Inside the UPI decade: How a cash-first nation learned to pay differently

What stands out is not just the scale but the composition of this activity. Much of UPI’s growth has come from the low-value, high-frequency payments that once moved almost entirely in cash including daily household purchases, neighbourhood services, small retail transactions and person-to-person transfers. No earlier retail payment system in India operated at this breadth of use. To put that in perspective: India’s Immediate Payment Service (IMPS), a core instant interbank rail that also underpins UPI, handles roughly 3% of UPI’s daily volume; Real Time Gross Settlement (RTGS), designed for large-value transfers between banks and businesses, processes in a full day what UPI clears within minutes; and for every credit card transaction in the country, there are nearly 40 UPI payments.

Each system serves a different purpose, but the comparison underscores how dramatically the centre of gravity in India’s payment landscape has shifted.

This pattern demonstrates that UPI’s rise is not merely a technological upgrade; it reflects a deeper behavioural shift in how routine payment activity is conducted across the country.

That success story is real, but it is also incomplete. When a single system becomes this dominant, national aggregates start to tell us less and less about what is actually happening on the ground. Transactions keep rising, new use cases are layered on, and yet basic questions remain unresolved: Who is still outside, and why? How do those who are “inside” experience the system and where do trust, confusion or hesitation show up? These experiences matter because UPI now shapes how millions transact daily, and the system’s future choices hinge on how reliably and safely people can use it at scale.

To understand how these shifts are playing out in people’s actual lives, we spent the past year speaking to UPI users, non-users and small retailers across Maharashtra and Bihar. This work, published as Understanding UPI through User Experience: Insights from the Ground by the DPI Academy (an initiative of Artha Global and the eGov Foundation), covered four districts and surveyed 3,200 users, 800 non-users and 800 merchants. The study does not claim national representation, but it offers a grounded view of how Indians are experiencing a system that has become deeply embedded in their daily economic activity.

Deeply embedded

Our findings show that among those who use UPI, it is deeply integrated into everyday payment routines. Across the full set of use cases we presented—store purchases, bill payments, peer-to-peer transfers, online shopping and remittances—at least 60% of users reported making payments through UPI, and four out of five used it for three or more categories. These patterns held across gender, rural and urban respondents, and across both states in our sample, suggesting that once adopted, UPI becomes a versatile tool for a wide range of daily transactions. This integration matters especially for remittances: instant transfers help households manage cash flows—sending money home, sharing expenses or dealing with urgent needs, without the delays that used to slow these everyday transactions.

Yet, this depth of integration does not mean cash is disappearing. Even among regular UPI users, 91% reported still using cash regularly. People switch between cash and digital depending on context and perceived risk. This coexistence should not be read as digital incompleteness; it reflects a more realistic hybrid model as is emerging in many countries.

Research from the Bank for International Settlements (BIS) reinforces this idea. It shows a clear trend: even in countries where real-time payment systems have grown rapidly, cash use has levelled off rather than disappeared. After years of decline, cash withdrawals stabilized in 2023 across most economies studied, suggesting cash continues to play specific roles—budgeting, small purchases and in situations where digital trust or infrastructure is uneven.

India too is moving toward a cash-digital equilibrium shaped by convenience, trust and context, not a “cashless” future. UPI has reshaped payment habits; it has not fully replaced cash.

A more appropriate policy objective is enabling this coexistence to work smoothly, grounded in reliable cash-in/cash-out points, inclusive design and consumer choice. But choice presumes access.

The digital divide

UPI’s reach, though expanding, remains uneven. Expert assessments and secondary data suggest nearly 250 million “potential users” are still unserved, raising important questions about who benefits and who remains structurally excluded.

Among non-users in our study, 57% had never heard of UPI. This informational exclusion persisted even in high-adoption districts. Among those who were aware of the system, 60% lacked a personal phone or the digital confidence to use one—structural barriers disproportionately faced by women and rural respondents.

The remaining 40% met the prerequisites but still opted out. Their reasons reflect a confidence or perception gap: many said “don’t know how to use it” or cited low trust, making hand-holding efforts like UPI Circle an important step forward. Scam fears were widespread even among those with no history of being scammed, showing that the fear rooting from perception often exceeds the actual risk.

The micro change

For micro-merchants in our study—small kirana stores, tea sellers, tailoring shops, neighbourhood service providers—the shift to UPI has not been cosmetic. It has begun changing how they run their businesses and how they think about money.

Faster settlement reduces the need to hold buffer cash for daily operations. Digital receipts create a verifiable record of sales that is easier to track than memory or handwritten notes. And the ease of QR-based payments has encouraged many to accept small-ticket digital payments they previously would have refused.

This behavioural shift was also driven by customer demand. Nearly two-thirds of merchants said they adopted UPI because customers preferred it, and many reported higher footfalls and improved customer satisfaction after offering digital payments, showing that consumer expectations are now shaping business practices at the smallest retail level.

