UPI Plug-in, a revolutionary solution introduced by the National Payments Corporation of India (NPCI) last year is slowly making its mark in the world of digital transactions
This innovative tool, also referred to as a merchant software development kit (SDK), helps online businesses add a virtual payment address. In essence, with this technology, merchants and consumers can transact directly without a third party app like Google Pay or Phone Pe.
Understanding UPI Plug-in: How It Works?
In July 2022, NPCI introduced the UPI Plug-in service. This service allowed banks to integrate their applications with the merchants directly and accept payments.
But as merchants collaborate with different payment gateways like Paytm, Razorpay, and Juspay, a situation emerged where these payment gateway firms had to integrate their apps with banks. To address this, these payment gateway firms began partnering with banks and NPCI to launch various UPI Plug-in SDKs.
For instance, Razorpay on May 30, 2023 unveiled its software plug-in named Turbo UPI. This plug-in was integrated with Razorpay’s partner merchants, such as online travel aggregators Ixigo and Trainman.
Now, consider a scenario where a customer uses the Ixigo app to book a flight and selects UPI as the payment method.
Traditionally, this process would redirect the customer to an UPI app like Google Pay or PhonePe. However, with the adoption of the UPI Plug-in, as Ixigo has integrated this solution, the payment can occur within the Ixigo app itself, thus bypassing the need for a separate UPI app.
Many payment gateway firms which launched UPI SDKs claimed the move will minimise payment failures and expedite transactions.
UPI Plug-in: Two-Step Process
This is how the system works.
The customer has to select a UPI account on the merchant’s payment page and tap on the pay button.
The customer will then be redirected to the MPIN page, which is now embedded within the UPI Plug-in within the merchant application. Here, the customer will enter the PIN and clicks on submit.
If the transaction is successful, the customer will be redirected to the merchant application’s order confirmation page.
Third Party Apps Stare At Potential Market Loss
UPI third party apps like PhonePe and Google Pay could potentially lose a significant market share due to the adoption of the UPI plug-in feature by merchants.
Rahul Chari, co-founder and CTO of PhonePe said in a recent blog post that the UPI Plug-in model would place additional burden on the merchants, essentially diverting their attention from essential business operations.
For the customers also, it could be time consuming, he said.
According to Chari, when a customer uses a UPI Plug-in route with a merchant for the first time, the merchant app will first seek permission to send an SMS (to verify the user’s phone number). Then, it would proceed to device registration/binding, and lastly, present a list of the user’s linked accounts, from which the customer must choose from. Chari said that if these steps are repeated for various merchants, it could be time consuming.
Safety Aspects
According to an NPCI release, the UPI Plug-in will restrict the merchant’s app from accessing customer sensitive data, except what’s essential for dispute resolution via UPI Help (ODR) related to transactions made using the Partner App.
The merchant’s app is also prohibited from sharing any UPI transaction data without prior consent from the Sponsor PSP Bank and NPCI.
The sponsor PSP bank will hold the responsibility of on-boarding partner apps, ensuring compliance, and shall be fully liable for all actions and activities of its partner apps, NPCI said in a release.
Essentially, this model will shift the responsibility from the payment apps to the sponsor bank.
