How UPI became India’s biggest digital payments system — and its next challenge

Since 2012, India's Reserve Bank of India (RBI) had predicted a massive surge in digital transactions, with every Indian expected to make at least one non-cash transaction per month. Fast forward to 2025-26, and the nation has seen over 28,174 crore digital transactions, with 86% facilitated by the Unified Payments Interface (UPI). As UPI turns 10 this year, it stands at a pivotal juncture, facing a new challenge.

UPI, developed by the RBI-regulated National Payments Corporation of India (NPCI) and the Indian Banks' Association (IBA), was initially conceived as a pilot in April 2016, fully operational by August of the same year. The vision document for 2012-15 highlighted the need for a less-cash society, with nearly a third of e-commerce purchases being made via cash-on-delivery at the time.

A key factor in UPI's rapid rise was the elimination of the Merchant Discount Rate (MDR) for transactions up to Rs 2,000, a move introduced by the High-Level Committee on Deepening of Digital Payments in May 2019. This policy change, along with government subsidies, played a crucial role in driving the adoption of UPI, especially during the COVID-19 pandemic when people sought to avoid cash transactions.

However, despite UPI's impressive growth, it now faces a new challenge. Large players, such as Walmart-backed PhonePe and Google Pay, hold over 80% of UPI transactions in terms of volume and value, leaving little room for other competitors. The current deadline for regulating market share is December 2026. SBI, the country's largest bank, has noted that it is "too late to catch up" with the dominant UPI players, emphasizing the difficulty in competing with the scale and innovation of these companies.