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World Bank Fast Payments Toolkit
Glossary of terms
S. No. Term Definition
1 GDP Gross Domestic Product at current price
2 Income Category Classification as per World Bank based on Gross National Income (GNI) per capita
3 CPMI Committee on Payments and Market Infrastructure
4 FPS
As per CPMI, fast payment System is defined as payments in which the transmission of the payment message and the
availability of final funds to the payee occur in real time or near-real time and on as near to a 24-hour and 7-day (24/7)
basis as possible
5 Oversight Regulating or governing body supervising the payments system
6 Operator Institutions responsible for the operation of the payment system
7 Alias
Alternative to bank account numbers for increased convenience of the customer. For e.g., mobile number, national
identification number
8 Access Channels Modes used by customer to initiate transaction on FPS. For e.g., branch, internet, mobile
9 Individual Payment Type Person to person (P2P) – Payment between individuals for non-business purposes
10 Business Payment Type
Person to Business (P2B) – Payment from an individual to a business entity
Business to Person (B2P) – Payment from a business entity to an individual
Business to Business (B2B) – Payment between two business entities
11 Government Payment Type
Person/Business to Government (P/B2G) – Payment from person/Business to a government institution
Government to Person/Business (G2P/B) – Payment from government institution to a person or business entity
12 Credit transfers
Credit transfers are payment instruments based on payment orders or possibly sequences of payment orders made for the
purpose of placing funds at the disposal of the payee
13 Direct Debits
Direct debits are payment instruments in which the transaction is pre-authorized, and funds are blocked in account for a
debit to be initiated at a future date. In direct debits, payer’s account is debited on execution of mandate by merchant or
payee
14 E-money
E-money is a prepaid value stored electronically, which represents a liability of the e-money issuer (a bank, an e-money
institution or any other entity authorized or allowed to issue e-money in the local jurisdiction) and which is denominated in a
currency backed by an authority
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World Bank Fast Payments Toolkit
S.No. Term Expanded form
1 AML Anti-money Laundering
2 BHIM Bharat Interface for Money
3 BPSS Board for Regulation and Supervision of Payment and Settlement Systems
4 CDD Customer Due Diligence
5 CFT Combating of Financing of Terrorism
6 CCIL Clearing Corporation of India Limited
7 ERM Enterprise Risk Management
8 IMPS Immediate Payment Service
9 NEFT National Electronic Funds Transfer
10 NFS National Financial Switch
11 NPCI National Payments Corporation of India
12 PFMI Principles of Financial Market Infrastructure
13 PSS Payment & Settlement Systems
14 RBI Reserve Bank of India
15 RTGS Real time Gross Settlement
16 SGF Settlement Guarantee Fund
17 TPAP Third Party Application Provider
18 UPI Unified Payments Interface
Abbreviations
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World Bank Fast Payments Toolkit
Select parameters
Source : World Bank – 2019, Income Category: World Bank – June 2019
Currency Exchange Rate USD 1 = INR 70.42 <2018 Average, World Bank>
Others – World Bank 2017
* For age >15 years
GDP
GDP – $2.875 trillion
Income Category
Lower middle
Population
1.366 billion
Access to mobile phone*
68.52%
Access to internet*
14.13%
Bank account*
79.87%
Branches per 1,00,000
adult
14.72
Made or received digital
payment in last 1 year*
28.69%
Received government wages
or transfer in account*
13.06%
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World Bank Fast Payments Toolkit
How to read this report
• This deep dive report relates to IMPS and UPI systems in India
• It has been developed based on primary interviews with key stakeholders such as regulators, operators and participants in the
system as well as by leveraging secondary sources
• Key secondary sources include RBI website, NPCI website, and guidelines published by NPCI
• The table below presents a legend to assist readers as they navigate through different sections of the report
Legend
The green box with the adjacent icon indicates section/sub-section summary across the report. Reader may choose to
read through this for a high level overview on the selected topic
The first slide of every section includes a chapter summary to provide readers with an overview of the section contents
6
World Bank Fast Payments Toolkit
Table of Contents
Slide number
A.
Executive Summary
8
B.
Detailed Report
1 Overview
1.1.
Background 11
1.2.
Objectives 12
1.3.
System Development 13
1.4.
Key Milestones 14
2
Business and Operating Model
2.1.
FPS Structure 16
2.2.
Participants 17-19
2.3.
Payment Instruments, Transaction Types 20
2.4.
Access Channels, Agent Network and Aliases 21-22
2.5.
Scheme Pricing and Fee Structure 23
2.6.
Use Cases 24-26
3
User Adoption
27-29
4
Technical Details and Payment Process
4.1.
Technical Details (Messaging Format, QR Codes, APIs, Customer Authentication and Tokenisation) 31-32
4.2.
Payment Process (Customer Registration, Transaction Fulfilment, Liquidity Management and Settlement) 33-37
5
Governance Framework
5.1.
Legal and Regulatory Aspects 39-42
5.2.
Risk Management 43-47
5.3.
Dispute Resolution 48
5.4.
Customer Complaints 49
6 Annexure
6.1.
Key Features 51
6.2.
Operational and Fraud Risk Management 52
7
A. Executive Summary
8
World Bank Fast Payments Toolkit
IMPS and UPI | India FPS
• Immediate Payment Service (IMPS), launched by National Payments Corporation of
India (NPCI) in 2010, is a real-time inter-bank payment system that is available
24*7*365
• RBI’s evolving focus over the years led to creation of enabling peripheral ecosystem,
followed by launch of IMPS, moving onto creating a vision for ‘less-cash’ India through
higher accessibility and a unified interface
• UPI is a 24*7*365 real-time fund transfer system that links multiple bank accounts
into a single mobile application, facilitates fund routing & merchant payments, and
enables use of virtual addresses
• IMPS was developed over a period of 6-7 months whereas UPI was developed over a
period of approximately 9 months
Key features of IMPS are Key features of UPI are
• Both IMPS and UPI support individual, business and government transactions.
Additionally, UPI also supports non-financial transactions such as balance enquires
• IMPS and UPI support numerous channels and use cases they support which
improves customer stickiness and convenience because customers don’t need to shift
to alternative platforms for payments often
Source: NPCI | RBI | Primary Interviews
•
Both banks & non-
banks allowed as
participants
•
ISO 8583
messaging format
•
Deferred Net
settlement
•
Agent network
supported
• Customers can initiate
transfers from any
PSP
•
XML messaging
format
•
Deferred Net
settlement
•
Third party
applications allowed
9
B. Detailed Report
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World Bank Fast Payments Toolkit
1. Overview
Chapter Summary:
• There were two main electronic payment systems i.e., RTGS and National Electronic Funds Transfer (NEFT) – batch
mode processing system - which were operated by the Reserve Bank of India (RBI) prior to the launch of IMPS
• RBI focused through the mid-2000 to develop a peripheral sound and secure ecosystem for electronic payment
systems, especially through a defined legal and regulatory framework
• Having the legal and regulatory framework in place for the payment systems, a separate umbrella entity for
retail payment system operations was proposed by the RBI in order to bring uniformity in structure and payment
operations, ensure improved information dissemination by consolidation, and foster innovation. It was also aimed at
enabling RBI to focus on settlement services for clearing systems, besides being the regulator and supervisor.
Hence, the National Payments Corporation of India (NPCI) was incorporated under the guidance of RBI and the
Indian Banks’ Association
• By the time the above measures were implemented, adoption of smartphones had started to increase. Hence, need
to leverage mobile as a platform for payments along with facilitating real-time 24*7*365 payment
service was observed. With this vision, RBI handed over the development and operations responsibility to NPCI.
NPCI launched the system in 2010 with the support of a vendor, Euronet, for system development. The system was
developed in ~6-7 months
• IMPS faced challenges initially because of complexity, especially with Mobile Money Identifier (MMID) which had
to be used for performing transactions, and also because of apprehensions about mobile being a secure payment
channel by the users. The MMID issue was eventually resolved
• By 2015, there was a surge in the mobile banking solutions and penetration of smartphones had also picked up by
then. With this background, RBI and NPCI envisioned to launch a solution aimed at customer convenience by
providing a standard interface for communication across different mobile banking applications of banks, thus
facilitating interoperability. This was also in line with the RBI vision at that point which included aspects of
acceptability, interoperability and customer convenience
• Towards this end, NPCI launched Unified Payments Interface (UPI), a 24*7*365 real-time fund transfer
system, in 2016. The system was developed with the support of a vendor, RS Software, and took ~9 months for
development
Chapter sections:
1.1. Background
1.2. Objectives
1.3. System Development
1.4. Key Timelines
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World Bank Fast Payments Toolkit
1.1. Background
Immediate Payment Service (IMPS), launched by National Payments Corporation of India (NPCI) in 2010, is a real-time inter-bank payment
system that is available 24*7*365. Prior to IMPS, there were two primary electronic payment systems i.e., RTGS for large-value interbank
transfers and NEFT for batch fund transfers. IMPS was a result of the Reserve Bank of India’s (RBI’s) vision to launch a mobile-first platform
that is available 24*7*365 for real-time fund transfer. The system was extended to other channels as well over the years
During the initial years, growth of IMPS was inhibited owing to a cumbersome registration and transaction process. With the basic
infrastructure in place by early 2010s, focus was increased towards acceptability, interoperability and customer convenience. The penetration
of smartphones had also increased by 2015. These factors also contributed to the conceptualization of Unified Payments Interface (UPI) which
was launched by NPCI in 2016
UPI is a 24*7*365 real-time fund transfer system that links multiple bank accounts into a single mobile application, facilitates fund routing
& merchant payments, and enables use of virtual addresses
• RBI’s evolving focus
over the years led to
creation of enabling
peripheral ecosystem
for the launch of
IMPS and UPI
• IMPS was a result of
the RBI’s vision to
launch a mobile-first
platform that is
available 24*7*365
for real-time fund
transfer
• With the basic
infrastructure in
place, RBI’s focus
increased towards
interoperability and
convenience. Towards
this end, an
interoperable real-
time 24*7*365
mobile payment
system, UPI, was
launched by NPCI in
2016 that promoted
convenient payments
through easy-to-
remember aliases
RBI’s evolving focus over the years led to creation of enabling peripheral ecosystem, followed by launch of IMPS, moving
onto creating a vision for ‘less-cash’ India through higher accessibility and a unified interface
Related Key Measures
Outcomes
Safety, Security,
Soundness and Efficiency
Vision 2005-08
Safety, Security,
Soundness, Efficiency,
Accessibility and
Authorization
Vision 2009-12
Accessibility, Availability,
Awareness, Acceptability,
Affordability, Assurance
and Appropriateness
Vision 2012-15
Coverage, Convenience,
Confidence, Convergence
and Cost
Vision 2016-18
Proposed
legal
framework
for payment
and
settlement
systems
Separate entity
for Retail
Payment
Systems
Operations to
bring uniformity
in structure &
operations, and
foster innovation
Authorizatio
n of System
Operators
Considered
need to extend
NEFT
availability or to
develop a new
system for
24*7*365
payments
Rationalize
guidelines
for enhanced
accessibility
(esp. PPIs,
KYC, etc.)
