Unlocking the Power of UPI: India’s Journey Towards a Cashless Economy

In recent years, India has witnessed a significant shift in payment behavior, with the rise of UPI (unified payments interface) transactions reshaping the country’s payment landscape.

According to a research report by the State Bank of India’s economic research department, every Re 1 increase in UPI transaction value correlates with an 18 paisa decline in debit card transactions. This shift has not only affected the way people make payments but has also transformed the purpose for which currency is used.

The popularity of UPI has resulted in a decline in cash withdrawals through debit cards at ATMs and has challenged the notion that digital payments are primarily limited to urban areas.

This article will discuss the impact of UPI transactions on debit card usage, the changing nature of the currency, and the growth of UPI as the preferred digital payment method in India.

The Decline in Debit Card Transactions and ATM Visits

With the rise of UPI transactions, there has been a noticeable decline in debit card usage.

The research reveals that for every Re 1 increase in UPI transaction value, there is an 18 paisa decline in debit card transactions.

Consequently, people have reduced their visits to ATMs, with the average person now visiting an ATM only eight times a year, compared to 16 visits previously.

The ease and convenience of UPI transactions have contributed to this decline, as individuals increasingly prefer making digital payments over traditional debit card transactions.

Changing Currency Usage and Speculation

The advent of UPI has not only transformed payment behavior but has also changed the purpose for which currency is used in India.

The research highlights a shift from using currency for investment to speculation, specifically trading. This shift is evident in the declining cash withdrawals through debit cards at ATMs since November 2018, as UPI gains popularity.

UPI transactions provide a seamless platform for both Person to Person (P2P) and Person to Merchant (P2M) transactions, making it the preferred method for digital payments in the country.

Redefining the Urban-Rural Digital Payment Divide

Contrary to popular belief, the research challenges the perception that metro/urban areas are the primary adopters of digital payments.

It reveals that rural and semi-urban areas account for 60% of the share in UPI value/volume. This shift indicates that UPI transactions have penetrated even the remote areas of the country, making digital payments accessible to a wider population.

UPI has emerged as the most popular and preferred method for digital payments in India, accounting for approximately 73% of the total digital payments in the country.

The Growth of UPI Transactions

The research underlines the significant growth of UPI transactions over the years. UPI transaction volumes have multiplied from 1.8 crore in FY17 to an astonishing 8,375 crore in FY23.

Simultaneously, the value of UPI transactions has skyrocketed from Rs 6,947 crore to Rs 139-lakh crore during the same period, representing an astounding jump of 2004 times. This exponential growth showcases the rapid adoption and acceptance of UPI as the preferred digital payment mode in India.

Impact of Rs 2,000 Note Withdrawal

The report suggests that the withdrawal of Rs 2,000 rupee notes by the Reserve Bank of India (RBI) will have limited effects on deposits but will positively impact liquidity and interest rates.

The report predicts that most of the Rs 2,000 banknotes in circulation, around Rs 3.6-lakh crore, will return to the banking system, with approximately Rs 3 lakh crore coming back.

It is anticipated that banks already hold a significant portion of these notes in their currency chests, minimizing the impact on deposits.

In conclusion, the rise of UPI transactions in India has revolutionized the payment landscape, leading to a decline in debit card usage and transforming the purpose for which currency is used.

UPI has become the preferred method for digital payments, penetrating rural and semi-urban areas and accounting for a significant share of total transactions.

As UPI continues to grow and reshape India’s payment ecosystem, it is propelling the country towards a more cashless economy and paving the way for a digital payment revolution.

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