While these trails are not yet being used systematically by lenders, they represent an important foundation. For many micro-merchants, traditional underwriting relies on collateral they do not have or financial records they never kept. A digital history of daily sales offers a different kind of visibility—one that could support cash flow-based lending or tailored credit products if the underlying data architecture is designed to make such trails usable through clear, consent-based access pathways. At present, who can access these trails and how they might be operationalized for credit remains uncertain. What is clearer, however, is that bank account activity has increased for many merchants simply because more daily transactions now settle bank-to-bank rather than in cash.

Over a third of merchants reported an increase in the share of digital transactions since adopting UPI, and roughly a quarter said they had begun separating personal and business finances for the first time. That may appear modest, but it represents a behavioural shift that is often a precursor to more structured financial management. Several merchants (nearly half of them) described using transaction histories to identify repeat customers and estimate weekly peaks. These practices indicate an emerging form of financial visibility, not imposed from the outside, but adopted because it makes business easier.

This is not to suggest that payments alone lead to inclusion. The link between digital trails and credit is neither automatic nor guaranteed. Without clarity on data access and portability, the promise of credit-linked use cases remains aspirational.

But our findings show that UPI is nudging merchants into patterns—separating business accounts, maintaining transaction histories, monitoring revenue—that make future financial participation more plausible. It is an early step, but a meaningful one, in expanding the informational footprint of small businesses that have long operated outside the formal financial system.

But these gains sit alongside some friction. Nearly two-thirds of the merchants in our study described initial confusion during onboarding and uncertainty about how to resolve issues when payments did not reflect immediately. Clarity around settlement—what is instant and what depends on bank processes—was also uneven. As with users, recourse pathways were not intuitive, and merchants were often unsure whom to approach when something went wrong.

These are not systemic failures, but they highlight the need for clearer communication and simpler support if small businesses are to deepen their digital participation.

The risks

When a system becomes the default, the nature of risk changes.

As UPI becomes the default payment choice, it inevitably attracts attention from bad actors. Public data shows banking fraud reached ₹36,000 crore in 2024-25, with digital channels forming a growing share. In our sample, 4% of users and 9% of merchants experienced losing money either through scams or unintended transactions, typically social engineering attacks exploiting urgency rather than system failures.

The greater challenge emerged in what happens after something goes wrong. 40% of users and 42% of merchants did not know where or how to report an issue, and those who tried often approached multiple actors—the app, one or both banks, or the National Payments Corporation of India (NPCI), with little clarity on who was responsible.

For first-time digital users, even a single unresolved incident can be enough to scale back usage or revert to cash; merchants facing repeated issues sometimes resort to informal workarounds that undermine the shift to digital. While users who eventually reached the right support channel generally had a good experience, very few reported issues at all simply because the pathway was unclear. For a system that functions as a public utility, such complexity can dent trust more than the rare technical fault.

The ecosystem has begun responding. NPCI has strengthened its dispute-resolution framework and piloted UPI Help, an artificial intelligence-enabled support tool. The Reserve Bank of India, India’s central bank, is developing a Digital Payments Intelligence Platform for real-time fraud detection. Private payment companies such as PhonePe and Razorpay have introduced proactive fraud-blocking and transaction monitoring. These developments reflect a recognition that risk mitigation must evolve alongside scale.

The sustainability question

As UPI continues to expand, the balance between its public-good design and the incentives of ecosystem actors has come into sharper focus. UPI is free, interoperable and accessible—features central to its reach, and the zero merchant discount rate (MDR) has been a major reason for its widespread adoption, especially among small businesses. But instant payments are not costless. Back-end infrastructure, fraud detection, customer support and risk buffers all require sustained investment. As transaction volumes grow faster than the supporting rails, some banks and payment processing firms have reported strain, visible in outages and transaction failures.

Today, most costs sit with banks and app providers, while direct revenue opportunities remain limited and government subsidies have not kept pace with scale. Many providers have therefore turned toward indirect monetisation—convenience fees for value-added services, advertising, brand partnerships and cross-selling.

These strategies are not inherently problematic, but they require clear guard rails to ensure alignment with the public-good architecture of UPI. Ensuring that all actors in the ecosystem have both the capacity and the incentive to invest in system health will be critical going forward.

A resilient, inclusive payment system needs incentives that support, not strain, system reliability, safety and innovation. This balance will shape UPI’s next decade.

Data and responsibility

UPI’s greatest unrealized potential lies not just in bringing the next 250 million users into the system, but in deepening what participation enables. Digital transactions create financial histories that can support access to credit, help micro-merchants demonstrate cash flows and enable more tailored financial products. But this vision depends on robust, user-centric data-sharing frameworks. Uptake of consent-based infrastructure remains limited, and visibility across institutions is fragmented. Clarity on data rights and privacy will also matter; if users fear exposure or misuse, digital trails could just as easily discourage participation as deepen it.

Emerging concepts like the “finternet” imagine a future where individuals and businesses move data and value seamlessly across platforms and institutions. UPI can be a foundational layer in this architecture but only if dependability, recourse and sustainability accompany scale.

As UPI enters its second decade, the question is no longer whether it scales—it already has—but whether the ecosystem can maintain trust, broaden participation and build the institutional resilience needed to anchor digital payments in India in the long term.

Nikita Kwatra, Khushi Baldota and Anushri Pundit are, respectively, principal, senior analyst and analyst at Artha Global.