Previous Year Question
Which of the following is a most likely consequence of implementing the Unified Payments Interface?
Mobile wallets will not be necessary for online payments.
Digital currency will totally replace physical currency in about two decades.
FDI inflows will drastically increase.
Direct transfer of subsidies to poor people will become very effective.
Correct Answer: A
Detailed Solution
The Unified Payments Interface, or UPI, is an instant-payment system developed by NPCI and operated within the payment-system framework regulated by the RBI. It allows a customer to make payments directly from a bank account without necessarily maintaining a separate stored-value mobile wallet.
Option (a) is correct.
Under a conventional prepaid mobile wallet, the user ordinarily loads money into the wallet before making a payment. The transaction is completed from this preloaded balance.
UPI, in contrast, transfers funds directly between the bank accounts of the payer and recipient. A Virtual Payment Address, mobile number, QR Code or another permitted identifier may be used. The customer need not enter the bank-account number and IFSC for each payment.
UPI facilitates:
person-to-person and person-to-merchant payments;
instant bank-to-bank fund transfers;
making and requesting payments;
QR Code-based payments;
use of multiple bank accounts through one application; and
round-the-clock payment services.
A separate stored-value mobile wallet consequently becomes unnecessary for making online payments. This does not mean that mobile wallets cease to exist; they may continue to serve particular purposes.
Option (b) is incorrect.
UPI is a mechanism for digitally transferring bank deposits; it is not itself a sovereign digital currency. Its implementation does not establish that physical currency will completely disappear within a specified period.
Option (c) is incorrect.
UPI improves the efficiency of domestic payments, but FDI inflows depend on factors such as market size, economic growth, policy, regulation, taxation and the investment environment. A drastic increase in FDI is not its direct or most likely consequence.
Option (d) is incorrect.
Direct Benefit Transfer requires beneficiary identification, eligibility, a bank account and a governmental payment arrangement. UPI may facilitate the beneficiary’s use of funds after receipt, but effective subsidy transfer is not the primary or inevitable consequence of implementing UPI.