Digital payments are gaining popularity in India and have become one of the preferred payment methods for both merchants and consumers, enabling people to make payments anytime, anywhere through simple and convenient steps. The Unified Payments Interface (UPI) enables interconnected fund transfers and greatly facilitates the receipt and payment of money between customers and merchants.In July 2022, the Unified Payments Interface (UPI) in India recorded 5.95 billion transactions. While this number continues to grow, digital payment methods such as UPI may reach a saturation point by FY2027, according to a CLSA report, prompting technological advancements to maintain their relevance in the market:Three-Party Payment Channels in India

The key to UPI India's widespread adoption is its seamless and secure transactions that have earned customer trust. However, UPI also has some limitations. UPI 2.0 aims to overcome these limitations and drive the digital payments ecosystem to new heights.

**The main features of UPI 2.0 are as follows:**

1. Overdraft (OD) account linkage function

2. One-click authorisation

3. Invoice function in the inbox

4. Intent/signature QR code

Reported QR code related fraud globally has been a concern and UPI 2.0 provides better transaction authenticity for payees through its intent/signature QR feature. Additionally, UPI has been focused on payee and person-to-person (P2P) transfers. With UPI 2.0, merchants can send digital invoices and collection requests, thus expanding the operating environment for both merchants and payees. As a result, P2P (person-to-person) and P2M (person-to-merchant) transactions are enhanced.

It also provides opportunities for Financial Institutions (FIs) to utilise UPI 2.0 and its features for microfinance; banks can initiate collection requests through a recurring process. In addition, UPI 2.0 will be more applicable to high-value product and service transactions, with a revised cap set at around Rs 2 lakh for UPI transactions in India.

UPI 2.0's innovative features, such as one-click authorisation to activate and associate an overdraft (OD) account, provide users with access to needs-based credit. This feature allows users to access credit through OD accounts even if they have an insufficient account balance. This feature will further facilitate P2P and P2M transactions.

**UPI 2.0 in different scenarios:**

- **Travel industry:** One time authorisation function for booking tickets, taxis and hotels for future travel.

- **E-commerce:** collection of payment for goods as an alternative to cash payment.

- **Businesses and SMEs:** Digitising B2B (business-to-business) transactions through digital invoicing.

- **Healthcare:** Share pathology reports and observations in collection requests.

- **Financial Institutions:** Analyse UPI transaction data and OD (overdraft) usage to generate credit profiles and facilities.

- **Non-Bank Financial Institutions (NBFIs) and Microfinance Institutions (MFIs):** Provide incentives for generating UPI-based collections.

- **Micro-merchants:** Encourage small shops to use QR-based acceptance through signature intent.

- **Subscription Services:** Provide authorisation for DTH (direct-to-home), media subscriptions and school fees through pull-collection requests.

**Potential features for further promotion of UPI 2.0:**

- Better user interface and user experience

- One Click UPI Payment

- Better integration with banks and other stakeholders

- Higher transaction limits

- Fixed-term mandates

- Promotion of digital financial literacy content

UPI 2.0 has the potential to transform the digital payments ecosystem. The current version is still in development and we are not far from the day when the entire supply chain will be handled through the UPI platform. The era of the next generation of digital experiences is upon us, where users will interact seamlessly in an open and fluid environment.

**Frequently Asked Questions:**

- **What is UPI?** The full name of UPI is Unified Payments Interface, which is a real-time, instantaneous payment system that supports person-to-person (P2P) or person-to-merchant (P2M) transactions across banks. It was developed by the National Payments Corporation of India (NPCI), an entity of the Reserve Bank of India (RBI).

- **What is a QR code based transaction? ** QR Code stands for Quick Response Code and is a code provided to merchants for UPI transactions. This feature allows them to conduct customer transactions faster and more securely.The QR code contains the merchant's UPI ID, name and amount. When the customer scans the QR code, the merchant information is displayed on the payment page.