What is a UPI switch? A guide for banks

What is a UPI switch?

A UPI switch is the software layer inside a bank that talks to NPCI's UPI network on one side and to the bank's core banking system, HSM and customer apps on the other. Every UPI payment that touches the bank's accounts passes through it.

The Unified Payments Interface (UPI) offers an architecture and a set of standard API specifications for online payments, and payments can be initiated by either the payer or the payee ^[1]. NPCI owns and operates UPI and provides transaction routing, processing and settlement ^[2]. NPCI launched UPI with member banks on 25 August 2016 ^[4], after a pilot that began on 11 April 2016 ^[5].

NPCI runs the central network, but each participating bank needs its own system to join it: the UPI switch. It keeps the connection to NPCI open, turns UPI messages into core banking postings, responds within NPCI's time limits and records each transaction for reconciliation.

• Connectivity: maintains the session with NPCI and exchanges UPI API messages.
• Issuer (remitter bank) processing: validates the customer's UPI PIN and debits the account.
• Acquirer (beneficiary bank) processing: credits incoming payments to the right account.
• PSP functions: registers customers, links accounts and manages virtual addresses for the bank's own UPI app.
• Exception handling: reversals, timeouts, status checks and complaint records.

How does a UPI transaction flow between the payer, NPCI and the payee bank?

A UPI payment can involve up to four parties: the payer's PSP, the payee's PSP, the remitter bank and the beneficiary bank, with NPCI in the middle routing the debit and credit requests.

NPCI's UPI procedural guidelines describe up to four transacting parties: two PSPs that act as interface providers for customers or merchants, and two banks acting as remitter and beneficiary bank ^[1]. The PSPs facilitate the transaction, and the actual debits and credits happen in the bank accounts ^[1].

1. The payer starts a payment in a PSP app using a virtual address, account number and IFSC, mobile number and MMID, or Aadhaar number ^[1].
2. The PIN is captured by NPCI libraries embedded in the app and encrypted using public key infrastructure. NPCI re-encrypts it for the issuing bank, which must decrypt it only inside a hardware security module (HSM) ^[1].
3. Where the payer's PSP and the remitter bank are different entities, NPCI sends a debit request to the remitter bank ^[1]. The bank's UPI switch validates the PIN and balance, debits the account and replies.
4. NPCI sends a credit request to the beneficiary bank, whose switch credits the payee's account and confirms ^[1].
5. Both PSPs are notified of the final status, and the customer sees the result in the app.

In a collect (pull) request, the payee asks for money. The payer must still authorise it in a PSP mobile app, where they receive the collect notification ^[1]. If the payer's PSP and remitter bank are the same entity, the bank can debit first and send NPCI a pre-approved transaction, and NPCI then processes only the credit leg ^[1].

What is a PSP bank and what is a sponsor bank in UPI?

A PSP is the RBI-regulated bank that provides the customer-facing UPI app and connects it to NPCI. A sponsor bank is a direct UPI member that brings a smaller bank (a sub-member) onto UPI through its own membership.

Under NPCI's 2016 procedural guidelines (version 1.5), a PSP must be a regulated entity under the Banking Regulation Act, 1949 and be authorised by RBI to provide mobile banking. It provides the app, which uses NPCI's UPI libraries ^[1]. A PSP must come on board as an issuer and cannot join only as an acquirer ^[1]. PSP banks handle user onboarding, authentication and account linking, while third-party app providers (TPAPs) participate in UPI through a PSP ^[2].

The same guidelines refer to sub-members that participate through a sponsor bank. A sub-member withdraws through its sponsor bank, and its daily transaction limit is added back to the sponsor member's overall limit ^[1]. Sub-members still need a way to post UPI transactions to their own accounts.

What is the difference between a UPI switch and an IMPS switch?

Both connect a bank to NPCI for real-time interbank transfers. An IMPS switch processes IMPS messages addressed by mobile number and MMID, account number and IFSC, or Aadhaar. A UPI switch processes UPI API requests, including virtual addresses, collect requests and PSP app registration.