Encourage
standardization
and
interoperability
Encourage
further
adoption of
mobile
banking
Promoting
convergence
through UPI
as
interoperability,
especially for
merchant
payment
recognized as
an issue
Payment &
Settlement
Systems
(PSS) Act,
2007
enacted
NPCI
incorporated in
2008
NPCI authorized
as payment
system
operator in
2009
NPCI tasked on
24*7*365
electronic
payment
system (IMPS)
Inclusion of
PPIs in IMPS
NPCI worked onto launch of UPI
Above mentioned measures & outcomes are not exhaustive
& are the ones which are significant from FPS perspective
Source: NPCI | RBI
Vision is in reference to Payments
& Settlement Systems Vision of RBI
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World Bank Fast Payments Toolkit
1.2. Objectives
• The overarching
objective of IMPS
and UPI has been
facilitation of
financial inclusion
and promotion of
digital payments
• A key objective of
IMPS in 2010 was
need for a 24*7*365
system and to
explore mobile as a
payments channel
as smartphones
were beginning to
become mainstream
• UPI’s objective was
primarily to build a
standard interface
which would enable
greater penetration
and usage of
electronic payments
through enhanced
interoperability and
customer experience
RTGS NEFT
• Real-Time Gross
Settlement (RTGS)
System for high-value
interbank fund
transfer
• National Electronic
Fund Transfer System
(NEFT) – a non-real
time batch transfer
system (not
24*7*365 at the time
of IMPS launch);
complements IMPS as
it is now 24*7*365
available and can act
as a backup for IMPS
and vice versa in case
of any operational
issues
• NEFT has morphed
into a hybrid system -
as it larger than
typical low value and
lower than typical
higher value. NEFT is
seen as a back-up for
RTGS
Objectives
To build a robust and cost
effective real-time retail
payment service available
round-the clock (also on holidays)
To facilitate financial inclusion
process and to provide banking
services to even the last mile
customer
To sub-serve the goal of RBI in
electronification of retail payments
To provide a channel
independent access mechanism
To build an interoperable fund
transfer service involving various
stakeholders such as banks and
non-banks (PPIs)
Objectives
Aimed at customer convenience by
providing a standard interface for
communication across different mobile
banking applications of banks thus
facilitating interoperability
Key enhanced features launched
through UPI
Ease of customer
registration
Simplified payment
initiation through
UPI ID
Unified interface
and
interoperability
Customizable as per
application
requirements
1-click 2-factor
authentication
Source: NPCI | RBI | Primary Interviews
Facilitates collect
requests
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World Bank Fast Payments Toolkit
1.3. System Development
• Taking RBI’s
guidance forward,
NPCI developed
IMPS with the
support of Euronet
within 6-7 months
and launched it in
2010
• NPCI developed UPI
specifications and
partnered with an
external vendor RS
Software for system
development. The
system was
developed within
approximately 9
months and was
launched in 2016
• There was
participation from
member banks and
other ecosystem
participants for
inputs and validation
during the
development phase
•
IMPS was built as a new system because:
•
NEFT was not a real-time 24*7 platform. Hence, liquidity
management issues had to be resolved apart from
technological changes
•
Moreover, technology had advanced over a period and the
solution was being envisaged as a mobile-first platform.
Hence, NPCI was given the mandate by RBI to develop a
new system with focus on innovation
•
When IMPS was launched, it was based on the existing National
Financial Switch (switch for ATM transactions) operated by NPCI.
Gradually, IMPS operations were shifted to its own switch (called
Bharat switch)
•
NPCI had appointed a vendor (Euronet) for development. NPCI
had already partnered with Euronet for the National Financial
Switch
•
IMPS was custom-built by Euronet for NPCI
•
Banks, being shareholders in NPCI, were involved during the
development phase. Non-bank participation was less at the time
of development since initially the system did not allow non-bank
participation
•
As mobile phones became more prevalent, UPI system was
conceived. UPI offers an architecture framework and a set of
standard API specifications to facilitate online payments. It aims
to simplify and provide a single interface across various NPCI
systems, thereby creating interoperability and superior customer
experience
•
Design and specifications were written in house by NPCI and an
external vendor, RS Software, was selected for development
•
NPCI had issued Request for Proposal (RFP) and RS Software was
appointed through this process
•
UPI was custom-built by RS Software for NPCI
•
There was participation from member banks and other
ecosystem participants for inputs and validation during the
development phase. Apart from ecosystem participants, lot of
international experience of faster payments was drawn from
countries such as UK and Australia prior to the development
phase
•
Prior to rollout, NPCI conducted a pilot launch with 21 member
banks
Infrastructure Setup and Development Process Infrastructure Setup and Development Process
Implementation Timelines
Development
Timeline
IMPS was developed over a period of 6-7
months
Implementation Timelines
Development
Timeline
UPI was developed over a period of
approximately 9 months
Source: NPCI | Primary Interviews | Cook, William, and Anand Raman. 2019. “National Payments Corporation of India and the Remaking of
Payments in India.” Working Paper. Washington, D.C.: CGAP. This is an adaptation of an original work by CGAP/World Bank.
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World Bank Fast Payments Toolkit
1.4. Key Milestones
Note: Above list is not exhaustive
There have been series of enhancements and innovations in IMPS and UPI in order to enhance customer experience
Source: NPCI | RBI | Primary Interviews | News Articles
RBI
published
its Vision
Document
2008-12
expressing
the need
for a 24*7
electronic
payment
system
IMPS
launched
IMPS & UPI
settlement separated
due to banks’ request for
separate reporting and
regulatory requirement
Participants mandated to
support both UPI &
Bharat QR
Processing domestic leg
of Foreign Inward
remittances allowed
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2020
Inclusion of non-banks
(PPIs)
Channels added -
internet banking and
ATM because adoption of
mobile channel was low
Transfer using account
number and IFSC (bank
branch identifier) enabled
Settlement agency
changed from Clearing
Corporation of India
Limited (CCIL) to NPCI
UPI launched
BHIM, an app
supporting UPI
payments
launched by
NPCI
Since large number of
beneficiaries belonged to
rural / semi-urban areas,
joining of regional rural,
urban and district
cooperative banks
allowed only as beneficiary
without authorisation for
mobile banking from RBI
Transfer using Aadhaar
number (govt. issued ID)
Channel added –
USSD (for
enabling
transactions
through feature
phones) and
branches
Processing
domestic leg of
Foreign Inward
remittances
allowed
Discontinuation
of USSD 1.0
system as USSD
2.0 was
launched on UPI
in 2016
Discontinuation
of M2P & P2M
payments in
IMPS as they
were launched
on UPI
Creation of
Settlement
Guarantee Fund
for guaranteeing
inter-bank
settlement
Simplification of
customer
onboarding
process (MMID,
IFSC formats and
M-PIN generation)
since these areas
posed user
adoption
challenges in the
initial years
UPI 2.0 launched with
additional use cases such
as direct debit
authorization, signed
intent / QR, etc.
Bill Payment through
Bharat Bill Pay System
in BHIM
NRE to NRE account
transfer
Discontinued Pay to
Aadhaar number
owing to sensitivity
of information and
evolving framework
related to its usage
in payments
Discontinued
Pay to
Aadhaar
Transfer between
NRE accounts
allowed
Introduction of
P2PM
category in
UPI for
unorganized
or small
merchants
IMPS
UPI
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World Bank Fast Payments Toolkit
2. Business and Operating Model
Chapter Summary:
• NPCI is the owner and operator of IMPS and UPI. Banks and non-banks (PPIs) are allowed to directly participate
in however membership and settlement is via a sponsor bank in case of PPIs. UPI also allows 3
rd
party application
providers to participate by connecting to banks which facilitated a foray of fintechs into the payment system who
brought greater technological know-how and better customer experience. Moreover, UPI facilitated complete
interoperability in terms of a customer being able to initiate a transaction from any UPI app (irrespective of the bank
where the customer holds an account) by differentiating the role of banks as payment service providers and one for
fulfilling the banking function of debiting/crediting the account
• There have been significant learnings from IMPS and UPI from a channel perspective. Starting from a mobile-based
channel in 2010 which impeded the growth of IMPS to leveraging the same mobile channel for success of UPI in 2016
re-emphasized the importance of matching the system features with the readiness of the market for its acceptability.
It also highlighted the importance of early course correction which was seen in the case of IMPS when it was expanded
to other channels, eventually leading to the desired growth levels. Multiplicity of channel availability by combining
IMPS and UPI (from smartphone to feature phone to web-based) increased the reach, especially in a diverse customer
segment market. Proximity based channels in UPI also helped to onboard offline brick and mortar merchants in the
realm of digital payments
• IMPS supports transactions through agent network. Agents (business correspondents and PPIs) proved to be a
convenient alternative to formal bank branches and increased the reach amongst the digitally excluded segment
• IMPS supports mobile number and MMID as an alias, whereas UPI additionally supports UPI ID (virtual address). A key
takeaway has been that aliases are effective if simple, easy to remember and convenient to generate
• Transaction user charges for users depend on banks / PPIs. There have been interventions by NPCI and
government from time to time for matters such as prohibition of surcharge (w.r.t other debit payment modes) to
customers by TPAPs, merchants, etc. for opting UPI payments. Inter-participant charges such as interchange fee, PSP
fee, etc. are determined by IMPS/UPI steering committees
• A success factor of IMPS and UPI have been the numerous use cases they support which improves customer
stickiness and convenience because customers don’t need to shift to alternative platforms for payments often. .
Moreover, a key takeaway from the journey in India has been that apart from the time of launch, it is also essential to
keep innovating and continuously enhancing the system to support more use cases or to improve the features of
existing use cases over the years to ensure sustainability of the system
Chapter sections:
2.1. FPS Structure
2.2. Participants
2.3. Payment Instruments and
Transaction Types
2.4. Aliases, Access Channels & Agent
Networks
2.5 Scheme Pricing and Fee Structure
2.6 Use Cases
Source: NPCI | RBI | Primary Interviews
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World Bank Fast Payments Toolkit
2.1. FPS Structure
• The IMPS and UPI
infrastructure is
owned and operated
by NPCI
• NPCI also provides
clearing services and
acts as a settlement
agency
• Settlement takes
place in RBI’s RTGS
system
Source: NPCI | RBI
Settlement
Request
Sending
Customer
Receiving
Customer
Particip-
ant
Channels
Payment
Gateways
Participants
Overlay Services
Payment
Gateways
Particip-
ant
Channels
Participants
Reserve Bank of India
Settlement
Other PSP
applications
FPS Utility
Payment
Exchange &
Notification
Payment
Exchange &
Notification
Settlement
Notification
Settlement
Notification
The IMPS and UPI infrastructure is
owned and operated by the NPCI.
NPCI also provides clearing services
and acts as a settlement agency that
arranges the necessary interbank
settlement of credits and debits to the
banks’ respective current accounts
with RBI
The settlement takes place in the RBI’s
RTGS system. The settlement obligations
are shared by NPCI for settlement in RBI’s
RTGS system
Bharat Interface for Money (BHIM) is an overlay
service developed by NPCI with the support of a
vendor, iSPIRT, which acts as an interface /
application for accessing UPI service
Note: Payment gateways are the consumer-facing interfaces used for processing of electronic payments
17
World Bank Fast Payments Toolkit
2.2. Participants (1/3)
• Initially, only banks
were allowed to
participate in IMPS.
