entity who “pays” the money.
  • Payee- individual/entity who “receives” the money.
  • Remitter Bank/Issuing Bank/ Sender’s bank- bank in which the payer holds the account. Debits money from the payer/issuer/sender’s account to the acquirer (merchant/receiver’s bank) during the transaction. Sends the debit response to NPCI once the debit is successfully completed.
  • Beneficiary Bank/Acquiring bank/Receiver’s bank- bank in which the payee holds the account. Credit funds to the payee account on NPCI’s request and send the response to NPCI once the credit is successfully completed.

UPI Transaction:

There are two payment modes: push payment and pull payment. A push payment is when you initiate a payment to someone else. A pull payment is when someone else requests a payment from you.

We will use an example of a push payment to illustrate the steps involved in a UPI transaction.

Suppose you want to pay Rs. 500 to your friend Rajesh for splitting the bill at a restaurant. Rajesh has given you his UPI ID as rajesh@upi. You open your UPI app or website and enter his UPI ID as the payee address. You enter Rs. 500 as the amount and click on pay. You are asked to enter your UPI PIN to confirm the transaction. You enter your PIN and click on submit.

Here is what happens behind the scenes:

1) Your app sends a request message to your PSP Bank with details such as your UPI ID, Rajesh’s UPI ID, amount, transaction ID, etc.

2) Your PSP Bank validates your request message and forwards it to NPCI.

3) NPCI routes your request message to his PSP Bank based on his UPI ID.

4) Rajesh’s PSP Bank validates his UPI ID and debits Rs. 500 from his bank account.

5) Rajesh’s PSP Bank sends a response message back to NPCI with details such as status code, transaction ID, etc.

6) NPCI forwards the response message to your PSP Bank.

7) Your PSP Bank credits Rs. 500 to your bank account.

8) Your PSP Bank sends a notification message back to your app with details such as status code, transaction ID, etc.

9) Your app displays a confirmation message on your screen saying that the payment was successful.

That’s it! You have successfully paid Rs. 500 to Rajesh using UPI in just a few seconds!

Moving on, now let us get into the exciting phase of UPI increasingly getting adopted across the globe.

Cross-border UPI payments:

As UPI’s foundation is interoperability, it has transformed the domestic payment landscape in India, making it faster, cheaper, and more easily accessible than ever before.

But UPI is not just for India.

It has also been recognized and adopted by several other countries, who want to replicate its success and benefits. The National Payments Corporation of India (NPCI), the organization that runs UPI, has set up a subsidiary firm called NPCI International Payments Limited (NIPL) to promote UPI globally.

Several digital economies such as the UK, Singapore, and UAE have partnered with NIPL. The partnerships offer seamless cross-border payments, allowing Indians to use UPI in Singapore for real-time P2P and P2M transactions, and in the UK and UAE for real-time P2M transactions.

1. Singapore

Singapore has been actively promoting its Payments Roadmap which includes initiatives such as common QR codes for accepting payments, unified points of sale, and PayNow.

In September 2021, the Monetary Authority of Singapore, and the RBI both made announcements about linking their quick payment systems, PayNow and UPI which enable fund transfers between India and Singapore users.


Indian UPI users can go through the usual way of UPI transactions and Singapore users can transact using the Indian VPA. Additionally, Indian users who are traveling to or residing in Singapore can pay Singaporean merchants through their bank’s UPI apps.

P2P transactions

The UPI — PayNow linkage was operationalized in February 2023. The account holders of participating banks and financial institutions in Singapore and India can perform real-time cross-border remittances via UPI and PayNow.

No. of Banks live: 6 Indian Banks for receiving remittances and 4 Indian Banks for sending remittances through UPI-PayNow linkage

Daily transaction limit: INR 60,000 per day (equivalent to around SGD 1,000)

P2M transactions

P2M UPI payment is accepted in Singapore by selected merchants via BHIM, the mobile payment app developed by NPCI. As BHIM and PayNow are connected, Indian customers in Singapore can make payments using BHIM UPI by scanning QR codes at specific Singaporean retailers. Indians can use the UPI feature on the PayNow apps from City Union Bank, UCO Bank, Bank of Baroda, and Punjab & Sindh Bank to make cross-border payments. For the Indian payer’s convenience, the BHIM app will immediately convert and show the amount at the time of payment in both Singapore dollars and Indian rupees. 1.8% of the transaction amount is the transaction rate that applies when utilizing UPI at a merchant (via the NETS QR code).

2. UAE

In the UAE, NIPL collaborates with organizations like NeoPay, the Arab Monetary Fund, and Network International to implement payment methods for UPI compatibility. This enables Indian customers to easily pay UAE merchants. NeoPay and PhonePe now accept BHIM UPI payments at shops and merchant stores, facilitating P2M payments for Indians in the UAE.

3. UK

The UK’s Faster Payment System (FPS) enables real-time payments up to GBP 1 million through online and phone channels, involving payment start-ups. NIPL partnered with PayXpert to bring UPI acceptance to the UK. By utilizing PayXpert’s point-of-sale systems and UPI QR code payments, Indian bank account holders can conveniently make in-store purchases with UPI. This collaboration simplifies payments for Indian travelers in the UK.

4. Bhutan and Nepal

Similarly, NPCI partnered with Bhutan, the first to adopt UPI standards for QR codes and mobile payments via BHIM. Nepal embraced UPI in February 2022, aligning with India’s Neighbourhood First Policy. NIPL collaborates with Gateway Payments Service and Manam Infotech for P2P and P2M payments. PhonePe enables UPI P2M payments in Nepal and Bhutan.

Future Roadmap:

Currently, NPCI is actively pursuing cross-border transactions with numerous countries. Its goal is to establish partnerships with at least 30 additional nations, including Australia and France. Developing countries, aspiring to build a globally connected digital economy, can greatly benefit from the cost-effective and secure nature of UPI-based digital transactions.

Now that we have covered the origins and transactions anatomy of UPI, it is time for the curtain call in part 3. It will give you a peek behind the scenes of a UPI transaction dispute and how our ODR-compliant product Unified Dispute Management handles that scenario. Stay tuned…..

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Backspace Tech

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