Introduction to Digital Payments- Unified Payments Interface (UPI) and RuPay credit cards in India

India's digital payment ecosystem has undergone a remarkable transformation in the last five years. In the fiscal year 2022, the aggregate count of digital transactions reached 8,840 crores, with a corresponding total value exceeding Rs. 3,000 billion. (USD 36.1 billion). This transformative shift envisions a nation where smartphones redefine commerce, digital transactions replace physical currency, and financial inclusion becomes tangible. At the heart of this paradigm shift are two critical components - the UPI and RuPay credit cards, serving as instrumental pillars in the country's digitally empowered financial ecosystem.

Factors Driving Digital Payment Adoption in India

The recent surge in digital payments in India is a testament to technological advancements, proactive regulatory measures, and evolving consumer preferences. Key factors revolutionizing digital payments in India are mentioned below:

Evolution of UPI and RuPay Credit Cards

The emergence of the UPI and RuPay credit cards has played pivotal roles in fostering the growth of digital payments in India.

The UPI, launched in 2016 by the National Payments Corporation of India (NPCI), is a system that consolidates multiple bank accounts within a single mobile application accessible through any participating bank. This integration encompasses various banking functionalities, including seamless fund routing and merchant payments encapsulated in a unified platform. NPCI initiated a pilot launch involving 21 member banks in April 2016. Subsequently, in August 2016, banks commenced to upload their UPI-enabled applications on the Google Play store. Security in UPI transactions is ensured using UPI PINs, which consist of a 4/6-digit numerical combination. Moreover, these applications are fortified with robust encryption measures and possess substantial bandwidth capacity, further enhancing UPI transactions' overall security and efficiency.

RuPay credit cards, launched in June 2017 by the NPCI as an indigenous payment system, have contributed significantly to the country's financial landscape. RuPay aimed to provide a domestic alternative to international card networks. Since its inception, RuPay has gained prominence, offering cost-effective and efficient payment solutions, especially for domestic transactions.

UPI and RuPay credit cards have been instrumental in driving the digital payment revolution in India. Their integration has transformed transactions, making digital payments more accessible, efficient, and secure. The achievements of these endeavors underscore the synergistic collaboration among financial institutions, regulatory entities, and technology innovators, contributing to the development of a resilient digital payment ecosystem within the nation.

Surge in UPI Adoption: Increasing Number of Banks going live

Source: NPCI, Annual statistics

After the introduction of UPI in 2016, the initial count of active banks on the UPI platform stood at 21 in April 2016. However, spurred by a substantial surge in demand and widespread adoption of digital payment methods, the current tally has increased to 380 participating banks as of October 2022.

Growth of UPI in India

In June 2016 quarter, UPI recorded a modest 7.9 billion transactions. Subsequently, driven by the increasing awareness of the significance of UPI and its enhanced accessibility, transaction volumes grew more than 4x within two years, reaching 34.6 billion in the December 2023 quarter.

Quarterly UPI Transaction Metrics: Volume (in million on lhs) and Value (in US$ million on rhs)       

 Source: NPCI, Statistics

Total transaction value also witnessed swift growth, surpassing US$ 1.8 billion in June 2021 quarter. Increasing number of banks affiliating with the UPI system further drove the value of transaction value to US$ 6.3 billion by December 2023 quarter.

Key Benefits for Stakeholders in The Value Chain

Benefits across the value chain have been the key driver for rapid adoption of UPI and Rupay credit cards. Below we summarize these benefits:

Navigating Challenges with Strategic Solutions

Government Initiatives and schemes

Government initiatives and schemes have played a pivotal role in accelerating the widespread adoption of UPI and Rupay credit cards in India. Programs like Jan Dhan Yojana and Digital India have promoted financial inclusion, creating a vast user base. Additionally, the Pradhan Mantri Jan-Dhan Yojana incentivized the use of Rupay cards, making them accessible to millions. UPI's rapid growth is attributed to initiatives such as BHIM (Bharat Interface for Money) and the introduction of cashback incentives, driving users toward digital transactions. These concerted efforts align with the government's vision for a cashless economy, fostering convenience, transparency, and financial empowerment across diverse demographics. Below we list these key government driven initiatives:

UPI123PAY: Launched by the RBI in March 2022, it facilitates payments through UPI for feature phone users, opening digital payment avenues for 400 million individuals. This initiative aims to promote the widespread adoption of digital payments among feature phone users.

DigiSaathi8: It was introduced by the RBI and NPCI in March 2022. It is a 24/7 helpline featuring a website, chatbots, and toll-free calls. This comprehensive support system addresses user queries and disseminates information on digital payment products, fostering heightened awareness and understanding of digital payment solutions.

Linking RuPay credit cards to UPI: In September 2022, the RBI announced the integration of RuPay credit cards with UPI, a move poised to enhance digital payment adoption with significant advantages. These include addressing the scarcity of PoS machines in rural areas, boosting credit card usage, revolutionizing the e-commerce industry by eliminating the Merchant Discount Rate (MDR) for UPI transactions and stimulating sales for small merchants and local retailers.

