India's UPI : A global front-runner in digital payment systems

Press Information Bureau *

If there is one Indian innovation that has grabbed global headlines in recent years, it is undoubtedly the UPI (Unified Payments Interface) payments system. Today, more than 40% of all payments done in India are digital, with UPI having a lion’s share, used by over 30 crore individuals and over 5 crore merchants.

UPI is used at all levels from street vendors to large shopping malls. Today, among all countries in the world, India is the country with the highest digital transaction, accounting for nearly 46% share, as per the 2022 data. India is followed by Brazil, China, Thailand and South Korea. From just one million transactions in 2016, UPI has since crossed the landmark 10 billion (1,000 crores) transactions.

The greatest change that UPI has brought about is in the way Indians transact. According to Global Data research, cash transactions have declined from 90 per cent of the total volume in 2017 to less than 60 per cent.

Within six months after Rs 500 and Rs 1000 notes were phased out in 2016, the total transaction volume on UPI rose from 2.9 million to 72 million. By the end of 2017, UPI transactions had grown by 900 per cent compared to the previous year, and it has continued its growth trajectory ever since.

UPI is incredibly user-friendly. It allows users to make payments by simply using a Virtual Payment Address (VPA), eliminating the need to share sensitive bank details. The process is as simple as sending a text message on a smart phone. Its impact extends beyond convenience, contributing to financial inclusion, transparency, and the reduction of the informal economy.

UPI’s growth has not just led to the displacement of cash for payments in a significant way but also displaced other digital payment methods. For instance, the use of Debit Cards for merchant payments has been declining year on year, and UPI has also changed how prepaid wallets are accessed today. As UPI continues to evolve and innovate, it is likely to play an even more significant role in shaping India’s digital future.

The success of the digital payment system, however, lies not just in the robustness of the digital payment infrastructure but also in the behavioural nudge that encouraged people to switch from cash to digital. Like any behavioural change, it had to be based on trust and accessibility of the system through insightful innovations that ensure its relevance to its core group.

These include small and interesting innovations like small voice boxes provided by payment apps, where a Siri-like voice declares how much money has been instantly received with each payment by QR code. This has helped bridge mistrust among small merchants and street vendors, long used to cash transactions.

Another key design element has been to offer the customer a choice of the service provider for UPI, irrespective of in which bank the customer holds his account. The power of choice has meant that customers can choose their preferred payment apps to access UPI for payments.

The integration of RuPay credit cards with UPI marks a revolutionary step in the digital payments landscape, combining the advantages of both credit cards and UPI for consumers. By taking advantage of the short-term credit facility offered by credit cards for UPI transactions, cardholders can now initiate payments using their credit lines instead of drawing from their savings accounts.

India’s robust digital payment ecosystem is attracting worldwide attention. Following UPI’s local success, the National Payments Corporation of India (NPCI) set up an arm called NIPL (NPCI International Payments Limited) in 2020 to take the payments system outside the country.

Since then, NIPL and the Reserve Bank of India (RBI) have entered into agreements with financial entities in over 30 nations to expand UPI-based transactions beyond India’s borders. In the recent past, France, UAE and Sri Lanka have joined the UPI bandwagon.

UPI’s entry into France is significant, helping it get a foothold in Europe for the first time. PM Modi has pitched for UPI’s expansion into the BRICS grouping, which now has six new member states.

From a modest beginning in 2016, UPI’s phenomenal adoption and acceptance today is a one-of-a-kind story that is unmatched when it comes to its scale and impact.