The Spectacular Transformation: How UPI Is Revolutionizing India's Payment Industry

The Unified Payments Interface (UPI) has achieved remarkable growth, surpassing 9 billion monthly transactions in May 2023, with peer-to-merchant payments leading the way. UPI's success can be attributed to its instant payment capabilities, seamless user experience, and versatility in catering to various use-cases. This transformative impact has not only reshaped India's digital payments landscape but has also positioned the country as a leader in this domain.

The monthly volume growth of UPI's peer-to-merchant (P2M) payments has consistently outpaced that of peer-to-peer (P2P) payments. In May 2023, P2M payments accounted for 57% of the total monthly UPI transaction volume. UPI has become the preferred mode of digital payment, representing over 75% of all digital payments made in the country, despite being in use for only seven years.

One of the key drivers of UPI's growth is its expanding set of account types, accommodating savings accounts, current accounts, wallets, prepaid cards, and even Rupay Credit Card accounts and credit lines hosted by banks. This has broadened the use-cases for UPI, attracting further adoption. The ability to offer free transactions for a vast majority of users has also contributed to its popularity.

Stringent regulations imposed on digital wallet accounts in the past compelled payment apps to pivot towards UPI as the preferred payment method. The large user bases of platforms like PhonePe, Google Pay, and Paytm played a significant role in accelerating UPI's growth. UPI's success can be attributed to its value proposition, combining the power of instant payments with an excellent end-user experience. Its QR-code-based scan-and-pay capabilities have particularly boosted its popularity for merchant payments.

Projections suggest that UPI will record 1 billion transactions per day by FY 2026–2027. The government has been actively supporting digital transactions through UPI, increasing financial incentives for acquiring banks. UPI's growth has not only displaced cash payments but also affected other digital payment methods, such as debit cards and prepaid wallets.

A key aspect of UPI's design is the freedom for customers to choose their preferred payment app, regardless of the bank hosting their account. This has allowed super-apps to emerge, offering a range of services beyond payments. The government's Jan Dhan Yojana and similar initiatives have played a crucial role in expanding financial inclusion, with UPI serving as a force multiplier in democratising payments.

The success of UPI domestically has paved the way for its international expansion, enabling Indian diaspora and travelers to use UPI as a payment mechanism in countries such as Singapore, the UAE, Mauritius, Oman, and Indonesia. UPI's standards and technology are also being adopted by other countries to establish in-country instant payment systems.

From its humble beginnings, UPI's phenomenal adoption and acceptance have had a transformative impact on citizens, consumers, merchants, and the broader banking and payments ecosystem. With increasing smartphone penetration and growing rural adoption, UPI's usage growth is expected to continue. The National Payments Corporation of India (NPCI) has played a crucial role in nurturing UPI's growth, making it one of the most significant achievements of the current administration.