Introduction

Unified Payments Interface, or UPI, is arguably India’s greatest financial innovation, yet. It is an enviable platform that is both backward compatible and future proof - a common language. Google even recommended the Federal Reserve to follow the model of UPI ((Unified Payments Interface) for the design of FedNow.

UPI for businesses, especially e-commerce has unleashed a tsunami of economic potential along the way. In this article, we’ll dive into UPI, understand why UPI is as powerful as it is, and how it completely changes the payments landscape for your business.

What is UPI (Unified Payments Interface)?

UPI (Unified Payments Interface) is essentially a payments markup language that runs on a central switch operated by the National Payments Corporation of India (NPCI). UPI took the best parts of IMPS, made it simpler, and easier, transforming UPI into a consumer phenomenon.

Simply put, the UPI system is a three layered cake.

The base layer are the public rails provided by NPCI, which handles the routing of payments messages. The second layer consists of banks, which are responsible for holding user funds and updating account balances. The top layer is made of payment apps and fintechs, who developed customer facing applications on top of the system underneath.

Essentially, there is an NPCI server which all the banks are connected to. The NPCI acts as a switch that sends messages to and fro between all the banks.

How does UPI work?

UPI meant simplifying money transfers, boosting financial inclusion, and propelling India to a cashless economy. To achieve this simplicity, UPI introduced human friendly unique IDs called UPI Virtual Payment Addresses (or VPAs). The VPAs are usually of the form <unique_identifier>@<address_provider>.

The Virtual Payment Addresses are similar to email addresses. They are interoperable. A Gmail user can send an email to a Hotmail user.

Some simple examples of UPI VPAs are piedpiper@okicici and erlich@okybl. Here, ICICI and Axis are two banks that provide virtual payment addresses. And, PiedPiper and Erlich are unique identifiers.

UPI Terminologies

- VPA (Virtual Payment Address) or UPI ID: It’s similar to an email id and consists of the issuing bank and a unique identifier.
- Issuer PSP: The Bank or PSP which creates the VPA.
- Acquirer PSP: The Bank or PSP which processes VPA transactions.
- Payee: Person/entity which is receiving the money.
- Payer: Person/entity who is paying the money.

Types of UPI Transactions

There are mainly two types of UPI transactions.

1. Direct Payment (Push): The payer or the sender initiates the transaction by entering mobile number or scanning the QR code… Sending money to your friends or paying the shopkeeper for a cup of tea are examples of Direct Payment.

2. Collect Request (Pull): The payee or the receiver initiates the transaction. Upon receiving the collect request, the payer is notified and can review the details of the request, including the payee’s information and the requested amount. This would be your landlord sending you a request for monthly rent.

Benefits of UPI for Businesses

Let’s understand why you should use UPI for business. UPI is undisputedly the most popular Payment Instrument in India. We love taking our phones out, scanning a QR, and whoosh. It is as simple as it could get, and hence the adoption of UPI for businesses has been stratospheric.

There are two ways your customers can use UPI to make payments on your website or app. We discussed these flows briefly above. Let’s dive deeper and understand how your business can leverage the brute simplicity of UPI to scale and grow!

Let us explore the methods.

UPI Collect

The collect flow starts with your customers entering their VPA on the checkout page. Following that, the customer gets a payment notification, they open their UPI app and swoosh, it’s done.

It’s fast but is also prone to human error. The customer has to manually enter their VPA, which if entered incorrectly can lead to a failed payment. The UPI Collect flow is not seamless either. The customer has to switch to their payments app to complete the transaction. Moreover, as a merchant you do not have complete visibility over the transaction funnel with UPI Collect.

UPI Intent

No VPA and No QR - UPI Intent involves a seamless App-to-App switch. As a business, you get better visibility over the transaction funnel (you can see which UPI app customer used), and the reduced scope of human error also leads to more successful payments.