Eventually, RBI and
NPCI allowed
participation of non-
banks (PPIs) as well
in order to expand
the reach
• With regards to UPI,
non-banks were not
allowed to
participate as per
RBI’s guidance. In
2018, RBI released
detailed guidelines
with respect to
interoperability and
onboarding of PPIs
in UPI
• Moreover, UPI also
allows 3
rd
party
application providers
to participate by
connecting to banks
which facilitated a
foray of fintechs into
the payment system
who brought greater
technological know-
how and better
customer experience
Third Party
Applications*
Banks
(bank with RBI’s RTGS
membership)
IMPS
Banks
(any bank with
/ without RBI’s
RTGS
membership)
Non
Banks
(PPIs with
valid license)
Direct
Membership
Indirect
Membership
PPIs can connect directly to NPCI/IMPS,
however membership and settlement is
via a sponsor bank
Banks
(bank live on IMPS with
mobile banking license)
UPI
Banks
(bank live on IMPS with
mobile banking license)
Direct
Membership
Indirect
Membership
3
rd
Party App. Providers
(TPAPs)
(large technology companies /
3rd party processors / Merchant
/ Aggregators)
Banks play 2
major roles:
1. Payment
Service
provider
(PSPs)
2. Bank (for
debits /
credits)
Membership Statistics (as on Sep-
2020)
564 Banks
26 PPIs
174 Banks
21 TPAPs
*In some cases such as multi-bank PSP approach, NPCI provides direct APIs to TPAPs to connect, however TPAPs partner with banks as PSPs. In case any
TPAP wants to connect directly apart from the multi-bank PSP approach, then limited functionalities can be offered by TPAPs
• Direct Membership: Banks with RTGS
membership and a valid license from RBI
• Indirect membership: Any bank with /
without RTGS membership or any PPI
with a valid license from RBI
Requirements for participation -
IMPS
• Direct Membership: RBI regulated
entity live on IMPS with mobile banking
license and RTGS membership
• Indirect Membership: RBI regulated
entity live on IMPS with mobile banking
license
Requirements for participation -
UPI
Source: NPCI
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World Bank Fast Payments Toolkit
2.2. Participants (2/3)
• UPI also facilitated
complete
interoperability in
terms of a customer
being able to initiate
a transaction from
any UPI app
(irrespective of the
bank where the
customer holds an
account). A key step
for achieving this
interoperability was
to distinguish the
role of banks as
payment service
providers and one
for fulfilling the
banking function of
debiting/crediting
the account
Onboarding Process
Interoperability
Member Banks are provided with project
plan and documentation to participate
Sandbox testing (Only for banks
with a new vendor for certification in
UPI)
Certification (Testing & certification
depends on nature of development)
• IMPS self certification tool has been
developed (available 24*7) in order
to allow banks to conduct testing
anytime without dependency on
NPCI team
Documentation (Includes SLA, NDA
and other documents as applicable)
• Transfers from bank to
PPI allowed and vice
versa
• Customers can initiate
transactions from their
own bank/PPI
• Transfers can be
initiated from any PSP
bank / TPAP
IMPS:
• Initially only banks were allowed. Since 2012, non-bank PPIs have also been on boarded with the
objective of increasing reach and penetration
• Bank and non-bank PPIs especially facilitated remittances by migrants from rural / semi-urban
areas. A key reason was the relaxed KYC requirements for PPIs upto a certain limit which enabled
those who did not have access to formal banking channels for want of proof of identity/address to
perform electronic remittances
• While the non-bank PPIs are allowed to connect directly to the IMPS network, the settlements are
allowed only through a sponsor bank (direct member) as opening of direct account access with
RBI would require detailed policy reviews and changes
• Apart from PPIs, other banks also have the option of connecting to IMPS through a sponsor bank
• Sponsor bank needs to ensure the material aspects relating to operational feasibility, risk
mitigation, fund settlement, and collaterals before and after sponsoring any sub-members
UPI:
• In line with guidance from RBI, only banks were allowed to participate. RBI released guidelines
wherein fully KYC compliant PPIs (including bank and non-bank) have been allowed. Towards this
end, 3 PPIs are in testing phase
• Banks majorly play two roles in the UPI network:
i. PSP Role: Perform customer onboarding (including UPI ID creation and device binding
for authentication) and provide the front-end app. Customer can initiate transaction from
any PSP app irrespective of the bank where the customer holds account
ii. Banking Role: Performing debit and credit. Remitting bank also issues and stores UPI PIN
set by the customer
• Moreover, a key to the ubiquity of UPI apps has been participation of TPAPs. These are typically
large technology companies / merchants / aggregators / fintechs, etc. who are allowed to connect
to banks and provide UPI services. They brought in greater technological know-how and better
customer experience. Controls have been put in place for allowing TPAPs such as the customer
data can be stored by them in encrypted format, however, customer payment sensitive data is
allowed to be stored at the PSP bank’s end only
• The internal ombudsman is required to be set up by all big non-banks PSPs and grievance
redressal has to be ensured. These PSPs also need to abide by the instructions on TAT as regards
time taken. There is now a separate Ombudsman for Digital payments
Source: NPCI | RBI | Primary Interviews
• Inter-PPI transfers are allowed in
both IMPS and UPI
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World Bank Fast Payments Toolkit
2.2. Participants (3/3)
• The government, RBI
and NPCI have
played a key role in
ensuring alignment of
banks/non-banks to
the vision and being
on boarded
• One initiative to
promote participant
adoption in UPI
during its 1
st
year
was launch of BHIM
app which is a
common app based
on UPI that can be
branded by any
financial institution
and offered to
customers. This
solved twin
objectives – one
onboarding more
banks including the
ones who lacked
technical expertise,
and second ensuring
consistent customer
experience
Bharat Interface for Money (BHIM):
• BHIM is an app launched by NPCI in December 2016 that allows payment transactions
using UPI
• It was also instrumental in the adoption of UPI system amongst the participants in the
initial years
• Initially, there were apprehensions amongst some banks about allowing
interoperability in terms of a bank customer transacting through other apps which
would be independent of their banking relationship
• Since UPI is a voluntary service (banks are not mandated to participate), it became
imperative for NPCI to enable the banks to overcome the inertia and adopt UPI as a
channel for the system to be a success. At the same time, every bank on UPI aimed
to create its own app and control the customer experience which would have led to
inconsistent user experience. Smaller banks often did not have the resources to
compete with larger banks in terms of technology
• The offices of the Prime Minister and Minister of Finance proposed that a common app
be launched which could be branded by any financial institution and offered to its
customers
• Moreover, with the announcement of demonetization, there was increase in the
demand for digital payments and launching of apps by various banks would have
increased the time to market
• Towards this end, NPCI proceeded to develop the app with the support of iSPIRT, an
open-source developer community, and under the watchful eye of the government
and/or regulator i.e., RBI
• The government aggressively marketed BHIM as India’s national app. This in turn
drove customer demand. As growing numbers of customers visited banks asking for
their BHIM app, many otherwise resistant banks were incentivized to join UPI
• In addition to driving UPI adoption, the BHIM app provided a better, more
standardized user experience and this became an attractive option for smaller banks
that do not have the technical expertise
• BHIM contributed ~2% of UPI
transactions in FY 2019-20
• However, during FY 2016-17 (first year of
UPI launch), BHIM contributed to ~35%
of UPI transactions by volume despite
being launched ~8 months post the UPI
launch
• 130 banks were live on BHIM as of April-
20
Adoption
Source: NPCI | Primary Interviews | Cook, William, and Anand Raman. 2019. “National Payments Corporation of India and the Remaking of
Payments in India.” Working Paper. Washington, D.C.: CGAP. This is an adaptation of an original work by CGAP/World Bank.
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2.3. Payment Instruments and Transaction Types
• IMPS supports bank
account and PPIs.
UPI supports bank
accounts as
underlying payment
instruments.
Support for PPIs in
UPI is in the pipeline
and RBI has issued
guidelines in this
regard
• Both IMPS and UPI
support individual,
business and
government
transactions.
Additionally, UPI
also supports non-
financial
transactions such as
balance enquires.
• While there is
maximum
permissible
transaction limit
defined by NPCI,
participants may set
limits. Transaction
limits have been
increased as the
system has
stabilized and
matured
Payment Instruments Supported
• Account to account interoperability supported
• IMPS supports account to wallet transactions and vice versa. Such
interoperability was supported by handling fields such as account identifier with
either account number or wallet number based on the instrument. Other
aspects that had to considered were the differences in rules such as
permissible transaction limits or threshold balance requirements for PPIs, etc.
• Wallet to wallet transactions are not supported as the priority was to allow
transactions between bank account and PPIs
• While UPI currently supports only bank account transfers, RBI has permitted
KYC compliant PPIs to participate since 2018
Interoperability
✓ ✓
✓
Transaction
Types
Individual GovernmentBusiness
Transaction
Limit
Payment Types Supported
₹
Transaction
Currency
Non-Financial*
✓
✓
✓
✓
✓
✓
✓
Participants may set channel / transaction type / customer-wise limits
INR 1-2 lakh per transaction
Individual: INR 1 lakh per
transaction; 10 P2P transactions
per bank account in 24 hours
Business and Government: INR 1 lakh per transaction; INR 2
lakh for verified merchants, capital markets, collections, insurance,
foreign inward remittance and pre-approved disbursement
Transaction limits were lower during the initial years of launch and have increased as the system has stabilized and matured
(such as IMPS limit has increased from INR 50,000 in 2011 to INR 2,00,000). Similarly, additional limit (INR 5,000) has been
imposed on BHIM UPI for the first 24 hours after registration to minimize fraud risk
Source: NPCI | RBI | Primary Interviews
*e.g., Balance Enquiry, Transaction status check, etc.
Credit Transfer
E-money
Direct Debit
✓
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World Bank Fast Payments Toolkit
2.4. Access Channels
IMPS was launched as a mobile only interface, however it led to adoption issues owing to cumbersome registration process and concerns related to security of
mobile payments during early 2010s. Hence, other channels were added which led to higher growth. UPI supports only mobile channel, primarily because
acceptance and penetration of mobile channel had increased by mid 2016. Ease of use, enhanced checkout experience and multiplicity of channels have been
the key success factors
Access Channels
Mobile
Banking/App*
QR
Audio QR
Bluetooth
NFC
Intent
*99# USSD
SMS
Internet
Banking
ATM
Branch
IMPS
, UPI
UPI
IMPS
• Starting from a mobile-based channel in 2010 which impeded the growth of IMPS to leveraging the same mobile channel
for success of UPI in 2016 re-emphasized the importance of matching the system features with the readiness of the
market for its acceptability. It also highlighted the importance of early course correction which was seen in the case of
IMPS when it was expanded to other channels, eventually leading to the desired growth levels. Multiplicity of channels has
enabled to increase the reach.
• Specifically in UPI, the flexibility provided to innovate at the interface through support for various technologies such as
QR, NFC, Bluetooth, etc. gained traction from TPAPs who could leverage their know-how in these areas to bring innovative
solutions which improved customer experience
Some key differentiated channels are:
• Proximity Based: While QR is extremely popular amongst users, NFC has been challenged by infrastructure so far.
Channels such as QR, Audio QR, Bluetooth, NFC have gained traction from TPAPs for innovating at the payment leg. Players
such as Google launched Tez (Audio QR) and Spot (using NFC enabled smartphones) for enhanced customer experience at
offline merchants. Moreover, such channels are also being used to offer additional merchant services such as creation of
micro-sites for displaying menu on scanning the code, etc.
• In-App payments and Intent: The source and destination of transaction is the same app in case of In-App transactions
which enhanced checkout experience. When an intent / call is made by merchant for payment through UPI, UPI enabled
apps installed / embedded on the mobile application and where the customer has registered and set UPI PIN should be
mandatorily shown to user, so that the customer can select the UPI App of his choice to pay the merchant
• *99# USSD: To facilitate transactions for non-smartphone and non-internet users, an interoperable platform based on
USSD has been developed connecting all the telecom service providers. This was envisioned to be an initiative towards the
financial inclusion agenda for reaching out to the digitally excluded segment. A short code (*99#) opens a session with NPCI
regardless of the telecommunications provider, and messages are sent over NPCI rails to the relevant bank. Challenges
were observed before the launch as lot of stakeholders from the telecom industry had to be on boarded and aspects related
to revenue sharing had to be ironed out. User adoption of this channel has faced challenges over the years as well. Reasons
range from less user awareness, customer charges, frequent session timeouts / higher failure rates, etc.
Payment through Voice is in pilot
phase
Source: NPCI | RBI | New Articles | Cook, William, and Anand Raman. 2019. “National Payments Corporation of India and the Remaking of
Payments in India.” Working Paper. Washington, D.C.: CGAP. This is an adaptation of an original work by CGAP/World Bank.
* UPI also supports In-App payments
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World Bank Fast Payments Toolkit
2.4. Agent Networks and Aliases
• Agent Networks: IMPS supports transactions through agent network. Agents proved to be a convenient alternative to formal bank branches and increased
the reach of digital payment services amongst the digitally excluded segment
• Aliases: IMPS supports mobile number and MMID as an alias, whereas UPI additionally supports UPI ID (virtual address). A key takeaway from IMPS which
was incorporated in UPI and showed greater results was that aliases are effective only if they are simple, easy to remember and convenient to generate
Aliases
Mobile
number and
MMID
UPI ID
Aadhaar
Number
(discontinued)
✓ ✓
✓
✓ ✓
• A key success factor in UPI has been the use of virtual ID (i.e., UPI ID). While IMPS
also allowed mobile number and MMID as aliases, it faced challenges during its initial
years owing to complexity of MMID (difficult to remember) and its creation process.
