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The growth of digital payments in India has been significant, especially since the demonetization drive in November 2016. According to the Payment and Settlement Act of 2007, a digital payment refers to any “electronic fund transfer” initiated by a person through authorization or instructions to a bank, involving various forms of payment, including point-of-sale transactions, ATM withdrawals, online payments, and card transactions.

In 2014, the Reserve Bank of India (RBI) released a four-year vision statement to create a safe, efficient, accessible, inclusive, interoperable, and authorized payment and settlement system. This initiative also supported the Green Initiative aimed at reducing paper use in the domestic payments market. As a part of this vision, the Unified Payments Interface (UPI) was launched in 2016 for public use.

UPI is a retail electronic clearing system that consolidates multiple bank accounts into a single mobile application of any participating bank. It integrates various banking features, such as seamless fund routing and merchant payments, into a unified platform. UPI also supports “Peer to Peer” collection requests, which can be scheduled and paid at the user’s convenience.

The digital payment ecosystem in India, particularly UPI, has evolved rapidly over the years, driven by advancements in information and communication technology and aligned with RBI’s vision. The establishment of the National Payments Corporation of India (NPCI) in 2008 marked a key milestone. As of November 2024, UPI has 637 participating banks, a significant leap from just 61 banks in November 2017.

Growth in UPI Transactions

A closer look at the transaction data reveals impressive growth. From November 2017 to November 2024, the number of participating banks increased tenfold, and UPI transaction volumes have grown substantially. In November 2024, UPI transactions totaled ₹21.55 lakh crore, compared to just ₹9,669 crore in November 2017. The compounded annual growth rate (CAGR) for transaction volume through UPI stands at 87%, while its value has grown by 97%. This surge reflects the growing adoption of UPI in micro-retailing, with smaller ticket-size payments now being processed through UPI due to its convenience and adaptability.

Advantages of UPI

UPI offers numerous advantages over traditional payment methods. It eliminates the need for carrying cash, which is prone to loss and damage, and reduces the risk of short changing by merchants, as exact amounts can be paid electronically. UPI also provides a safer and more efficient way to process transactions, benefiting both consumers and merchants.

As of now, there are approximately 350 million active UPI users in India, with over 340 million QR codes deployed at merchant locations for seamless payments. The UPI ecosystem includes over 77 mobile applications, such as Google Pay, WhatsApp, Amazon Pay, Paytm, PhonePe, BHIM, MobiKwik, and Airtel Pay, along with more than

600 integrated banks. The person-to-merchant (P2M) transactions now account for roughly 62% of total UPI transactions, with PhonePe, Google Pay, and Paytm leading the charge in transaction value.

Government Support and Benefits to Stakeholders

The UPI ecosystem has received constant support from government agencies like the RBI, SEBI, and NPCI. This collaboration has fostered a more inclusive financial ecosystem, enabling instant, 24/7 transactions at virtually no cost. The system benefits: Consumers, by providing easy access to a wide range of financial services, from high-value payments to micro-transactions.

Merchants, by simplifying payment collection, reducing the need for cash handling, and increasing customer trust. Payment Service Providers (PSPs), who benefit from the growing volume of transactions and can innovate on top of the UPI framework.

Security and Fraud Prevention

While digital payments are susceptible to fraud, UPI’s ecosystem is fortified with multiple layers of security. These include device and mobile number binding, a one-time password (OTP) authentication, and a UPI PIN for transaction authentication. Despite these safeguards, incidents of fraud can occur due to social engineering tactics, and the NPCI and banks continue to run extensive fraud awareness campaigns.

The Future of UPI

The future of UPI looks promising, with numerous developments underway. UPI has already been integrated into the public issue process by SEBI, where UPI ID and PIN can be used for blocking funds during public offerings. Additionally, RBI has authorized the linking of credit cards with UPI, enhancing the convenience of credit card transactions, especially for smaller payments.

Moreover, UPI has expanded internationally with the introduction of UPI One World for non-resident Indians (NRIs) and foreign nationals visiting India. After verifying documents at an issuer counter, international users can load foreign currency into their UPI wallets and make payments at merchant locations. Similarly, Indian tourists can soon make payments in INR while visiting countries like Bhutan, Nepal, the UAE, Singapore, and France.

To make UPI even more user-friendly, NPCI has introduced UPI Lite, which gained popularity due to its ease of use for small-value transactions. The limit for UPI Lite wallets was increased from ₹2,000 to ₹5,000 in October 2024, with the per-transaction limit rising from ₹500 to ₹1,000. The auto top-up feature is also expected to make daily transactions even more convenient.

Looking Ahead

UPI’s future looks bright, with projections estimating it could reach 1 billion transactions per day by 2026-27. This growth will likely lead to further disruptions in India’s payment ecosystem, making UPI an even more integral part of the country’s financial infrastructure.