Retail Payment Instruments (Cards, ATMs, UPI etc.)

Modern retail banking extends beyond deposits and loans to payment instruments and channels that allow customers to use their money conveniently. Retail payments cover everyday transactions such as cash withdrawals, card payments, and digital fund transfers. Key components include payment cards, ATMs, UPI, and electronic transfer systems.

Payment Cards (Debit, Credit, and Prepaid Cards)

Payment cards are physical or virtual cards issued by banks or authorized institutions that enable payments and cash withdrawals. The three main types are Debit Cards, Credit Cards, and Prepaid Cards.

1. Debit Cards

A debit card is linked directly to a customer’s bank account. Payments or withdrawals are debited from the account balance almost immediately.
Key features:

• Usage: ATM cash withdrawal, balance inquiry, POS payments, contactless tap-and-pay, and online transactions with OTP/PIN.
• No credit involved: Spending limited to available account balance.
• Fees: Usually free or low annual fee; ATM charges may apply beyond free limits.
• Networks: Operate on RuPay, Visa, or Mastercard.
• Security: EMV chip-based, PIN/OTP authentication.
• Variants: Contactless cards, premium debit cards with higher limits and added benefits.

2. Credit Cards

A credit card provides a revolving credit line, allowing users to spend first and repay later.
Key features:

• Credit limit: Set by bank based on income and credit score.
• Billing cycle: Monthly statement; full payment by due date gives interest-free credit.
• Interest & charges: If unpaid, interest is high (≈2.5–3.5% per month), plus late fees and cash withdrawal charges.
• Rewards: Cashback, reward points, airline miles, lounge access, and other perks.
• Eligibility: Requires income proof/credit history; secured cards available for beginners.
• Credit score impact: Timely payment improves score; defaults/high utilization hurt it.
• Security: EMV chip, PIN, OTP; RBI guidelines limit customer liability if fraud is reported promptly.

3. Prepaid Cards

A prepaid card is loaded with money in advance and used until the balance is exhausted. It is neither a bank account nor a credit facility.
Key features:

• Preloaded value: Spend only the loaded amount.
• Types: Gift cards, travel forex cards, payroll/expense cards, wallet cards.
• Reloadable or one-time use: Depends on product.
• No interest or credit.
• Usage: Accepted on card networks like RuPay, Visa, or Mastercard.
• KYC norms: RBI prescribes limits based on minimum or full KYC.
• Use cases: Gifting, controlled spending, foreign travel, corporate expenses.

Card Networks & Innovations

India’s indigenous card network is National Payments Corporation of India (NPCI), which operates RuPay.

• RuPay debit cards are widely issued, including under Jan Dhan accounts.
• RuPay Credit Cards can now be linked to UPI, enabling credit-card-based UPI payments.
• Contactless (NFC) cards allow tap-and-go payments up to ₹5,000 without PIN, as permitted by the Reserve Bank of India (subject to limits).

International networks like Visa and Mastercard provide wider global acceptance.

Automated Teller Machines (ATMs)

An ATM is a self-service electronic banking outlet that enables customers to perform basic transactions without a branch teller, offering 24×7 access to cash and services.

Basic Functions of ATMs

• Cash withdrawal using debit/ATM card and PIN (within daily limits).
• Balance inquiry, mini statement, PIN change.
• Fund transfers between own accounts (at some ATMs).
• Cash deposits via Cash Deposit Machines (CDMs) or cash recyclers.
• Some ATMs support cheque deposits, bill payments, passbook updates, or service requests.

Types of ATMs (Ownership/Operation)

• Bank-Owned ATMs Set up and operated by banks; may be on-site (at branches) or off-site.
• White Label ATMs (WLAs): Operated by non-bank entities authorized by RBI; no bank branding. Serve customers of all banks. Example: Tata Indicash. Purpose: expand ATM reach, especially in under-served areas.
• Brown Label ATMs: Hardware/lease managed by a service provider; cash management and network by a sponsor bank. ATM carries the bank’s branding—outsourced operations, bank-facing customer experience.

ATM Network & Interbank Use

• All ATMs are interoperable via National Payments Corporation of India (NPCI)’s National Financial Switch (NFS) and card networks (RuPay, Visa, Mastercard).
  • Free transaction limits (RBI guidelines):
  • Own bank ATMs: at least 5 free transactions/month.
  • Other bank ATMs: 3 free in metros; 5 free in non-metros.
• Beyond limits, banks may charge (commonly ~₹20 + GST per transaction).