IMPS is an instant, 24x7 interbank electronic fund transfer service that can process person-to-person, person-to-account and person-to-merchant remittances through mobile, internet and ATMs ^[3]. NPCI provides IMPS through its National Financial Switch, and participants need a valid banking or prepaid payment instrument licence from RBI ^[4]. The two systems are closely linked. NPCI's 2016 UPI guidelines settled UPI transactions through IMPS and pegged the UPI transaction limit to the IMPS limit ^[1].

What do P2A, P2P, P2U and P2M mean in IMPS?

They are IMPS transaction categories named after how the payment is addressed: P2P to a mobile number and MMID, P2A to an account number and IFSC, P2M to a merchant, and P2U, a further category a full IMPS switch must also support.

• P2P (person to person): the sender uses the beneficiary's mobile number and 7-digit MMID. Both parties must register their mobile numbers with their banks and get an MMID ^[3].
• P2A (person to account): the sender uses the beneficiary's account number and IFSC. It was added for cases where the beneficiary's mobile number is not registered with a bank ^[3].
• P2M (person to merchant): instant 24x7 payments to merchants or enterprises. They can be customer-initiated (push) or merchant-initiated (pull), where the customer enters their own mobile number, MMID and a bank-generated OTP ^[3].
• P2U: another IMPS message type. We could not find a public NPCI page that defines its current scope, so banks should confirm it against NPCI's current IMPS specifications when checking a switch's coverage.

IMPS also supports the Aadhaar Based Remittance Service (ABRS), where the remitter enters only the beneficiary's Aadhaar number, which acts as a financial address linked to an account ^[3]. For customers receiving money by account number and IFSC or by Aadhaar number, mobile banking registration is not required ^[3].

What should a bank evaluate when choosing a UPI or IMPS switch?

Check NPCI certification for the features you need, the full message and role coverage, core banking and HSM integration, exception handling and reconciliation, security controls, and how the system is operated and monitored.

• NPCI certification: which UPI and IMPS specification versions and features are certified, and how new NPCI circulars will be implemented and re-certified.
• Role coverage: issuer, acquirer and PSP for UPI; P2A, P2P, P2U and P2M for IMPS; collect requests and merchant payments.
• Core banking integration: real-time posting, handling of core system downtime, and the interfaces supported for your CBS.
• PIN and key handling: UPI requires the issuing bank to decrypt the PIN only inside an HSM ^[1]. Confirm HSM integration and key management.
• Exceptions: automatic reversal of failed debits, timeout and deemed-success handling, status enquiry and inward credit retries.
• Reconciliation and disputes: matching against NPCI settlement files and support for customer complaints raised through the app ^[1].
• Authentication rules: RBI requires two-factor authentication for mobile banking debits, with mPIN or a higher standard as one factor ^[6].
• Operations: NPCI session monitoring and auto log-on, alerts, capacity testing at your expected peak, disaster recovery and upgrade process.
• Membership model: direct member or sub-member through a sponsor bank, and what each means for the switch you need ^[1].

How LCode's UPI & IMPS Switch fits

LCode Technologies' Unified Payment Interface (UPI) & IMPS Switch combines IMPS and UPI on one platform. It connects to NPCI over a socket-based channel and includes a UPI Switch and PSP App that are Version 2.0 certified.

LCode launched its IMPS Switch in 2014 and its UPI application in 2016. The product provides:

• Support for all IMPS messages: P2A, P2P, P2U and P2M, for 24x7 interbank transfers from multiple channels.
• Communication with NPCI over a socket-based channel, with automatic log-on to the NPCI gateway.
• Handling of inward payments, and reversals in exception cases.
• UTR number storage for transactions generated from mobile banking.
• A UPI Switch and PSP App (Version 2.0 certified): pay to a mobile number, account and IFSC, or VPA.
• Collect requests to an alias or virtual address held with another PSP or bank, and auto-authorisation for regular payments.
• Merchant support: payment for purchases made in merchant apps, merchant profile creation, self-administration and reports.

Frequently asked questions