What No One Will Tell You About Payment Gateways, UPI, & Payment Links

Time for a flashback. The screen cuts to black & white. 

Well, don’t go so far back; this is still in the millennium. Remember the time when you went out with friends and the task of splitting expenses & settling in cash, fishing for change which no one ever had, rummaging through the wallet to realize it’s near empty? 

Or, depositing that cheque to your landlord or waiting for that high-value invoice at the office for days together? Well. 

UPI, Payment Links, Payment Gateways, PhonePe, GooglePay, QR Codes…. haven’t they removed all these hurdles out of the equation? 

Times have changed. So has the Indian landscape.

India in the 2020s will be like China in the 2010s. Few people really understand the full implications. https://t.co/xA1LwmLwEC

— Balaji Srinivasan (@balajis) January 3, 2021

In this blog, let’s explore UPI, Payment links, and payment gateways in detail and see how they fare against each other. 

What is UPI? 

UPI or Unified Payments Interface is a real-time, instant payment system that the Reserve Bank of India (RBI) regulates. It facilitates peer-to-peer transactions without a customer having to enter bank details every time a payment is made. 

UPI Interoperability

We juggle with umpteen UPI IDs every single day for various payments. However, what if there was a single UPI ID you can use across all the apps?

Sounds amazing, isn’t it?

Guess what? NPCI is already on top of it and has rolled out a pilot for UPI interoperability via UPI Number.

UPI Number is an 8-10 numeric code digits a user can create to use across any UPI app. If it’s a 10 digit number, they have to mandatorily use mobile phone numbers.

By 1st December 2021, all the UPI apps(TPAPs & PSPs) will need to be compliant-ready with UPI Numbers. In addition, they are not allowed to incentivize users for this as well. The pilot allows apps to run with less than 5 million users for this.

What are Payment Links? 

A payment link is a method to pay online that uses a URL unique for a customer and sends them to a secure payments page to proceed with the transaction. Users can complete the payment through their desired UPI app or any of the available options of NEFT/IMPS/RTGS to the displayed virtual account.

What is a Payment Gateway? 

A payment gateway is a service provider that facilitates the transfer of funds securely between a customer and a merchant/entity using any payment method. Payment gateways are like a middleman between the two entities and offer a secure environment to prevent the leakage of customers’ sensitive information such as card details or frauds of any kind.

Some of the prominent payment gateways in India include Razorpay and Stripe. 

Is UPI a Payment Gateway?

Unified Payment Interface is a simple bank-to-bank transfer network. A user can easily send or receive money to/from anyone instantly, and without having to enter bank details as required by IMPS. On the other hand, a payment gateway, a subset of payment service providers(PSP), is a more complex instrument that has multiple underlying processes and steps involved to facilitate a fund transfer between a customer and a merchant/business. Even though the end goal of both is to facilitate payment transfers, UPI is the simpler and hassle-free option of the two. 

UPI Payment Links Vs Payment Gateways

Launched in April 2016, UPI has been a roaring success and is the 5th largest payment network in the world, volume-wise, following Visa, WeChat Pay, Alipay, and MasterCard.

In 2019, Google penned a letter to the Federal Reserve about the execution & runaway success of UPI built by India’s NPCI for digital payments with a scalable architecture. The tech giant strongly vouched on how the same can be replicated in the US after their product Google Pay(formerly Google Tez) tripled growth within a year and landed with an impressive 67 million users. 

Not just the US, India’s UPI has been turning heads globally. NPCI is working to land UPI in UAE and Singapore and then soon enough to the rest of South Asia. 

So, why have people unanimously embraced UPI? Making it one of the most popular payment modes in the country(and possibly in the world too, in the near future)? 

• More secure and with a lesser risk of fraud and sensitive information getting leaked. 
• Ability to access multiple bank accounts at once, using a single point. 
• Wide variety of apps to choose from to process UPI-based payments.(Google Pay, PhonePe, BharatPe)
• The ability to request payments
• Instant money transfer, and in real-time

While these are some of the many advantages for a consumer who opts for UPI, what about businesses? 

We could go on a limb here and even say that quite a big chunk of businesses are still parked in the cash-based or net-banking payment zones. However, why should they move to the fast-track of UPIs? Let’s find out. 

Transaction Fees

Imagine every time you made a payment, a good chunk of it goes as a service/transaction fee? Don’t believe us? Ask a freelancer who transacts with clients, especially overseas. 

A payment gateway sure makes payments uncomplicated. However, a ~2.0% transaction fee for each payment is a definite loss for both the merchant and the customer. This issue further snowballs if the subject in question is an SMB with heavy transactions going in & out daily. A payment gateway’s cost definitely eats into the commission structure of the company. 

On the other hand, businesses are able to significantly lower transaction costs by adopting UPI or payment links for simple bank transfers. The lower UPI costs can be attributed to the zero Merchant Discount Rate (MDR) mandated by the government. MDR is the merchants’ cost to banks and payment service providers (PSPs) for enabling the UPI infrastructure.

