Unified Payment Interface (UPI) Overview

Context: In July 2024, UPI transactions surpassed ₹20 trillion for the third consecutive month.

Benefits:

• Financial Inclusion: The number of banks involved has grown from 21 to 399, according to the State of Digital Economy Report.
• Enhanced Transaction Efficiency: UPI facilitates 24/7 transactions, offering round-the-clock service.
• Support for Entrepreneurs: The ease of digital transactions reduces the dependency on cash, enabling more entrepreneurs to start and expand their businesses.
• Transparency: UPI-based digital transactions are more transparent, making them easier to track and audit.
• Increased Consumer Spending: As users gain confidence in digital payments, consumer spending has risen, with daily transactions averaging around ₹66,950 crores through UPI.

Challenges:

• Infrastructure Gaps: As reported in the India Inequality Report 2022, only 15% of rural households have internet access.
• Digital Literacy: The same report indicates that digital literacy is present in only 38% of Indian households.
• Security Issues: There has been a significant rise in digital payment frauds, increasing from 9,046 to 36,075 cases in 2023-24 (RBI).
• Regulatory Constraints: The NPCI has set a cap of ₹1 lakh per transaction and limits users to 20 transactions per day.
• Merchant Acceptance: Many merchants in smaller towns and rural areas still do not accept UPI payments.

Way Forward:

• Expand Payment Acceptance Points: Increase the deployment of mobile Point of Sale systems.
• Technical Enhancements: Upgrade UPI infrastructure to manage high transaction volumes and maintain system reliability.
• Incentivize Merchant Acceptance: Encourage merchants to accept UPI payments.
• Round-the-Clock Customer Support: Provide reliable and accessible customer service for UPI users.
• Foster Innovation through Partnerships: Promote collaboration between traditional banks and fintech companies for innovative, seamless transaction solutions.
• Boost International Transactions: Expand the number of countries that accept UPI transactions.