Which mode of payment is better – NFC or UPI?

Scope, security, speed. Various factors must be considered when deciding which payment system to use.

Which mode of payment is better – NFC or UPI?

Over the last couple of years, India has made tremendous progress towards a cashless economy with the introduction of various digital payment options. NFC and UPI have emerged as the two most popular choices, and have played a significant role in keeping the retail consumption ecosystem going in these times of social distancing. Let’s see how the two contactless payment systems work, and when to use one over the other.

What is NFC?

Near Field Communication or NFC enabled wireless data transmission between devices that are physically close (usually around 4 cm). The NFC payment system uses radio frequency identification to create a contactless connection between two devices – the reader and the payment device – to complete a transaction almost instantaneously.

NFC technology can be accessed through preinstalled NFC-enabled smartphone apps such as Android Pay, Apple Pay, or Samsung Pay, as well as e-wallets with NFC payment service apps such as Google Pay, Paytm, Visa payWave, PayPal, etc. Once the app is unlocked, it allows customers to make ‘tap-and-pay’ purchases at the point-of-sales terminal. 

Simultaneously, all major banks have reworked their card payment systems to introduce NFC-enabled magnetic strip or chip cards that allow users to just tap their debit or credit card at the point-of-sales and make a contactless payment instead of the traditional practice of dipping or swiping, thereby eliminating the need for anyone else to handle the card.

Related: How Unified Payment Interface (UPI) can change the way you bank

What is UPI?

United Payments Interface or UPI is a mobile payment technology that allows you to conduct all basic banking transactions by simply using a virtual payment address (UPI ID) or your bank-registered mobile number.

Developed by the National Payments Corporation of India (NPCI) along with the RBI and Indian Banks Association (IBA), the UPI system uses the IMPS network to make a direct bank-to-bank transfer without having to remember (or disclose) any bank details such as your account number or the branch IFSC. 

In addition to using a bank-based UPI, users can also use UPI payment apps such as Google Pay, Paytm, Amazon Pay, PhonePe, FreeCharge, Mobikwik, etc.

Related: UPI: Here's what you must know about this new-age payment mode

Which payment system should you use?

Here is a quick look at the various features of both contactless transaction systems and which payment mode to opt for in what situation. 

  • Versatility: UPI can be used for payments and receipts with both individuals as well as businesses, whereas NFC is considered a passive system and can only be used to make merchant payments.
     
  • Scope: NFC operates within a very limited range, so it can be used only for in-person transactions. UPI, on the other hand, can be used for remote transactions as well.
     
  • Security: UPI requires multiple factor authorisation at the app level (app code) and payment level (UPI code). It is considered to be more secure than NFC, which only requires the phone and app to be unlocked or a physical payment card to be presented.
     
  • Speed: If you are in a hurry at a merchant store, NFC payments work best as they only take a few seconds. UPI transactions require you to feed and confirm the UPI ID of the payee/recipient, enter the amount, and authorise the transaction. which can take longer.
     
  • Payment limit: NFC can be used only to make small transactions up to Rs 5000, while the UPI payment limit is much higher at Rs 1 lakh. 

Do you know what are contactless credit cards and how do they work?

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