How UPI  Plugin works?

The National Payments Corporation of India (NPCI), which debuted the innovative UPI Plug-in last year, is gradually making its mark in the world of digital commerce.  

Online firms may establish a virtual payment address with the aid of this ground-breaking technology, also known as a merchant software development kit (SDK). Basically, this technology allows businesses and customers to do transactions directly without the use of a third party app like Google Pay or Phone Pe.

How to Understand UPI Plug-in: What Is It?

The UPI Plug-in service was introduced by NPCI in July 2022. Through this service, banks were able to receive payments and immediately interface their apps with those of the retailers.

However, as businesses worked with various payment gateways like Paytm, Razorpay, and Juspay, a need arose for these companies to interface their apps with banks. These payment gateway companies started working with banks and NPCI to offer various UPI Plug-in SDKs in order to solve this. 

For instance, Razorpay debuted their software plug-in called Turbo UPI on May 30, 2023. The online travel aggregators Ixigo and Trainman were integrated with this plug-in along with other Razorpay partner merchants. 

Now imagine a situation where a consumer books a flight using the Ixigo app and chooses UPI as the mode of payment.

The consumer would often be sent to a UPI app like Google Pay or PhonePe throughout this procedure. But now that Ixigo has adopted the UPI Plug-in and incorporated this solution, there is no longer a need for a separate UPI app because the payment may take place within the Ixigo app itself. 

Many payment gateway companies who introduced UPI SDKs said that doing so would reduce payment failures and speed up transactions.

Plug-in for UPI: Two-Step Process

The system operates in this manner.

On the merchant's payment page, the consumer must choose a UPI account before tapping the pay button.

The consumer will subsequently be sent to the MPIN page, which is now contained within the merchant application's UPI Plug-in. The consumer will input their PIN here and press the submit button.

The consumer will be forwarded to the order confirmation page of the merchant application if the transaction is successful.

Third-Party Apps Consider a Market Loss

The use of the UPI plug-in capability by retailers might result in major market share losses for UPI third party applications like PhonePe and Google Pay. 

In a recent blog post, Rahul Chari, co-founder and CTO of PhonePe, said that the UPI Plug-in approach will burden merchants more and ultimately take their focus away from crucial business activities.

It can take a lot of time for the clients as well, he noted.

According to Chari, the merchant app will initially ask permission to send an SMS (to authenticate the user's phone number) when a client uses a UPI Plug-in route with them for the first time. The process would then move on to device registration and binding before displaying a list of the user's associated accounts for the user to select from. If these processes are repeated for several merchants, according to Chari, it can take a while.

Safety Concerns

An NPCI press release states that the UPI Plug-in would prevent the merchant's app from accessing sensitive customer information other than what is required for UPI Help (ODR) related dispute resolution for transactions done using the Partner App.

Furthermore, without prior approval from the Sponsor PSP Bank and NPCI, the merchant's app is not permitted to share any UPI transaction data.

According to a statement from NPCI, the sponsor PSP bank will be in charge of onboarding partner applications, overseeing compliance, and holding full liability for all acts and activities of its partner apps.

In essence, this concept will transfer accountability from payment applications to sponsor banks.