RuPay Mudra (2018): Under the Pradhan Mantri Mudra Yojana, beneficiaries receive the RuPay MUDRA Card, an innovative product offering a cash credit arrangement as working capital. This scheme aims to foster sustainable development by supporting partner institutions and boosting the micro-enterprise sector. The MUDRA card facilitates multiple withdrawals, efficient working capital management, and exclusive merchant offers, reducing interest burdens for account holders.

RuPay Kisan credit card: The RuPay Kisan Credit Card is issued to farmers participating in the Kisan Credit Card Scheme, an initiative by the Ministry of Agriculture to offer credit support to the agricultural sector. This scheme provides timely and need-based credit assistance to farmers for both cultivation and non-farming activities in a cost-effective manner. The card is versatile, allowing for ATM, POS, and E-commerce transactions.

RuPay Pradhan Mantri Jan-Dhan Yojana (PMJDY): The RuPay PMJDY card is issued to individuals who have opened accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY), a national initiative for financial inclusion. PMJDY aims to provide affordable access to various financial services, including banking, savings accounts, remittance, credit, insurance, and pension. The card lets users transact at ATMs, POS terminals, and e-commerce websites. Additionally, it offers Personal Accidental Death and Total Disability coverage of up to Rs. 2 lakhs.

RuPay PunGrain: Arthias with accounts under the PunGrain Scheme are eligible for the RuPay PunGrain Card. This initiative by the Punjab Government, launched in October 2012, facilitates grain procurement, benefiting farmers across Punjab. The RuPay PunGrain Debit Cards offer versatility, enabling usage at ATMs, POS, E-commerce sites, and automated grain procurement facilities at PunGrain mandis.

Positive Impact on Indian Economy

Financial Inclusion: Digital payments have been instrumental in advancing financial inclusion. RBI’s Financial inclusion index for India rose from 47.2 in March 2017 to 60.4 in March 2023. The Financial Inclusion Index exhibited growth in all sub-indices, particularly driven by advancements in the Usage and Quality dimensions. This signifies a substantial deepening of financial inclusion.

Economic Efficiency: Digital transactions, particularly facilitated by platforms like UPI, are processed in real-time, resulting in a substantial reduction in transaction durations compared to conventional banking methods. This heightened efficiency benefits consumers and businesses, ultimately augmenting overall economic productivity.

Reduction of black money: It plays a crucial role in curbing black money by promoting transparency and traceability. With transactions recorded electronically, it becomes challenging to engage in illicit financial activities. Digital payments foster a formalized economy, reducing the circulation of unaccounted funds and contributing to a more transparent financial ecosystem.

Difficult for tax evasion: It contributes to reducing tax evasion by creating a transparent and traceable financial trail. Electronic records make it harder to conceal income or engage in illicit financial activities, promoting tax compliance. The shift to digital transactions enhances accountability, ultimately curbing tax evasion and fostering a more transparent financial system.

Environmental Sustainability: The shift towards digital payments reduces reliance on paper currency, aligning with global efforts towards environmental sustainability.

Global Competitiveness: Embracing digital payments aligns India with global trends in financial technology, enhancing the country's competitiveness on the international stage.

Technological Advancements: It propels technological advancements by fostering innovation, enhancing security measures, driving the development of data analytics tools, integrating with emerging tech like blockchain, and promoting collaboration between traditional financial institutions and fintech.

Benefit to small businesses: It helps to expand their customer base, increasing sales opportunities through e-commerce, streamlining operations, reducing costs, enhancing financial management, ensuring quick and secure transactions, adapting to consumer preferences, accessing valuable customer data, and integrating with digital marketing efforts, ultimately fostering growth and competitiveness.

The Road Ahead

Entering a pivotal phase, India's digital payments market is poised for remarkable expansion, projected to surpass US$10 trillion by 2026 from its current standing at US$3 trillion. This exponential growth anticipates a transformative shift, where digital payments (non-cash) are anticipated to account for nearly 65% of all transactions by 2026, signifying a significant majority, with two out of every three transactions, by value, transacted through digital channels. The pandemic significantly propelled the Indian digital payments sector, witnessing a continuous influx of users transitioning to digital modes daily. As the fintech sector establishes a robust presence in the Indian market, anticipate the emergence of innovative, enhanced payment modes, ensuring heightened safety and efficiency in digital transactions.

Within the Digital payment market in India, the future of UPI and Rupay cards appears promising, marked by continued innovation and widespread integration into the digital financial ecosystem. With the government's emphasis on a cashless economy and financial inclusion, UPI is expected to see further advancements, offering seamless transactions and expanding its user base. Rupay cards, backed by initiatives like Jan Dhan Yojana, will likely witness increased adoption, particularly among rural and underserved populations. Both UPI and Rupay contribute to India's evolving financial landscape, fostering digital literacy and empowering diverse segments of society with convenient, secure, and accessible financial solutions.