India’s Fintech Heartbeat: The Rise & Rise of UPI

When was the last time you were scrambling for cash and urgently needed to go to an ATM, because how else would you pay for things? Can’t recall, right? That’s the power of digital payment, which has seen an exponential rise since the launch of UPI (Unified Payments Interface) in India 9 years ago. 

To be honest, UPI is no longer just a convenient payment mode; it is a public utility, as necessary in people’s lives as electricity in the digital era. Today, the novel digital payment system handles a whopping 18-19 billion payments every month in India.

And as we approach India’s 79th Independence Day, this fintech transformation represents a new kind of freedom for us.

UPI’s Explosive Growth Story

UPI has made digital payments so ubiquitous that even small street vendors display QR codes for instant payments. Let’s go back a little to understand this phenomenon. 

In its first full year of operation (FY2017–18), UPI recorded about 92 crore transactions.  It took a little over 3 years from launch to reach 1 billion transactions in a month, a milestone achieved in late 2019. Fast forward to FY2024–25, UPI has handled approximately 185.87 billion transactions. In other words, usage has grown 10 times in seven years, translating to a compound annual growth rate of roughly 114%, according to the government.

This makes UPI one of the fastest-growing payment technologies ever. A study by ORF says that a 1% increase in UPI transaction volume strongly correlates with a 0.03% increase in India’s GDP growth, highlighting UPI’s role in economic expansion. 

UPI hit important milestones along the way, too. 

UPI 2.0 was introduced in 2018 with added capabilities like invoice attachments and overdraft account linking, making the platform more versatile. The introduction of UPI Lite in 2022 enabled small-value transactions (set at below ₹500), allowing users to pay without entering a UPI PIN or any KYC. 

Then came the UPI Lite X app (currently available only on Android smartphones), another easier way that needs no internet connection on your or the recipient’s phone. For this to work, both sender and receiver should have the UPI Lite account where money can be transacted without internet. 

Another major leap is Credit on UPI, allowing pre-approved credit lines or RuPay credit cards to be linked directly to UPI apps, effectively creating a “UPI Now, Pay Later” system. A banking tech company estimates UPI-based credit to be over $1 trillion in value by 2030.

Such expansion of features has spurred ever more usage by making UPI useful for every transaction scenario, from paying a vegetable vendor to paying your income tax returns! As addressed colloquially across states, all one needs is a “scanner” to scan the code and a phone with a camera (apart from a bank account, of course!).

UPI – A Global Success?

Crucially, UPI’s success has earned global recognition too. The International Monetary Fund noted that UPI has become the world’s largest real-time payment system by volume. As of mid-2025, UPI was processing more daily transactions than even Visa’s global network, hitting over 640 million transactions per day and edging past Visa in count. India now accounts for nearly 50% of the world’s real-time digital payments volume. 

Nations from Asia to Africa are in talks to either adopt similar real-time payment frameworks or directly connect with UPI. Already, UPI has been linked or launched in about seven countries (such as Singapore, UAE, Nepal, Bhutan, France, and more) for cross-border interoperability. This means an Indian traveller in Singapore or any of the above countries can pay via UPI. 

This also raises a doubt about where the world’s digital payment platforms are currently, versus India’s UPI system.

Most of the major countries, including the UK, the US, and others, rely on a mix of card networks, bank-based transfers, and wallet apps, collectively known as closed-loop payment methods. 

UPI vs Closed-loop Payment Systems

So, if we’re talking about a true global equivalent of UPI, there isn’t a perfect one-to-one match yet. India’s UPI is unique in combining instant, real-time, 24×7 transfers, open interoperability across all banks and apps, and zero merchant fees at this scale.

The Shift: From Transactions to an Economic Engine

If you think UPI and QR Scanners are only for ease of digital payment, you need to know more. UPI’s impact goes well beyond raw transaction counts.

One of the most profound contributions is how it has democratised digital payments. Rural penetration has surged as well. You can find UPI QR codes in remote villages and tier-3 towns, where previously cash was king.

UPI is also fuelling the formalisation of the economy. When small businesses use UPI, they generate digital records of sales, which means they can be better assessed for taxes and also build creditworthiness. 

Economists note that widespread digital payments can lower the economy-wide cost of transactions, and the savings often get ploughed back into more consumption or investment. A WEF research in 2023 estimated that UPI has saved the Indian economy around ₹5.5 lakh crore (≈ $67 billion) in transaction costs since 2016, by replacing cash and card payments with digital transfers.

Finally, UPI has given a big push to financial inclusion by working in tandem with other initiatives. The government’s Jan Dhan Yojana enabled over 55 crore basic bank accounts for the unbanked, and Aadhaar provided verifiable IDs. 

