Unified Payments Interface (UPI) changed how money moves in India. In less than a decade, UPI’s popularity made India the global leader in real-time payments. This fast and low-cost system is now influencing how global businesses think about reach, conversion, and the checkout experience.

Below, we’ll explain how UPI works, why it scaled so quickly, and what it can do for businesses.

What’s in this article?

• What is UPI?
  
• Why do businesses prefer UPI?
  
• How does UPI work?
  
• Why has UPI adoption surged among businesses in India?
  
• How do businesses accept UPI payments?
  

What is UPI?

Unified Payments Interface is India’s real-time payment system. UPI moves money instantly between bank accounts via a mobile device. UPI connects hundreds of Indian banks through one interface. With a UPI app such as PhonePe, Google Pay, Paytm, or Amazon Pay, you can send money from your bank account to another account as long as the owner of the second account has a UPI ID (also called a virtual payment address or VPA).

Here are the key features of UPI:

• Instant transfers 24/7: Funds move in real time from one bank account to another.

• No fees: UPI payments are free for everyday users. Businesses don’t pay fees, either, because of a government-backed zero merchant discount rate (MDR) policy (though there have been calls to begin charging large businesses).

• PIN-based security: Every transaction is authorized by a secure PIN set by the user. UPI uses two-factor authentication and doesn’t expose account details to the other party.

With UPI, users can split a bill with friends, pay for groceries, pay rent, or settle an invoice—using only their phone.

Why do businesses prefer UPI?

UPI payments offer businesses several benefits, including broader customer access and zero fees. The system offers a quick and convenient alternative to traditional payment methods, such as cash, and has made it easier to accept payments remotely.

Here’s how businesses benefit from accepting UPI payments:

• Real-time settlement: Payments clear instantly, with no batching and no delay. Funds move into the business’s bank account the moment the customer pays. This is a major cash flow advantage, especially for small businesses.

• Low cost: Businesses do not pay fees to use UPI, unlike credit cards, which typically take a percentage of each sale. This can make a big difference for businesses with high-volume, low-ticket transactions.

• Huge customer reach: UPI has about 350 million active users. Accepting UPI means you’re accessible to younger users, customers in smaller cities, and those who never adopted cards or digital wallets.

• Built for mobile: UPI works via apps such as PhonePe and Paytm, so customers can make payments from anywhere as long as they have a UPI ID or can scan a QR code.

• Lower risk, easier compliance: Customers don’t have to share sensitive data to use UPI. They authorize payments within their own UPI app, and the business receives the money without seeing account details. This reduces risk and simplifies compliance.

• Built-in confirmation: The payer and business receive immediate confirmation of payment success, which makes it easier to reconcile payments and reduce support issues.

UPI has given Indian businesses, especially smaller ones, an easy way to go fully digital. Many customers now expect this option, so offering UPI is an important part of doing business in India.

How does UPI work?

Here’s how UPI works:

How to send and receive payments

To get started with UPI payments, you’ll need a VPA, commonly called a UPI ID. This is usually in the format name@bank or mobilenumber@provider. This ID links to your bank account and is used to send and receive money via UPI.

UPI supports multiple ways to initiate payments:

• Push payments: The user enters a UPI ID or scans a QR code and initiates the payment. They review the details, enter their UPI PIN, and authorize the transfer.

• Collect requests: The payee sends a request for a specific amount to the payer’s UPI ID. The payer receives a notification and can approve or ignore the request.

• Intent or app-to-app payments: The customer selects UPI at checkout, and their phone automatically triggers their preferred UPI app with payment details prefilled. The user authorizes the payment in-app, then returns to the business’s checkout flow.

Settlement timing

UPI works 24/7, including weekends and holidays. Once a payment is authorized, the UPI switch clears and settles the transaction instantly between the bank accounts.

Interoperability

UPI was designed as an open network. More than 550 Indian banks are integrated into one real-time switch operated by the National Payments Corporation of India (NPCI). That switch lets a user with an account at one bank send money to someone with an account at another bank without issue.

Whether you use Google Pay, PhonePe, or a bank’s own app, all of them operate on the same UPI infrastructure. Any user can pay any other user, regardless of which app or bank either party uses, and businesses can accept UPI no matter which app the customer uses.

Security

All UPI transactions require a linked bank account and a UPI PIN set by the user. Banks verify the request and the PIN before funds are moved. Because users never have to share sensitive account numbers or card details, the risk exposure is low.

UPI minimizes business-side liability. The business never sees the user’s bank information, and there’s no need to store or process payment credentials.

Why has UPI adoption surged among businesses in India?

From large retailers to neighborhood shops, UPI has quickly become the default payment method for businesses in India. Here’s why:

Government backing

UPI launched in 2016. But it was the invalidation of two bank notes, known as demonetization, later that year that pushed digital payments into the mainstream. When cash became scarce overnight, businesses and customers scrambled for alternatives. This gave UPI national relevance.

The Indian government and the Reserve Bank of India (RBI) backed the system and the UPI app, Bharat Interface for Money (BHIM), and ran large public awareness campaigns. That early institutional support made it easier for businesses, especially small ones, to adopt the new system.

New cost structure

The government waived MDR fees on UPI transactions in 2020, removing the cost barrier that traditionally kept small businesses away from digital payments. Unlike credit cards, UPI lets businesses keep 100% of the revenue.

That made UPI the least expensive and most convenient payment method for many businesses.

Low technical requirements

UPI is a natural fit for India’s mobile-based culture. Businesses don’t need a point-of-sale (POS) device, card reader, or smartphone to use UPI. Small businesses can use UPI with only a bank account and a printed QR code.

Shifting customer preference

As UPI adoption grew among individuals, businesses followed suit. In 2024, UPI accounted for 83% of all payment volume in India. Not accepting UPI meant turning away a large and growing share of potential customers.

Network effects

Each new UPI user or business adds value to the system. That feedback loop helped UPI scale quickly. By 2024, UPI was handling more than 500 million transactions per day.

How do businesses accept UPI payments?

Businesses can accept UPI in a few ways. Whether you’re running a brick-and-mortar store or an online platform, here’s how your business can accept UPI for payments:

QR code payments

Businesses display a static or dynamic UPI QR code, printed or on-screen.

• Static QR codes are linked only to the business’s UPI ID, and the customer manually enters the amount.

• Dynamic QR codes are autogenerated for each transaction with the exact amount encoded. These codes can help reduce entry errors and speed up checkout.

The customer scans the code with any UPI app, enters the amount (or confirms it if dynamic), and pays.

App-to-app payments

The customer chooses UPI at checkout, and the site or app triggers a handoff to a UPI app on their phone with payment details prefilled. The customer authorizes the payment, then returns to the business’s payment flow.

This method is commonly used in mobile commerce. It’s fast and mobile-native, and it avoids the need to scan a QR code, which is ideal for digital checkouts on phones.

Collect requests

The business sends a payment request to the customer’s UPI ID. The customer gets a notification and authorizes the payment.

Though still supported, this method is being phased out for business use because of fraud risks, especially scams involving fake collect requests.

Payment links

Businesses can send customers a link, via email, SMS, or chat, that opens their UPI app with prefilled details.

This works well for remote payments, one-time invoices, or customer support use cases.