The Unified Payments Interface (UPI) has taken the Indian digital payment landscape by storm, cementing its status as the go-to choice for money transfers, particularly for smaller transactions, as reported by the Reserve Bank of India (RBI). According to RBI data, UPI transactions have witnessed a 428 percent surge, soaring from Rs 2.9 lakh crore in July 2020 to 15.33 lakh crore in July 2023.

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In another milestone, UPI transactions in August have already breached the Rs 1,000-crore mark in a single month for the first time.

This shift in payment preferences signifies a transformative moment in India's financial ecosystem, with the National Payments Corporation of India (NPCI) setting its sights on a billion transactions per day within the next 2-3 years, a threefold increase from current figures. The future of UPI appears bright, driven by offline UPI transactions and a slew of promising developments on the horizon.

NPCI recently unveiled a host of innovative features for UPI at the Global Fintech Fest 2023, including instant credit via UPI, UPI Lite X for Offline Payments, Tap and Pay, and Hello UPI. These advancements are poised to further propel UPI into the digital payments stratosphere.

The UPI revolution

One of the key factors behind UPI's popularity is its user-friendly experience and round-the-clock availability.

"Each and every part or phase of a UPI journey is real time, which further enhances its utility, evading the boundaries of traditional banking systems, thus offering an unparalleled experience to its users," Vikas Garg, Co-Founder and CEO at Paytail, a fintech company told CNBC-TV18.com.

A decline in cash transactions

The impact of UPI on cash transactions in India is significant, with cash use declining from 71 percent of POS transaction value in 2019 to just 27 percent in 2022, as per Garg.

"India has emerged as a global leader in payments, thanks to its next-generation real-time payment systems. This decline in cash transactions is not limited to urban areas alone; rural regions have also embraced digital payments due to their accessibility. Factors such as the proliferation of smartphones and widespread internet access have catalysed this transformation," he said.

The rise of online payment schemes by central banks is further boosting cross-border commerce, and data suggests that cash transactions are expected to decrease by another 34 percent in transaction value by 2026.

Co-existence with net banking

While UPI has ushered in a new era of digital payments, Garg said, net banking retains its significance in the broader online banking landscape as of 2022.

"A recent study indicates that over 60 percent of urban consumers in India still prefer net banking. Net banking's use cases revolve around transactions that require more financial manoeuvring, such as managing investments, conducting interbank transfers, and handling multifaceted transactions that go beyond the immediate scope of UPI. The coexistence of both these instruments provides modern-day users with a range of options, allowing them to choose based on the complexity and urgency of their financial activities," he said.

RBI's commitment to UPI security

The Reserve Bank of India (RBI) has been proactive in introducing a series of measures aimed at boosting the UPI ecosystem's security and fairness.

"In an environment characterised by rapid technological advancements which is accompanied by a threat landscape, the RBI's strategic interventions are indispensable to maintaining the integrity and credibility of UPI. The measures introduced by the RBI comprise a versatile approach, ranging from constant security audits to a comprehensive set of guidelines for data protection and privacy. Additionally, the promotion of healthy competition within the UPI space ensures that users get access to the safe and user friendly technology," Garg said.

(Edited by : Shoma Bhattacharjee)