Fund Settlement Times

When a customer pays through the payment gateway, it could take anywhere from 1-3 days (or even more) to be finally transferred to the company’s account. Unlike businesses having their own UPI/banking infrastructure, where the fund transfers are close to instantaneous. We’ve helped one of our customers, Workflexi, who had to wait for around 5-6 days for payment settlements on their platform, to overcome this.

Open Infrastructure

UPI is ‘open’ – this means that a technology company can build applications that help its users directly manage transfers in & out of their bank accounts. 

Float or Interest

While businesses transact using a payment gateway, the funds stay in the gateway’s escrow account for a few days and then are settled to the merchant. During this interval, the PG could earn a float or interest on the fund balance before it is finally transferred to the business’s account. The longer the funds stay at the account, the more interest the gateway could make. 

Which are some of the Industries to Benefit from UPI & Payment Links?

TLDR, we could say that in any industry that could switch to cash-free or card-free payment mode, it can utilize UPI or payment links to improve its financial & payment workflows. 

B2B Platforms

UPI has had a positive impact on industries across all domains B2B, C2C, B2C. However, B2B that tends to have high-volume, high-amount transactions, would particularly benefit a lot from UPI and payment links. With low-cost money transfers, a B2B business can save a lot of capital and channelize the saved commission for more effective growth purposes. However, each UPI transaction has a limit of ₹1 lakh (at the time of writing), and businesses could use bank transfer methods for higher ticket transactions.

B2B payments can be made smooth & instantaneous by embedding a QR code or payment link right within the invoice. The payee entity can just scan the QR code for payments or visit the link and wrap up the transaction. 

Logistics & Trade 

One of the behemoths in the high-volume transactions industries, Logistics & Trade, requires payment tracking, spending monitoring, and easy reconciliations. Since the transaction amounts are enormous, neither the fees nor the intermediary account’s cooling period does any good for the operators. What’s the next best solution? UPI and payment links, of course! A great example is our delivery heroes who collect Cash-on-Delivery orders using UPI QR codes or payment links.

In-Store or POS Payments 

Here, you have the POS machines that have been simplifying the process of accepting payments at the point of sale at a particular location. Whenever a customer swipes a card, the merchant is charged MDR or Merchant Discount Rate. MDR is a processing fee covering the credit/debit card transaction and protection against fraud. 

This fee varies for credit & debit cards but could be anywhere from 1% to 3%. As a result, now more and more merchants and shop owners are encouraging customers to use UPI-based QR codes or directly send them payment requests or links to avoid this fee. Fintech apps such as PhonePe, GooglePay, and BharatPe are helping merchants to make this happen. (The majority of the shops you visit would now have a QR code to make payments, right? Phew!)

How Can Decentro Help Your Business? 

Decentro’s Payment APIs will help you launch your business vertical or new product in no time. 

Our Payments module will help you:

Set-up App To App Payments

Deep links are a type of URL using which you can send a customer directly to an application instead of a website. While supporting various kinds of UPI payment apps, you can use deep links to send payment requests to the specific API app of your customer’s choice to collect payments.

Create your own UPI Handle Over your Business Account

Instead of the Payment Gateway’s nodal account, your customer can transfer money directly to your business account, which will have its own customizable UPI handle. Also, settlements are instantaneous.

Enable Social Payments 

It’s way easier to reach customers today, thanks to the many social media platforms. In such a case, as a business, taking into account their convenience can help you amp up your customer experience effortlessly. With Decentro APIs, you can easily generate a payment link and then share it with your customers over any social channels such as WhatsApp, Email, SMS, and more via conversational banking.

Automate Recurring Payments 

Automate any recurring subscriptions or payments for your business via UPI & ENACH using our system. Configure once and forget, save time, and don’t expend on the manual efforts. 

Facilitate Point Of Sale Transactions

Got a point of sales at your business? Set up QR codes to accept payments from your customers easily. You can create either static QR codes (with an open-ended amount to enter for payment) or dynamic codes (with a predefined amount) to facilitate payments. 

As of October FY21, 2.07 billion transactions were via UPI out of the total 3.39 billion retail transactions. The trend only seems to be going upward from there. Needless to say, UPI, open banking, Banking as a Service(BaaS), embedded finance, are the front runners when it comes to realizing the dream of financial inclusion in India.

It’s no easy feat to blend the convenience of making payments along with fraud protection. Nor, is it to bring your multiple bank accounts under a single umbrella to make transactions smooth. All this without paying a hefty amount as a transaction fee. Any business, especially the ones starting out, can tremendously benefit from this. Therefore, it’d be only wise to have UPI up & about in your payment systems.

If your business is looking to incorporate UPI into your payments system, we’d be happy to walk you through the best possible ways. Or, if any questions have crossed your mind, don’t hesitate to drop us an email at hello@decentro.tech. 

We’re helping neobanking platforms, NBFCs, wealth managers, fintech lenders, gig economy players, and more to set up a secure & seamless payments ecosystem for their business. Let’s listen to your business’s use-case and solve it together! 

Next time we’ll see you with something big in the banking API space. 

Until then, it’s a wrap!

Cheers!