In a recent move to broaden digital payment options for feature phone users, the Reserve Bank of India (RBI) raised the transaction limit for UPI 123Pay from ₹5,000 to ₹10,000 per transaction. Announced in the RBI’s Statement on Development and Regulatory Policies on October 9, 2024, this decision aligns with RBI’s ongoing efforts to enhance financial inclusivity. The National Payments Corporation of India (NPCI) further confirmed this change in a circular dated October 25, 2024, setting a compliance deadline for financial institutions by January 1, 2025.

Understanding UPI 123Pay: A Game-Changer for Feature Phone Users

UPI 123Pay, launched by the NPCI, is a revolutionary solution that enables Unified Payments Interface (UPI) transactions on non-smartphone devices like feature phones. This voice-based digital payment system was developed to bridge the accessibility gap, empowering users without smartphones or a stable internet connection to conduct secure transactions. Designed to be user-friendly, UPI 123Pay allows these users to make payments at no additional cost, expanding digital financial services to a broader demographic, especially in rural and underserved areas.

UPI 123Pay offers a range of transaction methods that cater to different preferences, making digital transactions more inclusive and straightforward for feature phone users. Here’s a closer look at the different ways UPI 123Pay can be used:

1. IVR or Call-Based Transactions: This method allows users to dial a specific IVR (Interactive Voice Response) number provided by their bank. After calling, they select the desired service option from a menu using the phone’s keypad. The user can then input the transaction amount and finalize it by entering their UPI PIN. This straightforward process is ideal for users who prefer audio guidance through each step of the transaction.
2. Missed Call-Based Transactions: This option is designed for added convenience, especially for payments made at merchant locations. Users give a missed call to a designated number displayed at the merchant’s location. They then receive an automated callback to verify the transaction, after which they enter their UPI PIN to complete the payment. This method provides a contact-free, simple way to pay without requiring direct internet access or mobile data.
3. Feature Phone App Transactions: For feature phones that support basic apps, a downloadable UPI application is available. Through this app, users can either scan QR codes to make purchases or use the “Send Money” option by entering the recipient’s details, amount, and UPI PIN. This app extends the functionalities of UPI to feature phone users, making their payment experience similar to that on smartphones.
4. Sound-Based Payments (Sound Frequency): In this unique method, users make a call to the designated IVR number, select the “pay merchant” option, and complete the transaction by tapping their phone on a merchant device until they hear a unique sound frequency. They then enter the amount and UPI PIN to finalize the payment. This method combines both auditory and interactive elements, enabling quick and secure transactions.

New Guidelines for UPI 123Pay Users and Compliance Requirements

Here are the main updates and requirements for all institutions supporting UPI 123Pay services:

1. Higher Transaction Limit: The transaction limit has now doubled from ₹5,000 to ₹10,000 per transaction, effective immediately. This increased limit provides feature phone users with greater financial flexibility, enabling them to handle higher-value payments without restrictions.
2. Secure Registration Process: For enhanced security, users registering for UPI 123Pay must now complete an Aadhaar-based OTP (One-Time Password) onboarding. This step ensures safe verification, adding an additional layer of security for new users and safeguarding against unauthorized transactions.
3. Enhanced Monitoring and Tagging: All participating financial institutions and UPI service providers are required to separately tag and monitor UPI 123Pay transactions. This requirement ensures that the usage and performance of UPI 123Pay services are effectively tracked, enabling better service improvements and response to user feedback.
4. Integration of UPI Numeric ID Mapper: To improve the identification and tracking of UPI 123Pay transactions, members are advised to integrate the UPI number functionality using a numeric ID mapper. This tool simplifies tracking, making it easier to separate UPI 123Pay transactions from those on smartphone-based UPI apps.
5. Guidelines for New Members: Financial institutions or service providers planning to join the UPI 123Pay network must comply with these new guidelines before launching their services. This ensures that all providers meet standardized requirements and maintain high service quality.
6. Compliance Deadline: All UPI 123Pay members are required to update their systems and processes according to these new guidelines by January 1, 2025. Failure to comply by this deadline may lead to penalties or potential disruptions in UPI 123Pay services, affecting users’ access to digital transactions.

Significance of the RBI’s New Guidelines for Digital Financial Inclusion

The updated transaction limit and guidelines reflect RBI’s commitment to advancing digital financial inclusion for India’s feature phone users. With these changes, users in remote areas and those with limited access to digital infrastructure can now make larger transactions and enjoy a more secure, streamlined experience.

