India's UPI: A world-class leading digital payments system

'India's UPI: A world-class leading digital payments system'

If any Indian innovation has grabbed global headlines in recent years, it has undoubtedly been the UPI (Unified Payments Interface) payment system. Today, more than 40 percent of total payments made in India are made through digital means. UPI has the largest share among these digital payments, used by more than 30 crore individuals and more than five crore merchants.

UPI is used at all levels, from street vendors to large shopping malls. According to the data of the year 2022, today India is the country with the highest number of digital transactions in the world. India's share in digital transactions globally is about 46 percent. After India come countries like Brazil, China, Thailand and South Korea. Growing from just one million transactions in 2016, UPI has now crossed the historic figure of 10 billion (1,000 crore) transactions.

The biggest change that has come from UPI is related to the way Indians transact. According to Global Data Research, the share of cash in the total volume of transactions was 90 percent in 2017, which has now come down to less than 60 percent. Within six months of demonetization of Rs 500 and Rs 1000 notes in 2016, the total transaction volume on UPI increased from 2.9 million to 72 million. By the end of 2017, UPI transactions grew by 900 percent compared to the previous year and have continued their growth momentum since then.

UPI is incredibly user-friendly. It allows users to make payments in a simple way using Virtual Payment Address (VPA), eliminating the need to share sensitive bank details. The process is as simple as sending a text message on a smartphone. Apart from providing convenience, its impact has also contributed to financial inclusion, transparency and reduction in the informal economy. The growth of UPI has not only largely reduced the use of cash for payments, but has also replaced other methods of digital payments. For example, debit card usage for merchant payments is declining year-on-year, and UPI has also changed the way prepaid wallets are accessed today. As UPI continues to expand and transform, it could play an even more important role in shaping India's digital future.

However, the success of the digital payment system lies not only in the strength of the digital payment infrastructure but also in the practicality that encouraged people to move from cash to digital. Like any behavioral change, it must be based on the credibility and accessibility of the system through knowledge-based innovations that ensure relevance to its core group. These include small voice boxes and interesting new innovations provided by payment apps, where a Siri-like voice tells the amount received instantly with each payment by QR code. This has helped bridge the distrust between small traders and street vendors, who were long accustomed to cash transactions.

Another key function of the design is to provide the customer with a choice of service provider for UPI, regardless of which bank the customer has his account with. Right to choice means customers can choose their preferred payment app to access UPI for payments. Linking RuPay Credit Card with UPI is a revolutionary step in the digital payments landscape, giving consumers the benefits of both credit cards and UPI. By availing the short-term credit facility offered by credit cards for UPI transactions, cardholders can now initiate payments using their credit lines instead of withdrawing funds from their savings accounts.

India's strong digital payments ecosystem is attracting attention from across the world. Following the success of UPI locally, 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. NIPL and the Reserve Bank of India (RBI) have since signed agreements with financial institutions in more than 30 countries to expand UPI-based transactions across India's borders. Recently, France, UAE and Sri Lanka also joined the UPI movement. The entry of UPI in France has proved important, thanks to which

It is getting help in establishing its foothold in Europe for the first time. Prime Minister Shri Modi has advocated the expansion of UPI in the BRICS grouping, which now has six new member countries. After a humble beginning in 2016, today the unprecedented use and adoption of UPI has become a story in itself, unmatched in terms of its scope and impact.