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BHIM - a universal face for Unified Payment Interface (UPI)


A lot has been said about UPI, however still, there are doubts floating around. Key questions that many of us are asking are:
- How is it different from mobile wallets?
- What is the role of BHIM application in overall UPI landscape? Will BHIM help UPI by giving it a face?
- Will UPI succeed in India, while facing competition from private PSPs? OR they will become collaborators?

So let's try to understand what is UPI. If you really try to visualize the UPI, it is like a pipe with various exits. These exits are connected to different addresses of financial institutions that include entities such as banks (payer or payee) OR mobile wallets (as of payee only) that hold money on behalf of its account holders. BHIM app is the only entity on this tunnel that doesn't hold any money, instead only represents the user accounts owned by other entities.

In the financial world, each financial institution maintains user accounts, which on registration for UPI will be given a Unique address, known as UPI Id. UPI Ids are like email address with the format of UserId@EntityId. The first part of this UPI Id signifies user identification while the later part represents the identification of the entity that maintains that user's account. Each UserId represents one and only one bank account that holds money.
UPI infrastructure allows one bank account to have any number of UPI Ids representing it on the UPI network. For ex. my ICICI account may have UPI Ids like manishjain@icici OR MyMobileNo@icici, manishjain@upi (when created on BHIM app), and anything else that is not taken up by others. However, I can't have my ICICI bank account with UPI id on 'HDFC' as entity Id.

Been there for 2 weeks as an android app, BHIM (BHarat Interface for Money) is a user interface through which users can interact with the UPI pipe without going through other financial institutions like banks. Earlier one had to log in to his/her bank's app to create a UPI ID, now one can create UPI IDs for any of his/her bank accounts with various banks by just logging on one app of BHIM. So BHIM is the much-coveted platform that UPI needed to spread. Therefore, I believe had this app been launched at the same time when UPI was launched, UPI would have been much more popular. 

So how BHIM is different from Mobile Wallets - the key difference is Mobile Wallets are closed loop system where payment transactions are possible within the network of the same mobile wallet, UPI allows financial transactions across various entities. As an illustration, although I can't send money from my PayTm account to my friend's Freecharge account, I can send money from my UPI ID with ICICI to my friend's UPI ID with HDFC, and the transfer will be instantaneous.

Another practical difference between Mobile wallets and UPI is that while mobile wallets take card network as the source of money, UPI only interacts with bank accounts for payments.

So now the ultimate question, will UPI succeed as much as Mobile wallets did? I believe yes, provided it is marketed rightly and its user interface becomes error free and user-friendly. Although mobile wallet companies, backed by huge private wealth, are fighting hard to protect and expand their space, they also understand that they can't fight UPI and BHIM, backed by the Government.
The most important reason why I believe that UPI / BHIM will grow its popularity, besides being an open system, is that it is free of any transaction fee, either for merchants or consumers, making it the cash-equivalent for the day-to-day transactions, however, with full traceability.

So if NPCI markets it properly and resolves all outstanding technical & user experience issues, BHIM can help India realize a full potential of India's digital economy.

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