Security Measures

• PIN authentication; customers should shield keypad.
• CCTV, guards at busy sites, tamper-evident hardware.
• EMV chip cards reduce skimming risk.
• Additional controls encouraged by Reserve Bank of India: OTPs for high-value/night withdrawals (bank-specific), card controls via apps (on/off, limits).

Cash Management & Uptime

• Cash replenishment by banks or cash-management agencies under strict security.
• RBI prescribes uptime norms and penalties for prolonged cash-out.
• Anti-theft features like ink-staining cassettes are used.

Micro ATMs

• Deployed in rural/remote areas via Bank Mitrs (BCs).
• Handheld devices enabling withdrawals/deposits using debit card or Aadhaar.
• Operate on AEPS for interoperable transactions—expands basic ATM services without full machines.

Evolution of ATMs

• From cash dispensers to CDMs, cash recyclers, bill pay, passbook updates.
• Accessibility features: talking ATMs, Braille/audio guidance.
• Cardless Cash Withdrawal (emerging): withdraw using app/UPI-generated code or OTP—reduces card-skimming risk.

Unified Payments Interface (UPI)

The Unified Payments Interface (UPI) is a real-time digital payment system that enables instant, 24×7 fund transfers between bank accounts using a mobile phone. It was launched in 2016 by the National Payments Corporation of India (NPCI) under the guidance of the Reserve Bank of India. UPI has become the backbone of India’s retail digital payments ecosystem due to its simplicity, speed, and universal accessibility.

How UPI Works

UPI links a user’s bank account to a mobile application and allows money transfers using simple identifiers such as a Virtual Payment Address (VPA), QR code, or mobile number. Transactions are authorised using a UPI PIN and are processed instantly over the IMPS infrastructure, enabling real-time inter-bank settlement. Once registered and authenticated, users can send or receive money within seconds without sharing bank account details.

Key Features and Benefits

UPI operates round the clock, including holidays, making it more convenient than traditional electronic payment systems. It is highly user-friendly, as users do not need to remember account numbers or IFSC codes. A single UPI app can link multiple bank accounts, allowing flexibility in choosing the account for each transaction.
UPI supports both person-to-person (P2P) transfers and person-to-merchant (P2M) payments, including in-store QR code payments and online transactions. The collect request feature allows a payee to initiate a payment request, which the payer authorises, reducing errors and improving ease of payment.

Security and Cost

UPI follows RBI-mandated two-factor authentication, combining device binding with a UPI PIN. Actual bank account details are not shared during transactions, enhancing security. While the system itself is secure, users must remain cautious of social engineering frauds, such as approving unknown collect requests or sharing their PIN. Importantly, UPI transactions are free for consumers, which has significantly accelerated adoption across all sections of society.

Adoption and Impact

UPI processes billions of transactions every month and is widely used across urban and rural India. From large retail chains to small street vendors, UPI has enabled digital payments through simple QR codes, reducing dependence on cash and promoting financial inclusion.

Recent Innovations in UPI

UPI has continuously evolved with new features. UPI 2.0 introduced facilities such as overdraft account linking, one-time mandates, and invoice-in-the-inbox. UPI AutoPay enables recurring payments for subscriptions and EMIs.
UPI Lite allows small-value transactions (up to ₹200) using an on-device balance, improving speed and reliability in low-connectivity situations. UPI 123Pay extends UPI services to feature phone users through IVR and missed-call mechanisms. Additionally, RuPay credit cards can now be linked to UPI, allowing payments using credit through the UPI interface.

International Expansion

UPI is being integrated with international payment systems, such as Singapore’s PayNow, and is accepted in several countries including Bhutan and the UAE. This enables Indian users to make cross-border and overseas payments using UPI.

Other Retail Payment Systems

Apart from UPI, India has several retail payment systems that facilitate fund transfers, bill payments, bulk transactions, and cashless disbursements. Some are legacy systems that remain highly relevant, while others complement UPI for specific use cases. Together, they form a robust and interoperable payment ecosystem.

