UPI overtakes cash as India’s preferred payment method

By Parth Prabhudesai

India’s digital payments ecosystem is undergoing a structural transformation, with Unified Payments Interface (UPI) emerging as the dominant mode of daily transactions and significantly reshaping consumer and merchant behaviour. A new socio-economic impact analysis released by the Department of Financial Services (DFS), Ministry of Finance, highlights how government incentives, FinTech innovation and expanding payment infrastructure have accelerated the country’s shift towards a digital-first economy.

According to the report, UPI now accounts for 57% of all transactions, overtaking cash transactions at 38%. The findings reflect a major behavioural shift driven by instant fund transfers, ease of use and growing merchant acceptance. The study, conducted by an independent research agency in consultation with National Payments Corporation of India, surveyed more than 10,000 respondents across 15 states.

The FinTech ecosystem has played a central role in this transition. Banks, payment service providers, FinTech firms and QR-code payment operators have collectively expanded digital payment access across urban and semi-urban India. UPI’s growth has also strengthened the role of mobile-first financial services, particularly among younger users, with adoption reaching 66% in the 18–25 age group.

The report found that 65% of UPI users conduct multiple digital transactions daily, while 90% reported increased confidence in digital payments after using UPI and RuPay cards. Cashback incentives and faster transaction speeds emerged as key drivers of adoption, with 52% of users citing rewards and 74%t highlighting payment speed as the primary advantage.

Merchant adoption has also accelerated rapidly. Around 94% of surveyed small merchants now accept UPI payments, with 57% reporting increased sales after adopting digital payments. Merchants cited faster settlements, better record-keeping and operational convenience as major benefits.

From a FinTech infrastructure perspective, the report underscores the scale of India’s digital public infrastructure expansion. UPI QR code deployment surged from 9.3 crore to 65.8 crore during the scheme implementation period, enabling wider merchant onboarding and deeper payment penetration across smaller towns and local businesses.

The government’s incentive scheme, launched in FY2021-22, has been a key catalyst behind this growth. The programme provided Rs 8,276 crore in budgetary support to banks, payment system operators and FinTech ecosystem participants to promote low-value BHIM-UPI and RuPay debit card transactions. Incentive disbursements helped reduce cost barriers for merchants and encouraged acquiring banks and payment providers to expand acceptance infrastructure.

The report also highlights how UPI has evolved beyond a payments product into a foundational FinTech layer supporting financial inclusion and formalisation of the economy. Increased digital transaction visibility improves financial records for merchants and individuals, potentially supporting access to credit, insurance and other financial services.

UPI’s share in total digital transactions has now reached 80%, reflecting the platform’s dominance within India’s payments landscape. The findings reinforce India’s emergence as one of the world’s largest real-time payments markets and showcase how collaboration between government bodies, FinTech firms, banks and payment operators has accelerated the transition towards a less-cash economy.

The report is expected to support future policy decisions around digital payments incentives, infrastructure investments and FinTech-led financial inclusion initiatives in India.