For feature phone users who may be new to digital transactions, UPI 123Pay serves as an accessible and reliable option, ensuring they can participate in the digital economy. Moreover, as financial institutions and service providers adopt these updates, the digital payments landscape in India is likely to see increased adoption and smoother transactions across all devices.

These comprehensive updates make UPI 123Pay an even more attractive and practical option for millions of feature phone users across India.

UPI: Transforming Mobile Payments in India

Unified Payments Interface (UPI) is a revolutionary framework that has reshaped the landscape of mobile payments in India since its launch in 2016. With its simple, fast, and secure payment process, UPI has become an essential tool for millions of users, enabling seamless money transfers and boosting the digital economy.

What is UPI?

UPI is a system designed to facilitate instant money transfers between bank accounts using a mobile platform. Unlike traditional methods, which often require complex account details and routing numbers, UPI streamlines transactions with the use of a simple Virtual Payment Address (VPA). The system is maintained and overseen by the National Payments Corporation of India (NPCI), which has established the software code and protocols that ensure its smooth operation.

UPI acts as the backbone for digital transactions, allowing banks and financial technology (fintech) companies to build their own consumer-facing applications. Apps like Google Pay, Paytm, and PhonePe, among others, utilize UPI as their underlying infrastructure. Even individual banks have integrated UPI into their mobile apps, offering their customers a straightforward way to make payments and transfers.

How UPI Works

To use UPI, users must first create a unique UPI ID within an app that supports the service. This ID is typically linked to the user’s mobile number and bank account. The registration process is secure and straightforward:

1. Download and Setup: Users download a UPI-enabled app and go through a simple registration process that verifies their mobile number and links their bank account.
2. Create a UPI ID: The user creates a VPA, such as “yourname@bank,” which serves as a unique payment identifier.
3. Secure PIN Setup: Users set a secure Personal Identification Number (PIN) for authorizing transactions.

When initiating a transaction, the user simply inputs the recipient’s UPI ID or mobile number, the amount to be transferred, and authorizes the payment using their PIN. This process triggers an immediate transfer of funds from the sender’s bank account to the recipient’s account, all happening in real-time.

Behind the Scenes: How the Money Flows

One of the key aspects of UPI’s architecture is its multi-layered approach to transferring money:

1. Initiation: The transaction starts when a user inputs the recipient’s details and approves the payment with their UPI PIN.
2. Routing: The request is routed through the UPI network, which acts as an intermediary to ensure the funds are moved securely and swiftly.
3. Fund Transfer: The money flows from the sender’s bank account to an intermediary current account maintained by the payment app. The app then transfers the money to the recipient’s bank account.
4. Confirmation: Both the sender and recipient receive instant notifications confirming the transaction status.

Benefits and Features of UPI

• 24/7 Availability: UPI operates around the clock, enabling transfers even on weekends and public holidays.
• No Charges: One of the most attractive features is that UPI transactions are typically free, which encourages widespread use.
• User-Friendly: With just a few steps, users can send or receive money without sharing sensitive banking details.
• Multiple Banks and Platforms: UPI supports various banks and can be accessed through different apps, giving users flexibility in choosing their preferred service.
• Interoperability: UPI allows seamless transactions between different banks and platforms, making it versatile and highly efficient.

UPI’s Growth and Adoption

UPI has seen rapid growth since its inception, driven by its ease of use and the significant push toward digital payments. As of now, more than 249 banks are part of the UPI network, processing over 3.5 billion transactions each month. The total value of transactions conducted through UPI has already surpassed those made using debit and credit cards combined.

The adoption of UPI has been fueled by its seamless integration with everyday financial activities. Consumers use UPI for everything from paying utility bills and splitting restaurant bills to online shopping and making small business payments. Merchants, too, have found UPI to be a game-changer, enabling them to receive payments without expensive point-of-sale (POS) systems or hefty transaction fees.

Impact on India’s Financial Landscape

UPI has significantly contributed to the push for a cashless economy in India. By reducing the reliance on cash and enhancing financial inclusion, UPI has brought millions of people into the digital economy who previously had limited access to financial services. This has had a profound impact on how people manage their finances, allowing them to transact more efficiently and securely.

In addition, UPI’s success has inspired other countries to consider similar payment frameworks to modernize their own banking and financial systems. The technology has set a benchmark for real-time, low-cost, and highly accessible payment solutions globally.