What sets UPI Wallet apart? Superiority compared to UPI and ideal usage scenarios explained
UPI (Unified Payments Interface) is a system that powers multiple bank accounts through a single mobile application, merging several banking features, seamless fund routing and merchant payments into one. It enables users to make and receive payments directly from their bank accounts without needing to preload funds into a separate wallet. On the other hand, UPI Wallet or UPI Lite is a digital wallet where you load money from your bank account to make online transactions.
The aim is to provide a user-friendly method for facilitating small transactions in real-time, bypassing the core banking systems of the Remitter bank and ensuring sufficient risk management.
Kunal Varma, CEO and Co-Founder of Freo, says, “In simple terms, there’s no official category recognised by the Reserve Bank of India (RBI) or the National Payments Corporation of India (NPCI) as a “UPI wallet.” The term is more industry slang than a formal classification.”
“UPI payments can be made in several ways, including through current accounts, savings accounts, Prepaid Payment Instruments (PPIs), UPI Lite, and UPI 123. Each of these methods caters to different user needs but fundamentally relies on the UPI platform for processing transactions,” Varma added.
Current and savings accounts: Transactions directly involve the debiting and crediting of these bank accounts, offering a straightforward path for users to manage their finances without intermediaries.
Prepaid Payment Instruments (PPIs): These include digital wallets, prepaid cards, and other forms that can now be linked to the UPI system for seamless transactions, enhancing the interoperability between different financial products.
UPI 123: This feature is typically aimed at simplifying transactions further, referring to initiatives like UPI-based payment solutions for feature phones or simplified payment addressing methods.
UPI Lite: Designed for small-value transactions, UPI Lite allows for a smoother and quicker payment experience, particularly in areas with low connectivity. It enables users to conduct transactions without entering a UPI PIN for each payment, with certain limitations to ensure security. The UPI Wallet slag is typically used for UPI Lite.
Shikhar Aggarwal, chairman of BLS e-services, says, “UPI has been a very popular and successful mode of payment using smartphones, used by the masses with wide acceptance across UPI Apps, Bank Apps, Merchants, and Aggregators.
UPI transactions are performed online in real-time with the Core Banking System (CBS) of Banks and with UPI PIN as an Additional Factor of Authentication (AFA).”
“As per the analysis of UPI transactions by NPCI, a majority of UPI transactions are below Rs 500, which is in line with India’s overall objective to migrate low-value cash transactions to the digital mode. For further scale-up of low-value digital transactions without creating additional load on the Core Banking System (CBS) of Banks and enabling a better customer experience, NPCI has created a UPI Lite solution, which is an on-device UPI Wallet, to process these low-value transactions up to Rs 500 without using UPI PIN, while providing adequate security with the trusted NPCI application,” added Aggarwal.
How on-device UPI Wallet or UPI Lite works: With the consent of its UPI-registered customer, an Issuing bank can create an escrow on the customer’s account up to a set limit. This refillable, ‘stored value’ resides in the common library (CL) of the customer’s UPI app and can only be utilised for low-value payments without leaning into core banking infrastructure.
UPI Lite (UPI Wallet) permits a stored value balance limit of Rs 2,000. Replenishment of funds in the UPI Wallet is only permitted online with additional factor authentication (AFA).
Mehul Mistry, Global Head of Strategy, Digital Financial Services, & Partnerships at Wibmo, A PayU Company, says, “UPI and UPI Lite represent two facets of India’s digital payment ecosystem, each catering to distinct user needs. UPI stands out as a robust and multifaceted platform, offering a comprehensive suite of features. Users can link multiple bank accounts to a single mobile application, facilitating a diverse range of transactions, from peer-to-peer transfers to merchant payments. UPI is the preferred choice for those seeking a versatile solution capable of handling complex financial activities, making it ideal for scenarios involving various transaction types.”
“On the other hand, UPI Lite takes a minimalist approach, presenting a simplified version of the UPI interface. It is designed for users with basic transaction requirements, emphasising efficiency and ease of use. UPI Lite is well-suited for quick and straightforward transactions, such as simple fund transfers or essential bill payments, where a streamlined experience is prioritised over advanced features,” Mistry added.
Thus, the decision between UPI and UPI Lite hinges on the nature of the transactions one anticipates. UPI offers a comprehensive solution for individuals engaging in various financial activities. Conversely, those seeking simplicity and efficiency in routine transactions may find UPI Lite a better fit. Ultimately, the choice should align with one’s specific financial needs and preferences.
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