Subsequently the MMID format was simplified. Learnings were incorporated in UPI by
introducing a simplified UPI ID and its seamless creation process which led to
quicker adoption
• NPCI stores mapping of mobile to UPI handle. The UPI ID data is mapped at PSP’s
end for address resolution. UPI handle is issued at NPCI with multiple level of linking
• Saved contact numbers can be utilized to send money or raise collect requests where
the mobile number can be prefixed to @UPI handle to act as UPI ID or can be checked
whether the mobile number is available with the same PSP. Addresses with the ‘@UPI’
suffix act as global identifiers for which address resolution is performed at UPI’s end
• Functionality to pay using Aadhaar number was discontinued as it is a sensitive
information and the framework about its usage in the payment landscape is still evolving
MMID is a 7-digit number, first four
digits of which are: participant identifier
and last 3 digits are unique to user
Virtual address in the format -
username@psp
Individual Identification Number issued
by Unique Identification Authority of
India
Agent Network
Business Correspondent (BC)
e-Wallet Providers
• BC acts on behalf of banks and
facilitate account to account
payment transfers (apart from other
activities approved by RBI) in areas
where banks have limited presence
• Entities / individuals eligible as per
RBI guidelines can only act as agents
• Facilitate transfers by opening
an eWallet account for the
customer and loading it with the
amount of cash received
• Subsequently, wallet to account
IMPS transfers are initiated by
these agents
• One of the key success factors of IMPS has been the agent network
• Customers can make payments through an agent, who acts as a
trustworthy middle layer to guide through a transaction
• A key use case has been migrant remittances where the customers are
not digital savvy to make payments independently and risk
sensitivity is also high because remittances involve a major portion of
their income
Key types of Agents
Payer /
Customer
Payee
Agent
Cash
• Participants and agents needs to abide by the rules and regulations of
RBI for BCs and PPIs. Moreover, since the transaction is pre-approved,
there are no additional measures required from NPCI
Source: NPCI | RBI | Primary Interviews
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2.5. Scheme Pricing and Fee Structure
Transaction user charges for users depends on banks / PPIs. There have been interventions by NPCI and government from time to time for matters such as
prohibition of surcharge (w.r.t other debit payment modes) to customers by TPAPs, merchants, etc. for opting UPI payments. In a recent announcement, the
Government of India also proposed zero merchant discount rate (fee charged to merchants by acquiring bank) in order to push UPI payments. Inter-participant
charges such as interchange fee, PSP fee, etc. are determined by IMPS/UPI steering committees
Other Fee
• Participant Joining Fee
• Maintenance Fee: Participant contribution of 10% to NPCI in the proportion of
participant’s transaction throughput for the month
• Dispute to Arbitration
• User charges depend on banks/PPIs
Transaction Fee
Transaction Fee
User /
Remitter
Remitter bank
Beneficiary
bank
Switching
Fee
Interchange Fee
• User charges depend on banks
User /
Remitter
Usually, Nil
Remitter
PSP
Remitter
bank
PSP Fee
Beneficiary
bank
Interchange Fee
Switching Fee
Source: NPCI
Note: Transaction fee pertains to a typical P2P transaction
Fee charged by NPCI is set by the NPCI board, inter-participant charges are decided by the IMPS/UPI steering committee and transaction user charges are decided by the
participants. RBI intervenes in pricing whenever it is essential. However, the prices that are set by RBI for NEFT do set a benchmark for other payment systems like UPI and
IMPS.
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World Bank Fast Payments Toolkit
2.6. Use Cases / Services (1/3)
A success factor of IMPS and UPI have been the numerous use cases they support which improves customer stickiness and convenience because customer’s
don’t need to shift to alternative platforms for payments often
• Bulk payments (e.g., salaries, etc.) are
supported by banks and Fintechs through APIs
(such as PayU, Cashfree, etc.) or file transfer
• User can request using UPI ID or saved
contacts; payer authorizes payment
• Users can define minimum and maximum
validity time (else default is set)
• Alert before the collect requests gets expired
• Since the risk of frauds in such transactions
are high, certain security measures added:
• Option for customers to block UPI ID’s
to restrict future requests
• Standardized SMS for customers
• Option to save requests (Marked Safe)
• Velocity check are performed and there
is a cap on maximum transactions that
can be initiated per day and week
• Merchant payments constitute ~40% of UPI
transactions
• Once adoption of merchant payments
increased in UPI, they were discontinued in
IMPS
• P2M transactions can be initiated using:
• Collect request originated by
merchant (through request to pay,
QR, In-App payment, etc.)
• Push transaction (where customer
knows merchant’s UPI ID or account
details)
• Innovation at payment leg (future debit
authorization with provision to block the
corresponding funds, request to pay,
payments through QR, Audio QR, NFC, etc.)
has been key for higher growth in UPI
• Whitelisted merchants are indicated to the
customers on the app for ensuring security
by confirming that the payment is being
initiated towards the intended merchant
• Another category called ‘P2PM’ was
introduced to bring unorganized or small
merchants under the ambit of digital
payments. Charges for merchants acquired
under this category are same as P2P
charges
Access Channels
Payment Instruments
Bank Account
Access Channels
Payment Instruments
Bank Account
Transactions allowed through
non-mobile channels;
however, authorization at
mobile channel only
Access Channels
Payment Instruments
Bank Account, e-Wallets
Mobile
QR
Audio QR
Bluetooth
Intent NFC
Mobile
Non mobile
Non mobile
Merchant Payments (P2M)
Request to Pay
Bulk / Batch Payments
Source: NPCI | News Articles | Deloitte Analysis | Primary Interviews
Note: Channels listed above are not exhaustive
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World Bank Fast Payments Toolkit
2.6. Use Cases / Services (2/3)
Moreover, a key takeaway from the journey in India has been that apart from the time of launch, it is also essential to keep innovating and continuously
enhancing the system to support more use cases or to improve the features of existing use cases over the years to ensure sustainability of the system
• Transaction is pre-authorized (using 2FA)
and funds blocked in account for a debit to
be initiated at a future date
• Payer’s account is debited on execution of
mandate by merchant or payee
• Mandate digitally signed and stored at payer’s
account holding and PSP bank
• Both push and pull mandate creation
supported for P2M; only push allowed for P2P
• Above mentioned one-time mandates
launched under UPI 2.0; recurring
transactions are in roadmap especially for
use cases such as loan disbursements
• Integration with Bharat Bill Payment
System (BBPS):
• BBPS facilitates e-presentation of bills
and payments
• IMPS and UPI are also enabled as
payment methods
• Functionality is provided in UPI through
BHIM app to banks on BBPS as customer
operating unit and live in BHIM as
issuers. When customer initiates payment
through BHIM, it is routed through UPI
• Separate settlement files are generated
in UPI for BBPS transactions for
reconciliation
• Any UPI PSP app can opt for BBPS service
post fulfilling required criteria
• Invoice in the Inbox:
• Launched as part of UPI 2.0
• Provision for merchants to share invoices
with customers prior to authorization.
URL is embedded which can be accessed
by clicking link in the request to pay /
scanning QR / intent
• Apps such as NPCI’s BHIM (based on UPI)
provide option for splitting bills
Access Channels
Payment Instruments
Bank Account, e-Wallets
Access Channels
Payment Instruments
Bank Account
Mobile
Mobile
QR
Internet / Non
mobile
QR
Intent
Intent
• UPI supports the following non-financial
transactions viz.
• Mobile Banking Registration
• Check Transaction Status and History
• Set/Change UPI PIN
• PAN to account validation, etc.
Access Channels
Payment Instruments
Bank Account
Mobile
Bill Payments
Future Payments
Non-Financial Transactions
Source: NPCI | Bank and Fintech websites | Primary Interviews
Note: Channels listed above are not exhaustive
USSD
SMS
Branch
ATM
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2.6. Use Cases / Services (3/3)
UPI as a payment mechanism is also available for initial public offering (IPO) subscription. IMPS and UPI support processing of domestic leg of foreign inward
remittance into member bank accounts. Cross-border transactions and recurring payments are in the roadmap
• IMPS and UPI support processing of domestic
leg of foreign inward remittance into member
bank accounts
• Such transfers can take place only to KYC
compliant accounts and it is incumbent upon
banks, at both ends, to abide by the FEMA & RBI
guidelines
• In such cases, foreign bank’s’ partner or
intermediary bank in India initiate IMPS
transaction using Beneficiary account number &
IFSC or UPI ID. After authentication, partner
bank debits the foreign bank’s corresponding
account held in INR and transaction is forwarded
to NPCI for credit to beneficiary. NPCI routes the
transaction to respective beneficiary bank, and
beneficiary bank credits the beneficiary account
• UPI as a payment mechanism is available for all
public issues for which Red Herring Prospectus is
filed after January 01, 2019
• This is a step towards digitizing the offline
processes involved in the application process
• Bidding: Investor needs to fill in the bid details
in the application form along with his/her UPI ID
• Blocking of funds: The Escrow / Sponsor Bank
initiates a request for the investor to authorize
blocking of funds equivalent to applicant amount
and subsequent debit of funds in case of
allotment
• The request raised by the Escrow/Sponsor bank
is electronically received by the investor as
SMS/intimation on his / her bank provided
mobile no. linked to UPI ID
• Upon validation of block request by the investor,
intimation is sent to the Escrow/Sponsor bank
• Post Allocation: Once the allotment is
performed by the registrar to the issue,
instructions are sent to sponsor bank to initiate
process for credit of funds in the public issue
escrow account and unblocking excess money
Access Channels
Payment Instruments
Bank Account
Access Channels
Payment Instruments
Bank Account
Mobile app
Branch
• Roadmap: Cross-border transactions with countries such as Singapore, UAE,
etc. are in the roadmap. A pilot was also held for performing BHIM UPI QR
transactions in Singapore. Another use case, i.e., recurring payments in UPI
is also in the roadmap
Initial Public Offering (IPO) Subscription
Foreign Inward Remittance
Source: NPCI | RBI | News Articles Note: Channels listed above are not exhaustive
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3. User Adoption
Chapter Summary:
• Both IMPS and UPI have co-existed with high user adoption and have established their own customer base.
IMPS has gained more traction amongst migrants from rural/semi-urban areas for remittances because of the
multiplicity of online to offline (including assisted) channels it supports. It is also a more popular system amongst
corporates as it provides higher flexibility for corporate use in terms of limit setting, access through internet banking,
etc.
• On the other hand, UPI has gained more adoption for small ticket size transactions amongst merchants and digital
savvy customers, mainly because of the mobile-only interface
• While there were challenges in the initial years of IMPS owing to customer experience issues, adoption has been
encouraging over the years. On the other hand, UPI’s adoption has consistently shown over 100% YoY growth since
launch. A learning from the experiences of IMPS and UPI has been that if the requirements of the customers (i.e.,
external ecosystem in terms of digital penetration and acceptance of the channels) at that point of time
are in line with the solution being offered along with the existing customer challenges being overcome, the growth
tends to be faster
• Moreover, alignment of the government, regulator and operator also play a vital role in ensuring that the overall
policy decisions are in line to encourage users for adopting the system
• Ease of access of the system and its channels for both the digitally included and excluded customers has also been
key for the success of IMPS and UPI
• Another important aspect that has led to higher adoption, especially for UPI, has been the ease of use or seamless
customer experience. Customer experience in terms of various aspects such as ease of use of interface, multiplicity
of services/use cases offered, and interoperability have played a vital role
• Moreover, external factors such as low cost of data and smartphones have also contributed to the growth of overall
digital payments, which has also positively affected the growth of IMPS and UPI payments
• Low transaction charges and incentivization scheme have also provided an impetus to IMPS and UPI payments
• Apart from the above factors, there has been increased awareness amongst users through promotional campaigns
Source: NPCI | Deloitte Analysis | Primary Interviews
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3. User Adoption
78
221
507
1,010
1,753
2,579
- -
18
915
5,353
12,519
182%
130%
99%
74%
47%
5024%
485%
134%
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Transaction Volume (in Million)
IMPS - Volume UPI - Volume
IMPS YoY
Growth
UPI YoY
Growth
582
1,622
4,116
8,925
15,903
23,375
- -
69
1,098
8,770
21,317
179%
154%
117%
78%
47%
1481%
698%
143%
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Transaction Value (INR Billion)
IMPS - Value UPI - Value
IMPS YoY
Growth
UPI YoY
Growth
There were 10,999 million non-financial balance enquiry transactions through UPI in 2019-20 (135% Y-o-Y growth)
Both IMPS and UPI have co-existed with high user adoption and have established their own customer base. While there were challenges in the initial years of
IMPS owing to customer experience issues, adoption has been encouraging over the years. On the other hand, UPI’s adoption has consistently shown over 100%
YoY growth since launch. 75% of UPI transactions are below INR 1000. Average value is INR 2732
While some of the customers
migrated from IMPS to UPI,
both the systems have
established their own
customer segments and
niches
High traction amongst
migrants for remittances and
businesses for vendor
payments, refunds, dividend
payouts, etc.
High traction for low-
value transactions, esp.
amongst merchants and
digital savvy customers
Source: NPCI | Deloitte Analysis | Primary Interviews
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World Bank Fast Payments Toolkit
3. User Adoption
IMPS created an impact through multiple access channels over a wider customer base. UPI benefited through convenient aliases and touchpoints with interoperability for the
mobile banking customer. Further push was provided by government / policy decisions and incentivisation programs clubbed with low cost of peripheral infrastructure such as
smartphones and data
• Demonetization in November 2016 gave a huge
impetus to electronic payments
• Government and RBI has also encouraged
electronic payments through programs such as
Digital India campaigns and other incentivisation
schemes
• Prior to UPI, wallets & mobile
banking apps had popularized
mobile payments. UPI increased the
scope of mobile based
touchpoints (such as 3
rd
party
apps, etc.)
