The Success Story of UPI and the Cashless Ecosystem in India

In 2017, few MPs questioned the Indian government’s model for digital infrastructure and its intention to establish a cashless ecosystem in India 2023. They mocked and stated it as unadoptable for Indians especially the villagers. Today, there are 36 crore transactions daily worth Rs. 6.27 lakh crore in February 2023 witnessing a significant rise of 24 crore transactions in February 2023. In the year 2022, a total of 126 lakh crore were transferred through UPI. Its transactions peaked in March 2023, where it clocked in 8.98 billion transactions worth Rs. 14.08 lakh crores with 414 banks live on the interface. From a smallest tea vendor in the first village of India in the hilly terrains to the vegetable vendor in cities, India has set up a model of cashless ecosystem in the world giving a befitting reply to those who once mocked it.

In the past 9 years, India has achieved an unprecedented growth and development in digital technological innovations as part of Make in India and Digital India programmes launched under the aegis of the Modi administration. One such innovation from the home which has made great strides in the Indian payments ecosystem has been the United Payment Interfaces (UPI). The institutionalisation of UPI as one stop service for all the types of financial transactions, in a simple and secure way has led to Indians adopting it in huge numbers. Various factors have contributed towards this outcome opening up a vast untapped Indian market for digital connectivity and financial inclusion of the populace in the formal economic ecosystem.

UPI can simply be described as a service which makes a consumer’s account portable. A real time payments platform, it allows users to instantly pay and receive payments by merging all the bank accounts, several banking features, and seamless fund routing into one hood. As a bank owned and governed public good, it was tailor made to power multiple banks in a single application offering interoperability, making it an attractive option.

UPI under its umbrella supports various services like Peer-to-Peer (P2P) and Peer-to-Merchant (P2M) financial transactions and other features like real-time balance check, transaction history etc. The ingenious of UPI lies in how it furnishes a unique identity known as Virtual Payment Address (VPA) to every consumer for financial transactions without going through the difficulty of providing card or account details, assuring a fast and secured form of transaction, with an end-to-end data encryption feature. These attributes of UPI have made it possible for millions of kirana store owners, merchants in mandis, street hawkers, vendors and their consumers to pay and receive money just by scanning a QR code making it a default habit.

Transitioning from a cash based economy to a cashless one necessitated an increase in internet users and smart phone users which stood around 15% and 20% in the country, in 2015. However, low cost 4G internet by private players due with the help of government policies and initiatives like BharatNet aided the democratization and adoption of internet facilities among the rural and disadvantaged sections of the population. This paved the way for Indian masses to embrace digital technologies and services at a faster pace. Demonitization in the same year proved to be another blessing in disguise for the digital transaction ecosystem, proving as a significant juncture in the transition of the Indian economy to a cashless one. Further, the pandemic made it imperative to millions of Indians to take up contactless-digital transactions. Thus,the above chain of events led to expansion in the share of UPI payments from 6% in 2016 to almost 84% of the share today, indicating that BHIM-UPI interface has become the most preferred mode of payment among Indians.

Inorder to intensify the digital payments system, government took various initiatives. Prime Minister Narendra Modi launched the BHIM-UPI App at the ‘DigiDhan Mela’ on December 31, 2016. Further, to better the reach of UPI, NPCI in 2017 routed towards an open door policy allowing fintech startups and giants to contribute in this space. Private players like Paytm, PhonePe, GooglePay, Whatsapp and Amazon since then have marched the way ahead accelerating the UPI adoption among consumers and merchants as well as increased the transaction volumes.

In 2022, more than 90% of transactions were carried out through these fintech platforms indicating their penetration in the Indian market. To up the ante, UPI 2.0 was launched by the National Payments Corporation of India (NPCI) in 2018, with a view to make life easier for merchants by facilitating in-app payments and reducing transaction costs compared to traditional payment modes, making it more merchant friendly. The other new upgrades in UPI 2.0 , targeting rural areas that have poor internet connectivity and limited smartphone access, such as UPI 123- allowing users to make payments through a missed call on the UPI number and UPI Lite- enables users to make small amounts (< ₹200/transaction) without using the internet.

Other initiatives like DigiDhan Mission have made significant strides in creating a digital infrastructure such as AEPS or Common Service Centers (CSCs). To further monitor digital payments usage, The National Informatics Centre (NIC), MEITy, has developed a DigiDhan Dashboard Application providing real time data on digital payments allowing users to track and monitor transaction usage across the country. Conducive to the above services, NPCI along with RBI launched ‘Digi Sathi’, an online helpline service for consumers to enquire about the various digital payment products and services.

The journey so far towards a cashless economic ecosystem has been monumental in every sense. According to recent reports, India will have around 1 billion smartphone users by year 2026 driving the internet usage in rural areas to around 900 million. This impressive development will drive the advancement of the digital payments ecosystem among every section of the society. A June 2022 report by BCG concluded that the digital payments industry in India is proceeding towards $10 trillion by the year 2026, making every 2 out of 3 payments in the country digital. With estimation of these developments, 70% of global real-time payments is predicted to be from India by 2026. This also underlines the importance that the central government’s efforts are playing in driving the UPI revolution.

The vision is not limited to domestic borders. The policy makers have already started to charter international landmarks with the UPI interface. In April 2020, NPCI institutionalized a subsidiary NPCI International Payments Lts (NIPL) to export it to foreign markets. Countries like Bhutan, Nepal, Cambodia, Singapore, Vietnam, UAE etc have started accepting UPI as a mode of payment with many working on integrating it in their own digital transaction system. France is expected to be the first European country to embrace UPI in its digital system. These developments mark the potential UPI carry to give competition to global giants like Mastercard and Visa through its fintech innovations and feasibility.

To nurture the cashless economy system, RBI has taken a step ahead and launched the digital rupee or India’s Central Bank Digital Currency (CBDCs), designating it as a legal tender in digital form. The UPI interface is anticipated to drive the CBDC adoption owing to its simplicity and ease of use, ensuring smooth transfer of financial benefits and increased financial inclusion.

While, both Japan and India want to boost digital cooperation by enabling real time fund transfer, Japan shows interest in joining UPI. In an interview with a media channel, Japan’s Digital Minister Kono Taro said, “We just had our G7 Digital Ministers’ meeting last month and we had our Indian Digital Minister Mr Vaishnaw join us and right now, Japan and India are trying to promote digital cooperation. We are now seriously thinking about joining the Indian UPI payments system and we are also contemplating how we can mutually recognise e-ID. Japan and India have to cooperate to increase interoperability.”

India is leading an unique revolution towards a cashless economic system through UPI. The momentum is with her and how she amplifies towards making this product reach international shores in the next 5 years. Ultimately, a home grown innovation bringing in the revolution in the digital payments ecosystem in the world is a true expression of New India’s aspirations in this Amrit Kaal.