How India Spends (via UPI)

As established, from kirana stores to online marketplaces, UPI is powering everything from daily essentials to big-ticket transactions. July’s UPI data reveals that food and related purchases lead the charts, echoing patterns in GDP trends, while debt and EMI repayments account for a substantial share of household spending.

According to a report by Datum Intelligence, the Groceries & Supermarkets category contributed 24% of total transactions by volume, 9% by value in the month of July, followed by restaurants and telecom communications. 

Double Click:

• Most Transaction Volumes: Groceries, restaurants, telecom, and pharmacies
• Most Transaction Values: Debt repayments, utilities, and government services
• High-Frequency Categories: Food, groceries, and beauty
• High-Value Categories: Electronics, gold, and government fees

The Ecosystem Around UPI

The government’s push to make India digitally inclusive is unlocking the next wave of innovation, creating opportunities for banks, fintechs, and retailers alike.

Banks

UPI has accelerated banks’ digital shift, reducing dependence on branches while expanding customer reach. Small Finance Banks can now offer pre-approved credit lines via UPI, matching the capabilities of larger institutions and enabling faster, more efficient credit distribution.

Fintechs

Fintechs have thrived by layering services on UPI’s infrastructure, from lending apps that assess creditworthiness using transaction data to investment platforms enabling micro-investing. The launch of Credit Line on UPI in 2023 turned smartphones into instant credit terminals, allowing users to access pre-sanctioned loans through any UPI app.

Retail & E-commerce

This goes unsaid. In retail, UPI has redefined checkout: two-click payments, zero friction, and QR codes everywhere. Over 633 million UPI QR codes now enable even the smallest vendors to accept digital payments without costly hardware. 

Why This Matters to Investors

For one, UPI indirectly boosts GDP growth. Being a part of India’s digital economy, which contributed 11.74% to GDP in 2022-23 (₹31.64 lakh crore) and employed 14.67 million workers, it operates in a sector where productivity was five times higher than in others.

Here’s more.

Key Investment Themes:

BFSI Sector: Banks and financial institutions benefit from reduced transaction costs and expanded customer reach.

Technology: Companies providing QR, POS, and authentication technologies see increased demand.

Consumption: Enhanced payment convenience drives retail and e-commerce growth.

Logistics: Faster settlement cycles improve working capital efficiency across supply chains.

Sectoral Beneficiaries

Direct Beneficiaries:

• Banks offering UPI services and credit lines.
• Fintech companies building on UPI infrastructure.
• Payment processing and technology companies.

Indirect Beneficiaries:

• Retail and e-commerce platforms leveraging UPI for growth.
• Small and medium enterprises are gaining access to formal credit.
• Rural businesses entering the digital economy.

Macro & Investor Impact

• Signals India’s ability to build and absorb large-scale tech innovations.
• Attracts global investment into fintech and allied sectors.
• Positions India as an exporter of fintech solutions.
• Improves government revenues via better tax compliance and reduced DBT leakages.
• Strengthens the economy through cost savings, transparency, and lower transaction costs.

All these factors contribute to a stronger economic foundation, which is positive for investors looking at India’s growth trajectory in the coming decade.

The Road Ahead

As UPI cements itself as critical infrastructure, policy and regulatory developments will play a key role in shaping its future. 

One area to watch is the debate over merchant transaction fees (MDR). Currently, UPI transactions carry zero charges for merchants due to the government mandate, which has driven adoption. However, this zero-MDR regime means banks and payment providers earn no direct revenue from UPI despite bearing costs. 

Security is another focus area. As volumes rise, fraud and cybersecurity concerns also see an uptick. The good news is that despite a higher number of digital transactions, robust measures are being implemented, for instance, the government’s AI-driven fraud detection cut UPI fraud cases, RBI has issued comprehensive guidelines requiring banks to strengthen their fraud prevention mechanisms.  Users are being educated about common scams (like not sharing OTPs or UPI PINs), and new features like device binding and tokenisation add extra layers of security.

Interoperability abroad is a challenge that India is tackling via partnerships; the NPCI’s international arm is working on exporting India’s fintech model. The vision is not only to enable Indians to pay seamlessly when abroad, but also to help other countries implement UPI-like systems.

To Wrap Up

Ahead of the 79th Independence Day, UPI stands out as a shining example of India’s rapid digital strides. In less than a decade, a homegrown innovation has become the invisible infrastructure that underpins daily life, much like the railroads or telephones did in earlier eras. 

The journey of UPI mirrors India’s broader fintech revolution. Platforms like smallcase let you explore expert-built model portfolios that align with themes such as the digital India and fintech, among other trends and ideas. Click here to invest in India’s growth story.

Disclaimer: This analysis is for educational purposes and does not constitute investment advice. Market conditions can change, and past performance is not indicative of future results. Investors should conduct their own research and/or consult a certified financial advisor before making investment decisions.