• Also, payments through agent
networks on IMPS resonated well
with less digital savvy customers in
rural areas and migrants
• Moreover, IMPS and UPI catered to
both the internet and non-
internet users
• Increased bank accounts was a key
enabler of UPI with unique 15.96
crore users
• Interoperability between channels, participants
and payment instruments
• Multiplicity of services offered, increasing
customer engagement
• Simple UPI registration process and aliases
• Innovation at payment leg (immediate debit,
mandate with one-time block, scanning QR,
sending payment request) led to deeper P2M
penetration
• Higher acceptability and
digital penetration over the
years led to higher awareness
amongst customers
• Multiple promotional
campaigns launched by all
ecosystem participants including
NPCI
• Low cost of smartphones
• Decrease in data prices
• Nil to very less customer charges
Referral Bonus Scheme for Individuals*
• To incentivize an existing user of BHIM UPI
app to onboard new users
• Bonus paid to both referrer and referee
• Referral considered successful on completion
of minimum 3 unique successful financial
transactions totaling to Rs. 50 performed by
the referee
Select Incentivisation Schemes by
Government of India for UPI
Cashback Scheme for Merchants:
• To incentivize merchants for receiving
payments on BHIM UPI app or *99# from
their customers
• Merchant cashback on completion of
minimum 50 credit transactions, of which at
least 20 transactions from valid unique UPI
users
Key Factors for high user adoption
Source: NPCI | Deloitte Analysis | Primary Interviews
Government and Policy Decisions
Ease of Use
Low cost of Usage
Ease of Access
Increased Awareness
‘UPI Chalega’ - A
UPI awareness
campaign by NPCI in
association with the
participants
1
2
3
4
5
*This scheme was for a limited period during demonetisation
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4. Technical Details and Payment Process
Chapter Summary:
• While IMPS and UPI are very different systems from a technical standpoint in terms of architecture, adoption of
standards, etc., NPCI is aiming to build synergy such that the IMPS code base could be made as similar to UPI as
feasible. This is in order to increase convenience and reduce the number of changes required at NPCI and participant’s
end
• ISO 8583 was adopted in IMPS because support for this standard was available with many banks at that point of
time. XML was selected for UPI primarily because of the flexibility, ease of reading and scalability offered by it.
IMPS is also being transitioned to XML format
• UPI supports two QR specifications i.e., UPI QR and Bharat QR and both are interoperable. Both QR code
specifications were launched at different points in time and hence they co-exist because of legacy issue. Customized
specifications were developed for both the QRs
• IMPS supports limited APIs which are developed and extended by participants. UPI offers extensive APIs, and
they are extended by PSP banks / NPCI for either connecting to PSPs/UPI for transactions or for other value-added
services such as checking transaction status, fetching transaction details, etc.
• Both IMPS and UPI have implemented two-factor authentication in line with RBI guidelines. UPI supports 1-click, 2-
factor authentication by enabling device fingerprint through device binding as one of the factor
• IMPS faced challenges in its initial years owing to complexity in registration and MMID generation process and
subsequently an ‘IMPS Simplification’ process was undertaken for catering to this issue. Learnings from IMPS were
incorporated in UPI to enable seamless and automated UPI ID and mobile banking registration process through
mobile devices
• Clearing of all transactions takes place through NPCI. Multiple options are provided to participants to connect to IMPS
and UPI switches, either through an aggregator or their own switch
• Settlement takes place using a hub based deferred net model for direct members. This model was followed
because of reduction in liquidity requirements under this approach. Settlement for sub-members takes place in the
books of sponsor bank
Chapter sections:
4.1. Technical Details | Messaging
Format and QR Codes
4.2. Technical Details | APIs, Customer
Authentication and Tokenization
4.3. Payment Process (Customer
Registration, Transaction Fulfilment,
Liquidity Management and Settlement)
Source: NPCI | Deloitte Analysis | Primary Interviews
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4.1. Technical Details | Messaging Format and QR Code
• ISO 8583 was adopted in IMPS whereas XML format was selected for UPI
• UPI supports two QR specifications i.e., UPI QR and Bharat QR and both are interoperable. Customized specifications were developed for both the QRs
Messaging Format QR Code
• ISO 8583 was adopted because support for this standard was available
with many banks at that point of time and going to market was the
priority. IMPS utilized a standardised ISO 8583 messaging format for
ensuring interoperability and adoption
• Transition of messaging format from ISO 8583 to XML (similar to UPI) is
in progress
ISO 8583
• XML based messaging format was designed considering the global
standards and to enable future growth
• XML was selected primarily because of the flexibility, ease of reading and
scalability offered by it. It was observed that the flexibility provided by
ISO was limited, e.g., additional data elements, tag length, etc. could
not be custom defined as per requirement. Hence, the view was that
changes would be lesser and quicker by adopting XML format
XML
Not supported
Two QR specifications supported – UPI QR and
Bharat QR
• Supports static and dynamic
merchant-presented QRs.
Consumer-presented QRs not
supported
• Specification includes
requirements of card schemes
and UPI
• This solution was launched by
NPCI, Visa and MasterCard
Bharat QR
UPI QR
• Supports static merchant
presented, and dynamic merchant
& consumer-presented QRs
• Consumer-presented QR
transactions are very less
compared to merchant-presented
• Customized QR specifications were
developed by NPCI (extension of
an existing specification)
• Both QR code specifications were launched at different points in time and
hence they co-exist because of legacy issue
• Compatibility has been established in UPI for both QRs
• New use cases such as linking GST information in dynamic QRs, and
cross-border QR payments interoperability are being considered
• In order to reduce issues related to QR tampering and non-verified
entities, signed QR functionality has been introduced wherein the entity
/ merchant is verified based on the public key (pertaining to the signed
QR) stored by UPI
• 20 Million QR codes in circulation: 18 million UPI QR; 2 million Bharat QR
Source: NPCI | Primary Interviews
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World Bank Fast Payments Toolkit
4.1. Technical Details | APIs and Customer Authentication
• IMPS supports limited APIs which are developed and extended by participants. UPI offers extensive APIs, and they are extended by PSP banks / NPCI for
either connecting to PSPs/UPI for transactions or for other value-added services such as checking transaction status, fetching transaction details, etc.
• Both IMPS and UPI have implemented two-factor authentication in line with RBI guidelines
Customer Authentication
APIs
• NPCI does not provide APIs as of now. Once the messaging format is
transitioned from ISO 8583 to XML, APIs such as name validation,
transaction status check, etc. would be launched
• However, participants have developed APIs especially for bulk payments
such as salaries, corporate refunds, etc. which they offer to their clients
Limited APIs developed by participants
• UPI provides flexibility to support extensive APIs because of XML messaging
format and adoption of APIs has been encouraging by participants and
TPAPs
• APIs are extended by PSP banks or NPCI for either connecting to PSPs/UPI
for transactions or for other value-added services such as checking
transaction status, fetching transaction details, etc.
APIs provided by NPCI and participants
• Two factor authentication, factors being
• Mobile number & MPIN for mobile transactions
• Card and ATM PIN for ATM channel
• User ID + Internet Banking Password /
Transaction Password for Internet banking
channel
• 1-click, 2-factor authentication supported, using mobile
(first factor) and UPI PIN (second factor). Mobile
number is used for authenticating the first transaction
and device fingerprint through device binding for
subsequent transactions. While biometric (Aadhaar) as
second factor is supported by the system, it has not
been implemented yet
• Risk is reduced further by dividing authentication
requirements between PSP and issuer bank. First factor
is validated by the PSP and the second factor is
validated by the remitter bank
Source: NPCI | Primary Interviews
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World Bank Fast Payments Toolkit
Defined Intervals
Transaction Basis
One-time
4.2. Payment Process
1
• Customer registration
• Creation of alias as
applicable
Customer
Registration
Transaction
Fulfilment
• Approach for settlement
and liquidity management
Inter-Participant
(PSP) Settlement
2
3
• Transaction Flow
• Connectivity between
participants
Various steps in the payment process include one-time customer registration, payer-payee transaction fulfilment and inter-participant settlement
(which takes place on non-real-time basis). Subsequently, various aspects related to these areas are covered
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4.2. Payment Process | Customer Registration
Source:
Mobile banking registration mandatory for transaction through mobile channels
For beneficiary, mobile banking registration is mandatory while receiving payment using the mobile number and MMID
1
Visits branch for mobile
banking registration
Note: Transactions through non-mobile channels can be initiated without mobile banking registration in IMPS
2
Shares MMID and MPIN
ATM
SMS
Internet
Banking
MMID can also
be generated
through
Registration for Mobile
Banking and MMID
Simplified and automated process for Mobile Banking Registration and UPI ID generation
Step 1: PSP Profile Creation
1
User
downloads
PSP app
2
User specifies
preferred SIM
3
Automated outward
encrypted SMS from
user’s SIM to PSP for
device hard binding
and strong binding of
mobile no. with device
User
Bank
User
PSP
4
Submits required details for
registration and UPI ID
creation as required
Step 2: Bank Account
Registration
Step 3: Mobile Banking Registration and UPI PIN
Source: NPCI | Primary Interviews
User
If the user is already registered for mobile banking, then user can
directly set the UPI PIN using similar process
PSP
1
User
specified
bank name
User Bank
2
PSP
sends
mobile
number
3
UPI
forwards
to PSP
4
User’s bank send Account
Number and IFSC in
masked format
User
PSP
1
User selects banks account
2
PSP sends
OTP request
to UPI with
bank, mobile
and account
details
3
User’s
bank
sends
OTP
4
UPI forwards to user’s bank
User Bank
5
User enters OTP, last
6 digits of debit card,
expiry & UPI PIN
(encrypted)
6
PSP
forwards
details
7
UPI forwards to user’s bank
8
User’s bank sends confirmation
9
UPI forwards
confirmation
• IMPS faced challenges in its initial years owing to complexity in registration and MMID generation process which posed issues in user adoption
• Subsequently, an ‘IMPS Simplification’ process was undertaken for catering to this issue
• Although the process is simplified, the learnings from IMPS were incorporated in UPI to enable seamless registration and UPI ID creation process through
mobile device
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4.2. Payment Process | Transaction Fulfilment | IMPS
Typical transaction fulfilment process which is followed for IMPS transactions involving both remitter and beneficiary sub-members has been described below.
