Unified Payments Interface (UPI)

GS III-Economy

Benefits of UPI

Promotes Financial Inclusion: The number of banks integrated with UPI has expanded significantly from 21 to 399 (State of Digital Economy Report).

Enhanced Transaction Efficiency: UPI enables seamless, round-the-clock transactions, eliminating time constraints.

Support for Entrepreneurs: The platform facilitates business growth by reducing dependency on physical cash, making transactions more convenient for startups and small businesses.

Greater Transparency: Digital payments via UPI offer better traceability and accountability, reducing financial discrepancies.

Rise in Consumer Spending: As digital payment adoption increases, spending habits also shift. For instance, the daily average transaction value through UPI stands at approximately ₹66,950 crores.

Challenges in UPI Adoption

Limited Infrastructure: Only 15% of rural households in India have access to an internet connection (India Inequality Report, 2022).

Digital Literacy Barriers: As per the India Inequality Report (2022), only 38% of households in India possess digital literacy, making it difficult for many to adopt UPI.

Security Vulnerabilities: Cases of digital payment fraud increased from 9,046 to 36,075 in 2023-24 (RBI), raising concerns over cybersecurity.

Regulatory Constraints: The National Payments Corporation of India (NPCI) has imposed a cap of ₹1 lakh per transaction and a daily limit of 20 transactions, which may restrict high-value users.

Merchant Resistance: A considerable number of small-town and rural merchants are still hesitant to accept UPI payments due to lack of awareness or digital payment infrastructure.

Way Forward

Expanding Payment Acceptance Infrastructure: Deploying additional mobile Point of Sale (mPOS) systems to encourage cashless transactions.

Technological Upgradation: Enhancing UPI’s backend infrastructure to accommodate increasing transaction volumes and ensure uninterrupted service.

Merchant Incentives: Introducing schemes that encourage small businesses to adopt UPI as a payment mode.

24/7 Customer Assistance: Strengthening customer support mechanisms to resolve transaction-related issues promptly.

Bank-Fintech Collaboration: Promoting partnerships between traditional banks and fintech firms to drive innovative digital payment solutions.

Global UPI Expansion: Facilitating cross-border UPI payments to increase its international acceptance.