UPI In-App

The In App Flow involves opening the NPCI common library in the merchant’s app itself. This involves using the UPI SDK and you can receive the payment without the customer having to open any third-party app. This UPI flow works only on mobile devices(Android & iPhone).

Since, there’s no separate UPI app such as BHIM, Google Pay, etc. involved in the process, there’s no redirection and hence, the conversion rate increases.

QR Code

A unique QR code is created during checkout and the customer can simply open their preferred UPI app, scan the dynamic QR code, and pay with ease.

There are two types of QR codes - Static and Dynamic. The former is the one you see outside shops, the one you scan every-time to pay for your coffee. The latter is a dynamic QR code generated for each order when you’re paying online.

This is similar to the UPI Collect flow, but easier. The customer only needs to scan the QR code instead of inputting their VPA.

UPI Success Rates

There are several entities involved in a UPI transaction. And each step and entity is a potential point of failure. UPI as a Payment Instrument enjoys high Success Rates. Let’s understand how you can further improve your UPI Success Rates.

Payment Routing or Orchestration

A robust Payment Orchestration Platform can help you reduce involuntary churn and help recoup revenue, which would have been lost otherwise. Think of Payment Orchestration as your Conversion Booster. The Routing platform can route transactions based on real-time performance and availability of different Payment Processors.

Improving UPI Collect Success Rates

Let’s take a look at some best practices which can help your customer’s payments cross the finish line.

1. Validate the VPA: Spellchecks as well as a dropdown menu of UPI handles can help reduce the scope of human error.
2. Pay via QR: Including UPI via QR code can help customers save the hassle of manually entering the VPA.
3. Save VPA: Saving VPA or UPI ID of successful transactions (no need to enter every time)
4. Timer: Show a timer expiry.
5. Empathise: The timer page real estate should be used to educate the customer by highlighting the next steps to the customer.
6. Enhanced UX: Customer drop-offs in UPI Collect flow tend to happen due to lack of sufficient guidance about the next steps. Users get confused and end up dropping off. A guided navigation can help you solve for this.

Improving UPI Intent Success Rates

1. Prioritise. Your Analytics should be able to give you a window into the best performing UPI Apps. It’s a good practice to prioritise showing those apps in the layout.
2. Alternate route. It can be the case that your customer may not have popular UPI Apps. In such a scenario, you should have placeholder so that the user can enter the VPA and complete the payment.

Using In-App UPI Payments

In-App UPI Payments mean an Exceptional Customer Experience & Payment Conversions for merchants. In-app UPI Payments offer an embedded Payments experience to your customers.

Let’s take a look at how in-app UPI Payments can help you deliver better success rates.

• Better Customer Experience. Embedded or In-App UPI Payments lead to frictionless customer experiences. Embedded Payments also allow for better visibility over the entire customer purchase funnel.
• Higher Conversions. No Additional hops to third-party UPI Apps mean merchants can now enable UPI for customers on their app and provide an unbroken experience. This Frictionless state leads to better conversions and, ultimately, better retention owing to a simple and seamless payments experience.
• Lesser Drop Offs. A two-step process leaves less room for customers to drop-offs compared to the 6-step process in UPI Intent. Zero redirections to external apps reduce the scope of non-technical errors.
• Better Customer Insights. In-App UPI Payments allow greater depth of visibility on the entire customer journey. You can understand why and where customers drop off and accordingly retarget them.

Read more about In-App UPI Payments here.

Drive better conversions on UPI payments with Juspay

The Juspay UPI journey began in the days of BHIM and the Unified Payments Interface Common Library. And today, we power bank stacks for many TPAPs like Gpay, Amazon Pay, and Cred to big merchants like Swiggy, Bharatpe, Dream11, and BookMyShow.

We have always believed that UPI potential is much more. And we continue to further the UPI experience, whether it is infrastructure or seamless customer experiences.

Drop us a message here or at biz@juspay.in to elevate the UPI experience for your customers.