Intra-Bank transfer are not supported by IMPS
Connectivity options between sponsor bank/direct
members and NPCI:
• Member's switch connected through Bharat switch (more
prevalent option)
• Via an aggregator / application service provider called
Mobile Payment Solution Provider (approach typically
used by smaller banks such as regional rural banks who
may not have technical capability or banks who do not
wish to make required investment)
Note: Intra-Bank transfer are not
supported by IMPS
1
User /
Remitter
Remitter sub-
member
Remitter
sponsor bank
/ Direct
member
Beneficiary
sponsor bank /
Direct member
Beneficiary
sub-member
Beneficiary
2
3 4
5
Connectivity options between sub-member and
sponsor:
• Connectivity to NPCI-IMPS through sponsor bank’s
Application Service Provider (ASP) switch (more
prevalent option largely because ASPs have
required technology and PPIs sometimes do not
prefer integrating with sponsor bank)
• Integration with sponsor bank
• PPIs can also connect to NPCI-IMPS directly
a
Connectivity options between sub-
member and sponsor: Same as ‘a’
1. Customer initiates transaction through sub-member application. Application could be provided in-house, by sponsor or by ASP
2. Sub-member authenticates customer, debits customer account and forwards transaction to remitter sponsor bank
3. Remitter sponsor bank validates the request (from security perspective), creates ISO 8583 request and forwards to NPCI-IMPS
4. NPCI-IMPS forward transaction to beneficiary sponsor bank switch
5. Beneficiary sponsor bank sends transaction to beneficiary sub-member
6. Sub-member credits funds into beneficiary account and sends response. It also sends SMS to beneficiary
7. Beneficiary sponsor bank sends response to NPCI-IMPS
8. NPCI-IMPS forwards response to remitter sponsor bank
9. Remitter sponsor bank sends response to remitter sub-member bank. Remitter sub-member bank sends SMS to customer
9
8 7
6
Source: NPCI | Primary Interviews
Note: Above is a typical process which is followed involving both remitter and beneficiary sub-members
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World Bank Fast Payments Toolkit
4.2. Payment Process | Transaction Fulfilment | UPI
Typical transaction fulfilment process which is followed for P2P push request when remitter Bank & remitter PSP are separate entities, and beneficiary PSP &
beneficiary bank are separate entities. UPI supports both inter and intra-bank transfers
Connectivity for 3
rd
parties:
• Bank architecture dependent model:
• Single PSP model
• Multi Bank model (NPCI has mandated TPAPs
processing more than 5% of UPI’s monthly
volume to follow this model)
• Service App model
• Web / Mobile app-based Collect
• QR/intent etc. based approach
• Bank architecture independent model (3
rd
party
can connect to NPCI UPI central switch with
limited functionality)
1. Remitter initiates transaction by entering the UPI ID of the
beneficiary
2. Remitter PSP sends the request to NPCI-UPI
3. NPCI-UPI sends the request to the respective beneficiary PSP for
address resolution and authorization
4. Beneficiary PSP sends relevant account details of the beneficiary
to NPCI-UPI
5. UPI sends the debit request to remitter bank
6. Remitter bank debits the remitter’s account and sends
confirmation to NPCI-UPI
7. NPCI-UPI sends credit request to beneficiary’s bank
8. Beneficiary bank credits the customer’s account and confirms the
same to NPCI-UPI
9. NPCI-UPI sends the successful confirmation to the remitter PSP
10. Payer PSP sends the confirmation to the customer
User /
Remitter
Acquiring
Channel
(Mobile app)
Remitter PSP
Remitter Bank
Beneficiary PSP
Beneficiary Bank
1
2
3
4
5 6
8
7
9
10
• Connectivity options between sponsor
bank/PSPs/direct members and NPCI
is through member's switch connected to
UPI
• Connectivity options between sponsor
bank and sub-member are same as IMPS
Note: UPI supports both inter and
intra-bank transfers
Source: NPCI | Primary Interviews
Note: Above is a typical process which is followed for P2P Push request when remitter Bank & remitter PSP are separate entities,
and beneficiary PSP & beneficiary bank are separate entities
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4.2. Payment Process | Liquidity Management and Settlement
Settlement takes place using a hub based deferred net model for direct members. This model was followed because of reduction in liquidity requirements under
this approach. Settlements are performed in central bank account for easier liquidity management. Settlement for sub-members takes place in the books of
sponsor bank
Approach
Multilateral Deferred Net
Settlement
4 Cycles Per Day on RTGS
working days
Hub
Direct Member Settlement Indirect Member Settlement
• Settlement service in IMPS and UPI is provided by NPCI (by virtue of its Type D RTGS member) and net settlement
position is passed to RBI’s RTGS for settlement through accounts maintained by members with RBI. The settlement
positions are passed as Multilateral Net Settlement Batches (MNSBs) using Net Settlement Interface
• While the approach and process remains similar, IMPS and UPI settlements were separated by NPCI within the first
year of UPI’s launch because the net obligations had to be arrived at separately for the two systems in line with legal
and regulatory requirements and because of banks’ request for separate reporting / information
• Settlement in IMPS and UPI takes place 4 times a day on RTGS working days. Separate MSNB file is created for RTGS
holiday. Post holiday, separate settlement take place for each MSNB such file
• Multilateral deferred net settlement has been followed owing to the following benefits:
• Convenience for systems handling substantial volumes and lower liquidity requirements
• Netting also benefits the regulators, by virtue of reducing the size of credit and liquidity exposure of participant
banks, thereby leading to containment of systemic risk
• With the Payment & Settlement Systems Act, 2007 and the framing of Regulations thereunder, legal basis was
provided to ‘netting’ and ‘settlement finality’
• Central settlement (Hub approach) was followed because it reduces the liquidity burden on banks as they get benefit
of excess funds at one clearing center to offset the deficit at another
• As per RBI’s directions, clearing houses such as NPCI need to publish the time of arriving the net settlement position
for members to ensure adequate funds’ availability. Also, time between arriving at the net settlement position and
posting of the net settlement position should be as minimum as possible
• The settlement of transactions by sub-
members take place in settlement accounts of
sponsor banks maintained with RBI. Same
process as mentioned for direct member
settlement
• Under this arrangement, sponsor banks will
assume complete responsibility for the
settlement of all transactions by sub-
members
• Settlement takes place through the sub-
member’s pre-funded account maintained
with sponsor bank on gross basis during the
same RTGS cycles
Type | Time
Source: RBI directive on Settlement and Default Handling Procedures in Multilateral and Deferred Net Settlement Systems under the Payment
and Settlement Systems Act, 2007
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5. Governance Framework
Chapter Summary:
• The PSS Act, 2007 is the legal framework for the payment and settlement systems in India which was conceived
by RBI in order to ensure soundness of payment systems with adequate legal backing and monitoring mechanism at a
time when electronic payment systems and operators were evolving. The Act designates the RBI as the authority for
regulation and supervision of payment systems in India. The Act also covers various aspects such as guidelines related
to regulation and supervision of payment systems, authorization of payment systems, settlement of disputes, rights
and duties of the system provider/operator, provides legal basis for ‘netting’, ‘settlement finality’ and loss allocation
among system participants and payment system, etc.
• NPCI was set up in December 2008 as an umbrella organization for retail payment systems in India. It has been
incorporated as a ‘Not for Profit’ company
• IMPS, UPI and all its payment intermediaries/participants are regulated by the RBI. IMPS/UPI steering committee,
which comprises of 19 members from various banks and non-banks, has been constituted to discuss and deliberate on
business, operational, and technical issues of the systems
• NPCI has designed an Enterprise Risk Management (ERM) Framework drawing guidance from regulatory
guidelines of RBI, ISO 31000:2009 standard; COSO framework and guidelines from Bank for International
Settlements. Risk committees are specifically entrusted to oversight on risk management
• Since the transactions in IMPS and UPI involve debiting the remitter’s account as the initiating trigger, the credit risk
(owing to crediting the beneficiary account without sufficient funds in remitter’s account) is mitigated. Hence, credit
risk arises only pertaining to inter-participant settlement which is mitigated by constituting settlement guarantee
mechanisms
• NPCI has an Operational Risk Management Framework under which the key elements include measure, monitor,
report, identify, evaluate and control risk
• Cyber security framework with Protect, Detect, Respond, Predict and Recover methodology is incorporated at NPCI.
Detective and remedial procedures have been put in place to ensure cyber resilience
• With respect to data management, customer payment sensitive data is allowed to be stored only in PSP banks and not
by the 3
rd
party applications
• There have been multiple measures under the legal and regulatory framework to ensure efficient resolution of
disputes and complaints. A system for automated dispute resolution mechanism is in place for IMPS and UPI
Chapter sections:
5.1. Legal and Regulatory Aspects
5.2. Risk Management
5.3. Dispute Resolution
5.4. Customer Complaints
Source: NPCI | RBI
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World Bank Fast Payments Toolkit
5.1. Legal, Regulatory and Governance Aspects
The PSS Act, 2007 is the legal framework for the payment and settlement systems in India which was conceived in order to ensure soundness of payment
systems with adequate legal backing and monitoring mechanism at a time when electronic payment systems and operators were evolving
Institutional and
Governance Framework
Legal Framework:
Payment and Settlement
Systems Act, 2007 (PSS
Act, 2007)
Regulator and
Overseer: RBI
Owner and Operator:
NPCI
IMPS/UPI Steering
Committee
• In order to promote sound payments with adequate legal backing, a legal framework was proposed by RBI owing to the following
key reasons:
• Existing legal structure did not explicitly cover ‘netting’ and ‘settlement finality’, and most of the payment systems (apart from
RTGS) functioned on a net settlement basis
• Lack of an apposite provision in law for regulation and supervision of the payment system operator reduced the scope of
having a monitoring mechanism which leads to safety and security concerns (especially because payments operations were
increasingly being shifted away from the central bank)
• Lack of legal clarity about the products designed using information technology (especially because systems were based on
payment instructions which did not fall in the category of instruments in the existing legal structure)
• With the above context, The Payment and Settlement Systems Act, 2007 (PSS Act, 2007) came into force in 2008, which was
further amended in 2015
• The Act covers all categories of payment systems that provide clearing, payment or settlement services or all of them and includes
central counterparties, securities settlement systems etc. except for the stock exchange
• Following are the key elements covered in the Act:
• Regulation and supervision of payment systems in India and designates the RBI (reserve bank) as the authority
for that purpose and all related matters. Key powers to regulate and supervise comprise:
• Power to determine standards
• Notice of change in the Payment System to the RBI
• Power to call for returns, documents, etc. and access to information
• Power to carry out audit and inspection
• Power to issue direction
• Power of to make regulations
• Authorization of Payment Systems
• Settlement of Disputes
• Legal basis for ‘netting’, ‘settlement finality’ and loss allocation among system participants and payment system,
where the rules provide for this mechanism
• Rights and Duties of the system provider/operator
• Offences and penalties
• 2015 Amendment: Settlement and treatment of collateral in case of insolvency, or dissolution or winding up of a
participant
Board for Regulation ‘and
Supervision of Payment and
Settlement Systems
Source: RBI
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World Bank Fast Payments Toolkit
5.1. Legal, Regulatory and Governance Aspects
Being the designated authority under the PSS Act 2007, RBI has issued various regulations and guidelines for payment systems and participants, and has also
been performing the oversight function through offsite and onsite inspections
Institutional and
Governance Framework
Legal Framework:
Payment and Settlement
Systems Act, 2007 (PSS
Act, 2007)
Regulator and
Overseer: RBI
Owner and Operator:
NPCI
IMPS/UPI Steering
Committee
• Under the PSS Act, 2007, two regulations were put in place by RBI, namely,
• Board for Regulation and Supervision of Payment and Settlement Systems Regulations, 2008:
• Details functions and powers of the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS)
• BPSS is a committee of the Central Board of the RBI constituted for the purposes of exercising the powers, performing
functions and discharging duties conferred on the RBI under the PSS Act
• Payment and Settlement Systems Regulations, 2008:
• Covers matters such as form of application for authorization for commencing/ carrying on a payment system and grant
of authorization, determination of standards, furnishing of information, etc.
