UPI: A revolution

4.2

Note and Coin are at a party - a big banner behind them shows the UPI logo Note and Coin are at a party - a big banner behind them shows the UPI logo

As you saw in the previous chapter, digital payments have slowly yet steadily grown popular alongside the use of physical cash. In recent years, digital payments have even replaced cash payments in several spheres of life. The rapid acceleration in the digital payment segment we’ve been witnessing of late can be traced back to the rising popularity of UPI transactions.

 

The full form of UPI is Unified Payments Interface. And data from the National Payments Corporation of India (NPCI) supports the fact that India has completely embraced UPI. In the year 2021-22, over 31 billion transactions have been processed![1]

 

But what is UPI anyway? And what does history tell us about the rise and rise of UPI? That’s just what we are going to find out in this chapter.

 

What is UPI?

UPI or Unified Payments Interface is a digital system that brings together several bank accounts into one common mobile application. Through this app, you can make real time fund transfers or instant payments from the comfort of your smartphone. All you need is the mobile number of the receiver or their virtual payment address, which is simply the UPI ID.

 

The beginning of the UPI revolution

Remember reading about the National Payments Corporation of India (NPCI) in the previous chapter? If you recall, it was established in 2008-09. And on April 11, 2016, the NPCI launched the UPI system in India. The main aim of the Unified Payments Interface was to propel the Indian economy towards becoming a digital ecosystem.

 

The pilot launch of the UPI system was done by Dr. Raghuram G. Rajan, who was the RBI governor at that point. And the launch involved 21 member banks. From August 25, 2016, the banks began to make their UPI enabled apps on the app store. 

 

Tracing the need for a Unified Payments Interface

UPI may have been launched in 2016. But the need for the UPI system can be traced back to much earlier than 2016. Back in March 2011, the Reserve Bank of India released a document about the data related to digital or non-cash transactions in the country. Here are some key details that the document contained.[2] 

 

  • Back then, the number of non-cash transactions per individual was just six per annum.
  • Around 145 million households in India were not part of the banking ecosystem.
  • Of the 10 million retailers present in the Indian economy at the time, only a small fraction accepted payments via debit or credit cards.

 

These details show us that even though the NPCI had been set up a couple of years earlier to enable digital payments in the country, the Indian economy continued to remain vastly dependent on cash transactions. 

 

To correct this and to make digital payments more common across the country, the NPCI set out to develop a system that would make digital transactions easier. This system was expected to offer a single platform to integrate digital payments made via multiple banks. And that was how - and why - the Unified Payments Interface was born.

 

The UPI Revolution: What do the numbers say?

UPI was already growing popular since its launch in 2016. But the pandemic years have undoubtedly accelerated the adoption of UPI transactions across the country. More banks have been brought into the UPI ecosystem, and the volume of UPI transactions are also on a steady rise. 

 

Data from the National Payments Corporation of India shows us that year-on-year, the UPI system has been growing from strength to strength. Here is a quick look at some such statistics to show what the numbers tell us about the UPI revolution.[3] 

 

Month and year

Number of banks in the UPI network

Volume of transactions 

Value of transactions

January 2017

36

4.46 million

1,696.22 crores

January 2018

71

151.83 million

15,571.20 crores

January 2019

134

672.75 million

109,932.43 crores

January 2020

144

1,305.02 million

216,242.97 crores

January 2021

207

2302.73 million

4,31,181.89 crores

January 2022

297

4,617.15 million

8,31,993.11 crores

 

As you can see, the year-on-year growth of the UPI network, the volume of UPI transactions as well as their value have all been on a steady rise. In contrast to how things were only in 2011, this is a huge progress for the digital payment industry in the country. This is why UPI is considered as the spark that triggered the growth of the digital transaction ecosystem in India, even though other channels like credit cards, debit cards, and internet banking were around even before the Unified Payments Interface was launched. 

 

Key features of the UPI channel

Before we wrap up, let us take a closer look at the key features of the Unified Payments Interface. This will help you understand the impact of UPI on our lives today, which forms the core of the next chapter in this module.

 

  • Available round-the-clock, including public holidays
  • Uses a unique UPI ID provided by the bank
  • Various bank accounts accessible via one single app
  • Instant transfers that are quicker than net banking payments
  • Facility to raise complaints via the mobile app itself in case of any issues
  • Increased security through a 2-factor authentication system 

 

Wrapping up

This sums the fundamentals of the UPI revolution in India. But to truly understand why UPI payments are so beneficial, you need to take a look at the following chapter, where we take a deep dive into the impact of UPI today. 

 

A quick recap

  • UPI or Unified Payments Interface is a digital system that brings together several bank accounts into one common mobile application. 
  • On April 11, 2016, the NPCI launched the UPI system in India. The main aim of the Unified Payments Interface was to propel the Indian economy towards becoming a digital ecosystem.
  • The pilot launch of the UPI system was done by Dr. Raghuram G. Rajan, who was the RBI governor at that point. And the launch involved 21 member banks. 
  • The year-on-year growth of the UPI network, the volume of UPI transactions as well as their value have all been on a steady rise.

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