In the ever-evolving landscape of financial technology, one innovation has managed to shine on the global stage: India's Unified Payments Interface, commonly known as UPI. UPI has become a beacon of India's technological prowess and financial inclusivity, redefining the way transactions are conducted and leaving an indelible mark on the world.
A Journey from Local Triumph to Global Dominance
When we think of UPI's prominence, it's easy to understand its significance through the words of India's Prime Minister, Narendra Modi, who, during the recently concluded BRICS meeting, proudly declared, "UPI is used at all levels from street vendors to large shopping malls. Today, among all countries in the world, India is the country with the highest digital transaction."
Indeed, UPI has become an integral part of India's growth story, transforming the way people transact. This transformation is the result of a technological revolution that began with its launch in April 2016. The National Payments Corporation of India (NPCI) orchestrated this visionary change, and the numbers tell a remarkable story. UPI started with a mere 1 million transactions in October 2016, and it has now surged past the staggering milestone of 10 billion transactions. What's more, in 2022-23, UPI accounted for an astounding 75 percent of the retail transaction volume, showcasing its unparalleled influence.
The Transformation of India's Financial Landscape
The most remarkable change brought about by UPI is the way Indians now conduct financial transactions. Global Data research reveals that cash transactions, once constituting 90 percent of the total volume in 2017, have significantly dwindled to less than 60 percent in 2021. UPI and other digital transaction systems have effectively occupied the space that cash once dominated.
Cash may still be the king, but UPI has carved a unique niche for itself in India's financial ecosystem.
What led to UPI's remarkable success in India? It can be attributed to a confluence of factors, including widespread smartphone adoption, government initiatives to expand access to bank accounts, and the affordability of data. This combination of factors made UPI an efficient and accessible payment alternative, resulting in substantial cost savings amounting to $12.6 billion and contributing a substantial $16.4 billion to the Indian economy in 2021.
The UPI Story: A Game-Changer for Digital Payments
The transformative journey of UPI gained significant momentum with the 2016 demonetization drive in India. In less than six months after the discontinuation of Rs 500 and Rs 1000 notes, UPI's total transactions surged from 2.9 million to an astonishing 72 million. The availability of affordable data and the proliferation of smartphones, combined with UPI's efficiency, led to this rapid rise in digital payments.
A pivotal moment in UPI's international recognition came on November 7, 2019, when tech giant Google wrote a letter to the US Federal Reserve, advocating for a faster digital payment settlement service. In the letter, Google narrated UPI's success story in India, attributing it to thoughtful planning and highlighting the collaborative efforts between the government,
technology, and financial services. The letter also noted how UPI's growth had encouraged Google to enter the payment system through Google Pay.
The Global Footprint of India's UPI
UPI's growing global footprint is more than just a testament to its success; it presents vast opportunities for India's burgeoning fintech sector. In 2022, the Indian fintech ecosystem attracted a staggering $4.8 billion in funding and is anticipated to burgeon into a $2 trillion industry by 2030. This global expansion offers the Indian fintech sector an opportunity to innovate and establish new business use cases, thereby playing a pivotal role in driving adoption.
The widespread acceptance of UPI in India is undeniable. It has become a ubiquitous means of payment, used by individuals ranging from street vendors to large shopping malls. Such widespread acceptance has set India apart as the country with the highest digital transactions globally.
Countries Embrace India's UPI
In recent weeks, three countries have swiftly embraced India's UPI technology. France, the United Arab Emirates, and Sri Lanka have all integrated India's homegrown digital payment technology into their systems. This global embrace of UPI signifies its growing impact on international trade and finance.
France's inclusion in the UPI network marks a significant milestone, as it introduces the technology to Europe. For India, France has consistently been one of the top European destinations for tourists. Moreover, France serves as a major trade destination for India's medium and small businesses, promising substantial benefits from the introduction of UPI.
India's economic ties with Sri Lanka and the UAE have also deepened through UPI. UPI's entry into these countries is expected to facilitate trade and tourism, fostering bilateral relationships. The expansion of UPI is not just a technological triumph but a catalyst for economic growth and international collaboration.
A Vision for the Future and the Challenges Ahead
As UPI continues its journey towards global dominance, the future looks promising. UPI, comprising 75 percent of India's digital transactions, is anticipated to grow fourfold by 2026. A report suggests that UPI may constitute nearly 90 percent of the total volume of transactions in retail digital payments over the next five years as it expands to rural areas and tier III and IV cities.
The global expansion of UPI holds the promise of substantial economic growth. The substantial scale of international spending, with Indians having reportedly spent $10 billion on overseas travel between April and December 2022, demonstrates the potential contribution of internationalized UPI to the Indian economy.
However, UPI's global expansion is not without challenges. Established global payment giants like Visa and Mastercard currently occupy around 80 percent of the global payments market. Displacing them is a formidable task. Additionally, UPI will need to adapt its technology to cater to a wider customer base in the Western world. The initial cost of transfer and remittance fees may be high due to UPI's limited penetration in these regions. Compliance with various digital regulations and the need for interoperability among different payment systems pose significant challenges.
To overcome these hurdles, stakeholders in the UPI ecosystem must focus on collaborating with global payment system providers and regulators to ensure compliance with local regulations and standards.
In conclusion, India's UPI has transitioned from a local innovation to a global force to be reckoned with. Its impact on the financial landscape of India and its expanding influence internationally makes it one of the most significant financial technology success stories of the 21st century. As UPI continues its journey towards global dominance, the challenges may be formidable, but the potential benefits for India and the world at large are immeasurable.
Written by Vijay Kapur, Rahul Nair & Geethu Anilkumar
Sh. Vijay Kapur is the Ex-Director of The Institute of Chartered Accountants of India. He is currently contributing as the Principal Advisor and Mentor at House of Startups India.
Rahul Nair is the Manager at House of Startups India and a Delhi-based lawyer who graduated from the National University of Advanced Legal Studies, Kochi.
Geethu Anilkumar is a fourth-year law student, studying in the National University of Advanced Legal Studies, Kochi.