• RBI constituted a department, Department of Payment and Settlement Systems, in order to assist BPSS in performing its functions
• RBI has also issued guidelines and directives from time to time such as on Mobile Banking, Internet Banking, Dispute Resolution
Mechanism, Storage of Payment System Data, and Settlement and Default Handling Procedures in Multilateral and Deferred Net
Settlement Systems, etc. which IMPS, UPI and their participants need to comply
Payment System Oversight:
• While the working definition of oversight stresses on safety and efficiency, the scope of oversight, regulation and supervision of
payment and settlement systems in India encompasses additional policy objectives, such as, authorization, accessibility,
inclusiveness and compliance with international standards
• ‘Principle of Financial Market Infrastructure’ (PFMI) implemented in India for regulation and supervision of FMIs
• An Oversight Division in the Department of Payment and Settlement Systems has been formed
• Oversight is performed primarily as a combination of offsite supervision and onsite inspection
• Offsite supervision: This is the primary means for oversight and its is conducted through:
• Self-assessment: FMIs are required to undertake/conduct regular periodic assessment against the CPSS-IOSCO’s
PFMIs and submit the assessment report along with the compliance measures to the RBI
• Call for information
• System of alerts: FMIs are required to put in place a mechanism for proactively reporting any abnormal
events/developments, etc. to RBI at the earliest possible time
• External and/or internal audits of control measures
• Assessment of any changes/amendments
• Onsite inspection
• Meetings with the Board and the senior management of the FMIs and participants of the FMIs on developments and issues
relating to the FMI as and when required
• Laying down policies for regulations, issue direction to FMIs and participants
Board for Regulation ‘and
Supervision of Payment and
Settlement Systems
Source: RBI
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World Bank Fast Payments Toolkit
5.1. Legal, Regulatory and Governance Aspects
While the regulations are in place, RBI has been continuously reviewing its policies and making necessary amendments in order to ensure ‘responsive
regulation’ with the evolving requirements, which can also be observed in its Vision 2019-21
Institutional and
Governance Framework
Legal Framework:
Payment and Settlement
Systems Act, 2007 (PSS
Act, 2007)
Regulator and
Overseer: RBI
Owner and Operator:
NPCI
IMPS/UPI Steering
Committee
• Governance and oversight:
• Constitution of a self regulatory organization (SRO) to be considered to cover digital payment system operators for self-
regulatory governance framework to foster best practices on aspects such as security, customer protection, pricing, etc. and
establish minimum standards, etc. SRO will serve as a two-way communication channel between players and regulator
• Oversight framework prescribing the intensity of oversight proportionate to the systemic risks, or system-wide risks
posed by the payment system or operator, or participant being drafted
• Fostering innovation and collaborative competition:
• Framework for regulatory sandbox to provide a controlled environment, with certain regulatory exemptions, to allow
experimentation of new payment system products by traditional and non-traditional players
• Review of policies to encourage more players to participate (including pan-India Umbrella Organization/s) and promote
pan-India payment platforms, to give a fillip to innovation and healthy competition
• Encourage adoption of new technologies including DLT for enhancement of digital payment services
• Review of policies for non-banks:
• Review of policies to provide a level playing field among banks and non-banks
• Review of membership of centralized payment systems for access neutrality between banks and non-banks. RBI
has permitted participation of non-banks in certain payment infrastructure; RBI to also initiate discussion on framework for
settlement risk management with increased participation of non-banks
• Security, standard setting and performance assessment:
• Framework for collecting data on frauds in payment systems
• Framework for testing resilience including business continuity and infrastructure redundancy preparedness
• Consideration for separate regulatory framework for outsourcing arrangements by non-bank payment service
providers
• RBI’s guidelines for mobile banking indicate the technological and security standards which the banks may comply. Specific
standards for banks providing mobile payment services to be issued mandating minimum requirements
• Promote interoperability through standardization and the use of universally accepted standards to be enhanced
• Framework for ongoing assessment of performance of retail payment systems (such as uptime, technical declines,
capacity, etc.) would be designed
Board for Regulation ‘and
Supervision of Payment and
Settlement Systems
Key measures towards forward-looking regulation supported by a risk-focused supervision in Payment and
Settlement Systems Vision 2019-21
Source: RBI
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World Bank Fast Payments Toolkit
5.1. Legal, Regulatory and Governance Aspects
NPCI was authorized by RBI for setting up and operating IMPS and UPI; The systems and all related intermediaries/participants are regulated by RBI along with
IMPS/UPI steering committees
Institutional and
Governance Framework
Legal Framework:
Payment and Settlement
Systems Act, 2007 (PSS
Act, 2007)
Regulator and
Overseer: RBI
Owner and Operator:
NPCI
IMPS/UPI Steering
Committee
NPCI Governance and Authorisation:
• NPCI, a ‘Not for Profit’ company, was set up in December 2008 as an umbrella organization for retail payment systems in India with
the guidance and support of the RBI and the Indian Banks’ Association (IBA)
• The broad objective of forming a separate entity was to bring greater efficiency by way of uniformity and standardization in retail
payments and expanding the reach of both existing and innovative payment products for greater customer convenience. It was also
in line with the best practices observed by RBI in many other countries wherein regulators are not the service providers unless the
payment system is systemically important
• NPCI is regulated by RBI and governed by the board comprising of representatives from member banks. With initial shareholding of
ten promoter banks, the ownership has since been diversified to 56 banks. RBI approves the appointment of the Chairman, and the
Managing Director and Chief Executive Officer (MD & CEO) of NPCI; it has also appointed a nominee director on NPCI’s Board
• Considering the public sector characteristic of NPCI and the requirements of the PSS Act, 2007, the shareholding comprises at least
51% stake by the public sector banks
• Authorization:
• NPCI is an authorized Payment System Operator by the RBI to set up and operate in India under the PSS Act, 2007. The year
of issuance of authorization for IMPS and UPI was 2010 and 2016 respectively
• NPCI has been granted Type D membership of RTGS and acts as a settlement agency that arranges the necessary interbank
settlement of credits and debits to the banks’ respective current accounts with RBI
• Over the years, NPCI has developed and operated various retail payment products, including handling operations of the
National Financial Switch (NFS)
• NPCI was tasked for the launch of IMPS and UPI because it aligned to its existing services (under the umbrella of retail payments)
and the clients (banks) had existing relationship/membership with other products of NPCI
Enforcement of guidelines across IMPS and UPI:
• IMPS, UPI and all its payment intermediaries/participants are regulated by the RBI. The IMPS/UPI steering committee comprises of
19 members from various banks and non-banks. The committee has been constituted to discuss and deliberate on business,
operational, and technical issues of the systems
• The Audit & Compliance teams at NPCI ensure enforcement of compliances
• The regulator audits NPCI at scheduled calendar and provides oversight
• The participants are guided by the Procedural guideline & Operating circulars issued by RBI and NPCI from time to time
• NPCI ensures compliance by participants through the process of audit at the time of onboarding as well as regular submission of
audit reports
Board for Regulation ‘and
Supervision of Payment and
Settlement Systems
Source: NPCI | RBI
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World Bank Fast Payments Toolkit
5.2. Risk Management
NPCI has designed an Enterprise Risk Management (ERM) Framework drawing guidance from regulatory guidelines of RBI, ISO 31000:2009 standard; COSO
framework and guidelines from Bank for International Settlements. Risk committees are specifically entrusted to oversight on risk management
Risk Management Framework:
• NPCI has designed an Enterprise Risk Management (ERM)
Framework drawing guidance from regulatory
guidelines of RBI, ISO 31000:2009 standard; COSO
framework and guidelines from Bank for
International Settlements
• Additionally, basis regulatory requirement, NPCI is aligned
with PFMI guidelines of applicable principles. This
ensures that NPCI has effective systems and controls in
place to identify, measure, monitor, manage and report
risks arising in and across NPCI's operations, business and
business enabling functions
• NPCI has issued Procedural Guidelines for both IMPS and
UPI. It also releases periodical circulars on both payment
systems
Governance:
• Board Committees are specifically entrusted to oversight
on risk management
• Committees that form part of Governance, Risk &
Compliance include Risk Management Committee (RMC)
of the Board and Internal Risk Management Committee
for efficient governance
NPCI’s
Enterprise
Risk
Management
Reputation
Risk
Technolog
y Risk
Liquidity
Risk
Informatio
n Security
Risk
Operationa
l Risk
Strategic
Risk
General
Business
Risk
Settlement
Risk
Fraud Risk
People
Risk
Source: NPCI | RBI
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World Bank Fast Payments Toolkit
5.2.1. Credit and Liquidity Risk Management
Since the transactions in IMPS and UPI involve debiting the remitter’s account as the initiating trigger, the credit risk (owing to crediting the beneficiary account
without sufficient funds in remitter’s account) is mitigated. Hence, credit risk arises only pertaining to inter-participant settlement
Legal and
Regulatory
Basis
• In order to manage the above-mentioned risk, legal basis is provided to ‘settlement finality’ and the operator (NPCI) has obligation of "Settlements"
under the PSS Act, 2007
• RBI has also issued a directive pertaining to ‘Settlement and Default Handling Procedures in Multilateral and Deferred Net Settlement Systems’ under the
Payment and Settlement Systems Act, 2007
Net Debit
Cap (NDC)
and Intra-
Day Cycles
• NDC limits are allotted to participants in IMPS as per the Settlement Guarantee Mechanism (SGM) policy. For UPI transactions, a specific percentage
of existing IMPS NDC limits as prescribed and as approved by the respective governance bodies is assigned to each participant
• The net debit position is calculated after each transaction in order to minimize risk and transactions are declined once the NDC limit is 100% utilized
• NPCI has institutionalized multiple intra-day settlement cycles, in order to minimize the liquidity risks
Guarantee
and Loss
Sharing
Mechanism
• NPCI has constituted Settlement Guarantee Fund (SGF) comprising of pledged cash collaterals and pooling of funds by way of committed line of credit
for payment systems to address any adverse impact of liquidity/credit risk arising due to settlement default by the participants
• Constitution of SGF corpus is through the arrangement of line of credit (90% of SGF) and remitter member(s) contribution (10% of SGF) is
based on their transaction throughput
• In the event of a participant failing to meet its settlement obligations on the settlement date and thereafter, loss sharing mechanism is invoked
• Loss is equivalent to the net debit obligation of the defaulting participant(s) and charges as applicable
• Keeping in view the PFMI guidelines the loss is shared by all the surviving participant(s) (all the remaining participants in the system)
• Share of loss shall be related to the risk exposure (transaction limit) set for the participant(s)
• Contribution would be same for the participants in a particular exposure group
• Minimum NDC limit defined for sub-members for IMPS and UPI. Limit is maintained separately within the overall limit of the sponsor bank (parent-child
relationship maintained)
• Operational issues and delays (TAT of ~3-5 days) were observed since it was a manual process wherein sub-members had to approach sponsor
bank which in turn had to notify NPCI to update the limit. Hence, NPCI launched a Liquidity Manager Member Portal (LMMP) for sponsor banks to
manage limits of sub-members as and when required
Sub-Member
Credit and
Liquidity
Risk
Source: NPCI | RBI
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5.2.2. Operational and Fraud Risk Management
Defined
guidelines
and
framework
Centralized
Data on
Frauds
Fraud Risk
Monitoring
and
Management
Solution
• NPCI has an operational risk management framework under which the key elements include measure, monitor, report, identify, evaluate and control risk.
NPCI also performs operational risk assessment procedures when new systems, activities and processes are introduced or undertaken
• Procedural Guidelines are published for the participating members which also contain various risk guidelines. It also defines roles & responsibilities of
each participant in the ecosystem (sponsor, sub-member, PSP, etc.)
• Further, risk guidelines/circulars/advisories are issued for member banks on time-to-time basis
• There were challenges around no central solution to manage fraudsters that could be leveraged across the ecosystem
• Hence, a comprehensive framework for collection of data on frauds in payment systems is being drawn in consultation with the industry
• RBI has expressed need to share fraud related data for payment systems. Such data can be used analytically for differentiating fraudulent and legitimate
transactions; oversight and supervision, and also for providing guidelines to entities for minimizing risks of similar frauds
• NPCI has designed and implemented a Real-time Fraud Risk Monitoring and Management solution (FRM) for fraud detection and prevention. This solution
is intended to be implemented for all the on-line systems offered by NPCI. Solution is used for monitoring UPI as of now
• System has the capability to process transactions in real-time and near real-time mode. Member banks monitor the alerts through web-based access
• IMPS has a separate Fraud Risk Management module which is not real-time
KYC / AML
• Members need to comply with KYC, AML, Combating of Financing of Terrorism (CFT), PEP check, Terrorist List check, Customer Due Diligence (CDD) and
Enhanced Due Diligence (EDD) checks as stipulated by the RBI for activities of members before registering a customer. Members have to submit to NPCI,
a duly signed declaration in this respect
• As part of AML Monitoring, transactions are monitored based on certain Red Flag Indicators. Such transaction trail is assessed on various parameters such
as location, volume, frequency, number of parties involved etc. and if suspicious, a Suspicious Transaction Report is filed with the relevant authority
NPCI has an operational risk management framework under which the key elements include measure, monitor, report, identify, evaluate and control risk. One
of the learnings from IMPS and UPI pertaining to fraud risk management has been the need for a centralized data on frauds. A comprehensive framework for
collection of data on frauds in payment systems is being drawn by RBI in consultation with the industry
Source: NPCI
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5.2.2. Operational and Fraud Risk Management
The Reserve Bank of India has issued guidelines with respect to customer awareness for fraud prevention. RBI has also issued guidelines for fraud reporting
mechanism
Fraud Reporting and Awareness
• As per RBI's guidelines, customers must be advised to notify their bank of any unauthorised electronic banking transaction at the earliest after the
occurrence of such transaction, and informed that the longer the time taken to notify the bank, the higher will be the risk of loss to the bank/ customer
• Also, as per guidelines, alert SMS must be sent to remitting customer with details of sender and beneficiary
• In order to reduce frauds in UPI, the concept of verified merchants has been introduced and all such merchants are indicated at the time of transaction
• RBI is also considering the following initiatives with respect to customer awareness pertaining to payment systems:
• An industry level initiative for building awareness through generic advertisements and systematically planned customer orientation programs
• Creation of a Universal Icon / Symbol Set for basic use cases / operations in the area of retail electronic payments
Customer
Awareness
• As per RBI's guidelines, banks must provide customers with 24x7 access through multiple channels (at a minimum, via website, phone banking, SMS,
e-mail, IVR, a dedicated toll-free helpline, reporting to home branch, etc.) for reporting unauthorized transactions that have taken place. Banks shall
also enable customers to instantly respond by "Reply" to the SMS and e-mail alerts and the customers should not be required to search for a web page
or an e-mail address to notify the objection, if any
• Further, a direct link for lodging the complaints, with specific option to report unauthorised electronic transactions shall be provided by banks on home
page of their website. The loss/ fraud reporting system shall also ensure that immediate response (including auto response) is sent to the customers
acknowledging the complaint along with the registered complaint number
• The communication systems used by banks to send alerts and receive their responses thereto must record the time and date of delivery of the
message and receipt of customer’s response, if any, to them. This shall be important in determining the extent of a customer’s liability
• On receipt of report of an unauthorised transaction from the customer, banks must take immediate steps to prevent further unauthorised transactions
in the account
Reporting
Frauds
Source: RBI
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5.2.3. Cyber Resilience and Data Management
Security framework with Protect, Detect, Respond, Predict and Recover methodology is incorporated at NPCI. For payment system data storage, RBI has issued
guidelines. Special considerations were considered while allowing TRAP access in UPI. Customer payment sensitive data is allowed to be stored only in PSP
banks and not by the 3rd party applications
Data
Application
Host
Internal Network
Perimeter
Physical
Policies, Procedures &
Awareness
Defence in Depth Approach
of Cyber Security
• NPCI is compliant under PCI DSS v3.2, ISO 27001:2013 and ISO 22301:2012 and has defined Business Continuity Management
framework
• Security framework with Protect, Detect, Respond, Predict and Recover methodology is incorporated at NPCI
• Policies adopting the above frameworks and the CSITE framework of RBI have been framed including Information Security Management
System (ISMS), Business Continuity Management System (BCMS), Cyber Security and Data Security Policies
• Below are few technologies and controls that are deployed at NPCI which have mitigated some real time cyber-attacks at NPCI:
• Perimeter security controls including firewall, web application firewall, micro-segmentation of network, routing controls, secured
switch configurations, proxy server, Anti-Distributed Denial of Service Solution, Anti-Advanced Persistent Threat etc.