NEFT (National Electronic Funds Transfer)

NEFT is a nationwide electronic fund transfer system operated by the Reserve Bank of India. It is commonly used for non-urgent bank-to-bank transfers by individuals and businesses. NEFT transactions are processed in half-hourly batches, but since December 2019, NEFT operates 24×7, including weekends and holidays.
There is no minimum or maximum transaction limit under NEFT. Funds usually get credited within the next batch cycle, making it slower than IMPS or UPI but suitable for routine transfers and scheduled payments. RBI has waived NEFT charges for savings account customers for online transactions, encouraging digital adoption.

RTGS (Real Time Gross Settlement)

RTGS, also operated by the RBI, is designed for high-value, time-critical payments. “Real time” means transactions are settled individually without batching, and “gross” means each transaction is settled one-by-one with finality.
RTGS has a minimum transaction value of ₹2 lakh and no upper limit. It has been available 24×7 since 2020. Due to its immediacy and irrevocability, RTGS is typically used for large payments such as property purchases or corporate transfers.

IMPS (Immediate Payment Service)

IMPS is a real-time interbank fund transfer system operated by the National Payments Corporation of India (NPCI). Introduced around 2010, it was among the world’s first 24×7 instant payment systems.
IMPS enables instant transfers at any time, using account number + IFSC, mobile number + MMID, or net/mobile banking interfaces. The transaction limit has been enhanced to ₹5 lakh per transaction. IMPS is especially useful when immediate transfer is needed and UPI is unavailable. Notably, UPI transactions internally ride on the IMPS settlement rails.

AEPS (Aadhaar Enabled Payment System)

AEPS, operated by NPCI, enables basic banking transactions using Aadhaar authentication through Business Correspondents (Bank Mitrs) equipped with micro-ATMs. Customers can perform cash withdrawals, deposits, balance inquiries, and mini statements by verifying their fingerprint or iris.
AEPS plays a crucial role in financial inclusion, especially in rural and remote areas, as it does not require cards, smartphones, or knowledge of account numbers. Transactions are subject to limits to prevent misuse.

BBPS (Bharat Bill Payment System)

The Bharat Bill Payment System (BBPS) is an interoperable bill payment platform operated by NPCI. It allows customers to pay utility and recurring bills—such as electricity, water, gas, mobile, DTH, and increasingly education fees and municipal taxes—through a single, standardized system.
BBPS works across channels: bank apps, internet banking, digital wallets, and even physical outlets. It ensures instant confirmation, standardized receipts, and a common grievance redressal mechanism, making bill payments simpler and more reliable.

NACH (National Automated Clearing House)

NACH, run by NPCI, is the modern replacement for ECS and is used for bulk and recurring transactions. It operates in batch mode and is not real-time.
NACH has two major uses. Direct Credit is used for bulk payouts such as salaries, pensions, dividends, and subsidies. Direct Debit is used for recurring collections like EMIs, insurance premiums, SIPs, and utility bills, based on a one-time mandate (physical or e-mandate). NACH is the backbone of automated payments in retail banking.

Cheques and Cheque Truncation System (CTS)

Although digital payments dominate, cheques are still used for certain retail transactions. Under the Cheque Truncation System (CTS), physical movement of cheques is eliminated. Instead, the cheque is scanned and its electronic image is used for clearing.
CTS has been implemented pan-India and has reduced clearing time to T+1 working day. To enhance security, RBI introduced the Positive Pay System for high-value cheques (₹5 lakh and above), requiring cheque details to be pre-confirmed by the issuer.

e-RUPI (Prepaid Digital Voucher)

e-RUPI, launched in 2021 by NPCI, is a purpose-specific prepaid digital voucher delivered via SMS or QR code. It does not require a bank account, card, or mobile app for redemption.
e-RUPI is mainly used for targeted welfare payments, ensuring funds are used only for the intended purpose (such as healthcare or subsidies). It acts like a one-time prepaid voucher, enhancing transparency and reducing leakage.

Digital Rupee (CBDC – Retail)

The Retail Digital Rupee (e₹-R) is a Central Bank Digital Currency (CBDC) issued by the RBI and currently under pilot testing since late 2022. It represents legal tender in digital form, equivalent to physical cash.
Users can hold e₹-R in a digital wallet and make peer-to-peer or merchant payments via QR codes. Unlike bank deposits, CBDC carries no credit risk, as it is central bank money. It is expected to complement, not replace, existing payment systems.