Digital payments and UPI

How money changes hands

These modes and systems form a core part of financial infrastructure: they carry money from one person to another. The old modes are cash and cheques. Debit cards, net banking and the Unified Payments Interface (UPI) are newer, and UPI has become a quick, convenient favourite.

Taking money out

You can fill in a withdrawal slip and hand it in at the bank’s cash counter. Or you can use the debit card the bank gives you at an ATM, a self-service machine that works day and night at bus depots, markets, railway stations, airports and malls. Insert the card, enter your secret PIN (a 4 to 6 digit code), type the amount and collect the cash.

Paying by cheque

A cheque lets you pay someone directly from your bank account. Say you owe your friend Rohan ₹5,000: you write the date, his name, the amount in words and figures, and sign it. Rohan deposits it in his bank; the amount is debited from your account and credited to his. Cheques need a visit to the bank and take time.

Cards and net banking

Electronic payments move money at once. At a shop, a debit card is swiped or inserted in a POS (point of sale) machine; the amount is entered and the customer types the PIN, and the money leaves the account immediately. Net banking, through the bank’s website or app, lets account holders check their balance and past transactions and send money from a computer or phone.

UPI: India’s gift to the world

Earlier, sending money meant filling in a cheque and dropping it at the bank, so many people avoided banks and used cash, leaving huge amounts of money unrecorded. In 2016 UPI was launched by the National Payments Corporation of India (NPCI). Apps such as BHIM (Bharat Interface for Money) use it to send money with a QR code or a phone number, and to check balances and past payments without updating a passbook.

When Kumar buys vegetables from Piyush, he scans Piyush’s QR code, enters the amount and then his UPI PIN. The app sends the request to Kumar’s bank, which passes it to NPCI. NPCI decrypts it, checks the PIN and processes the transfer; Piyush’s bank receives the money and credits his account, all in seconds.

During the COVID-19 pandemic, when people had to keep their distance, UPI made cashless payments popular, and it works in many languages. Nepal became the first country to adopt it, in 2022; the UAE, France, Sri Lanka, Bhutan and Mauritius have followed.

Staying safe from fraud

Digital payments bring new tricks. Fraudsters send fake calls or messages to make people install harmful apps or reveal bank details or OTPs (one-time passwords), and then empty their accounts. Never share an OTP, PIN, password or account number with strangers, do not click unknown links, and do not store PINs on your phone. If you are cheated, call the 1930 helpline or report it on the National Cybercrime Reporting Portal, cybercrime.gov.in.

Why it matters

Paying digitally saves time and keeps a record, as long as you stay alert. See where the money in your account comes from in how banks work, and how savings can be invested in shares and the stock market. Answers to the textbook questions are in the NCERT solutions for Part 2 Chapter 8; see all of Part 2 Chapter 8 notes.