• Detective controls including 24x7x365 Security Operations Centre (SOC) to monitor and restrict attacks
• Privileged identity & access management solutions
• Security assessment tools for vulnerability assessment, penetration testing and other application security assessment
• NPCI also issues guidelines pertaining to security and infra requirements, and disaster recovery for members joining IMPS and UPI
• Following measures have been put in place by RBI to ensure quick remedial in case of a security breach:
• Internal Security Incident Response Team
• Defined Playbooks for each type of alert
• Escalation Matrix for Internal Stake holders and Governing Bodies
• Standby External Security Incident Response Team
• Defined Media Statement
Data
Manange-
ment
•
RBI has issued guidelines on storage of payment system data. There were no incremental guidelines for IMPS and UPI
•
NPCI has the right to issue guidelines for the system operated by it. NPCI has issued data guidelines - no PII in mobile app; PII at PSP have to encrypt
data@rest; PII data@move needs to be encrypted as well
•
Customer sensitive data is allowed to be stored only in PSP banks and not by the 3
rd
party applications and is saved in encrypted form
•
NPCI has incorporated data security policy which is in line to most of the global accepted standards around data privacy and security
•
NPCI also has Backup Infrastructure to safeguard its data
NPCI has deployed various
technologies to upgrade its
security posture leveraging a
multi-layered defence
approach to combat evolving
cyber threats
Per RBI’s vision document, a framework would be drafted for testing resilience (ability to continue to operate even if a system has failed
completely by switching activity to a separate system or process or a combination of both) of the payment systems. The framework shall
also include business continuity and infrastructure redundancy preparedness
Source: NPCI | RBI
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5.3. Dispute Resolution
• NPCI has a dedicated disputes redressal system i.e., Bharat Clearing & Settlement System (BCS-IMPS) for resolution of IMPS disputes. In BCS-IMPS, all the disputes are
settled in every settlement cycle. Similarly, Unified Real time Clearing & Settlement (URCS), a back-office system is in place for UPI. This portal validates and processes
the disputes raised by members. The adjustments are performed along with previous business day approved transactions
• Member banks must deploy separate resources for performing reconciliation on daily basis and raise adjustments, if needed. Member banks are also advised to handle the
recon operations on all days irrespective of Sundays and other public holidays and to have a round-the-clock help desk team
• Where the adjustment/decline by the beneficiary bank is not acceptable to the remitting bank, they can refer the issue for arbitration by manual process to NPCI’s Panel
for Resolution of Disputes. NPCI has set up a Panel for Resolution of Disputes (PRD) comprising four members and the President to look into unresolved interbank
settlement disputes as per the directives of the DPSS of the RBI and PSS Act 2007
• In case the participant is not satisfied with the decision of the panel of the system provider, the dispute shall be referred to the RBI
1. Beneficiary Timed Out transaction - Applicable for P2P and P2A
• Customer account is credited but response got timed out (Beneficiary to NPCI)
• Customer account is not credited, and response got timed out (Beneficiary to NPCI)
• Customer account is not credited, and response got timed out (Beneficiary to NPCI) - Post reconciliation it is found that customer account cannot be credited because
of closed account, no such a/c, etc.
2. Chargeback - In case of wrong or incorrect beneficiary a/c
3. Chargeback Acceptance / Representment - Chargeback acceptance is only confirmation, there will not be any fund movement between Beneficiary and Remitter
4. Pre-arbitration, Pre-arbitration Acceptance and Pre-arbitration Rejection
7. Arbitration
8. Transaction Credit Confirmation (TCC) - This option is provided only to make remitter bank understand that customer a/c has been credited either online or by
initiating manual credit by beneficiary. This will avoid raising chargeback by remitter bank
9. Returns (RET) - Beneficiary bank can return the funds to the remitting bank where beneficiary bank is not able to credit their customer's a/c due to wrong a/c no, a/c
closed, etc.
There have been multiple measures under the legal and regulatory framework to ensure efficient resolution of inter bank disputes. A system for automated
dispute resolution mechanism is in place for both IMPS and UPI
Inter-Bank Dispute and Adjustment Resolution
Various Inter-Bank Dispute and Adjustment Scenarios
Source: NPCI | RBI
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5.3. Customer Complaints
Similarly, the customer complaints need to be resolved bilaterally between the participants within the timelines stipulated by RBI and NPCI. Moreover, it is
mandatory to provide an option on the PSP app to raise complaints in case of UPI
Recent Regulatory Initiatives
Ombudsman Scheme for Digital Transactions
• It is an expeditious and cost-free apex level mechanism for resolution of
complaints regarding digital transactions undertaken by customers of the
system participants for deficiency in certain services covered under the grounds
of complaint specified under the scheme
• Complainant must first approach the system participant concerned. If the
System Participant does not reply within a period of one month after receipt of
the complaint, or rejects the complaint, or if the complainant is not satisfied
with the reply given, the complainant can file the complaint with the
Ombudsman for Digital Transactions within whose jurisdiction the branch or
office of the System Participant complained against, is located
Harmonization of Turn Around Time (TAT) and customer compensation for
failed transactions using authorized Payment Systems
• RBI has put in place a framework on TAT for resolution of customer complaints
and compensation framework across authorized payment systems
• IMPS
• Any complaint about credit not being given to a beneficiary should be
dealt with conclusively and bilaterally by the remitting and beneficiary
banks within 3 days from the date of the complaint
• Members are required to have a separate operations team to handle
inter member/customer’s complaints
• UPI
• In case of any complaints related to UPI transactions, the first point of
contact for customer is the customer’s PSP. Customer’s PSP has to
mandatorily provide option in their app to raise dispute/complaint by
providing transaction reference/ID number. However, if customer
decides to approach his/her remitter/beneficiary bank instead, the
respective bank requires to entertain all such requests and help to
resolve the complaint to the customer’s satisfaction
• Customer can raise a dispute/complaint through the PSP app by
selecting transactions from history and/or by entering any other unique
reference such as transaction id no.
• Complaints regarding non-refund for failed transactions and/or non-
credit for successful transactions shall be dealt by the PSP/Bank. Any
complaint about credit not being given to a beneficiary should be dealt
with conclusively and bilaterally by the remitting and beneficiary banks
as per the guidelines circulated by NPCI from time to time
• For P2M complaints, it is mandatory for acquiring banks to take up the
matter with merchant and check the status of the transaction
Best Practices as per NPCI guidelines for reducing customer
complaints:
• Both credit and debit SMS/App notifications irrespective of the transaction
ticket size should be sent to customer
• Separate SMS should be sent for all successful debit & credit reversals
• After resolution of the complaints raised on the PSP applications, notifications
describing the status of the complaints should be sent for the same
• Complaints should be uploaded in RGCS and responded on same day to further
enhance the customer experience
Customer complaints
Source: NPCI | RBI
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6. Annexure
Chapter sections:
6.2. Key Features
6.3. Operational and Fraud Risk Management
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6.1. Key Features
Operating hours
• 24*7 including weekends and bank holidays
Payment speed
• Real time (Maximum 30 second)
Transaction limit*
• IMPS: INR 1 to INR 2,00,000 per transaction
• UPI: INR 1,00,000 per transaction; 10 P2P
transactions per bank account in 24 hours
Alias
• IMPS: Mobile number, Mobile Money Identifier
(MMID), Aadhaar number^
• UPI: Mobile number, MMID, Virtual UPI address
(name@psp), Aadhaar number^
Channel
• IMPS: ATM, Branch, Internet banking and Mobile
banking, SMS
• UPI: QR, Audio QR, Intent, NFC, Bluetooth, Mobile
apps, USSD
User charges**
• IMPS: ~ INR 5 to INR 15 based on transaction
amount
• UPI: Usually nil, some banks have started charging
INR 2.5 to ₹5 based on transaction (number and
amount)
Infrastructure setup
• New system
Messaging format
• IMPS: ISO 8583
• UPI: XML
Use of Open APIs
• UPI offers 3
rd
parties with multiple integration options
Authentication
• Multi-factor authentication; UPI also supports 1-click
2-factor authentication (Mobile number / device
fingerprint as 1
st
and UPI PIN as 2
nd
factor)
Key Highlights
Transaction Type & Use Cases
Settlement
Approach
Type | Time
Deferred Net
Settlement
4 Cycles Per Day on
RTGS working days
Hub
RTGS
Distributed
clearing
Individual Business Government
Merchant (UPI)
Bulk / Batch
Payment
* Members may set channel/transaction type/customer-wise limits. For UPI, upto INR 2 lakhs for verified merchants, capital markets, collections,
insurance, Foreign Inward Remittance and Pre-Approved Disbursement are allowed; ** Mentioned charges are pertaining to ICICI and HDFC Bank
Source: NPCI | RBI | BIS reports | SWIFT reports | PayU, Cashfree,
ICICI Bank, HDFC Bank | Times of India, The Hindu articles
Request to Pay
(UPI)
Bill payments
Direct Debits (UPI)
Schedule future
payments (UPI)
Cross-border
payments
^Pay to Aadhaar functionality was discontinued in 2018
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6.2. Operational and Fraud Risk Management
Below are the key fraud risk mitigation measures in UPI. Apart from these measures, various other checks such as velocity checks, transaction limit cap,
validation on permissible remitter account type for a particular beneficiary, etc. are also prescribed by NPCI
Secure
Customer
Registration
Transaction
Level
Security
Security
while
handling the
PIN
Application
security
Unsolicited
Pull requests
•
Customer is in control of transaction and has to enter authentication details to initiate a debit to his/her bank account
• Customer is sent an SMS by the PSP while registering the customer to ascertain the veracity of the customer
• The PSP also does the device fingerprinting through an automated outward encrypted SMS (Mobile number to PSP system) which
hard binds the mobile number with the device. This ensures that the transactions originating from the Hard bound device are secured
at the first step itself. This outward SMS sent is encrypted and does not involve any customer intervention
• Authorization is split between the PSP and the Issuing Bank
• The device fingerprinting of the mobile device serves as the 1
st
factor
• UPI PIN or the Bio-metrics is the 2
nd
factor of authentication
• The PSP application is certified by NPCI and the NPCI Utility / Libraries embedded in the application for entering sensitive data such
as Biometric credentials, PIN and One Time Password (OTP)
• PIN is always entered by the customer on the NPCI Library (which is embedded into the Parent PSP App while certification) which is
invoked while entering the PIN for an interoperable transaction
• The PIN traverses over the secure channel from UPI to the Issuing Bank basis the PKI encryption where PIN is encrypted using the
Public key at the UPI and the Issuing bank decrypts at its end using its Private key
Key Fraud Risk Mitigation Measures in UPI
Apart from the above, various other checks such as velocity checks, transaction limit cap, validation on permissible remitter account type for a particular beneficiary,
etc. are also prescribed by NPCI for IMPS and UPI
Source: NPCI
