UPI Achieves Milestone of 10 Billion Transactions in August

Context:

Unified Payments Interface (UPI), an instant payment system, has achieved a significant milestone by surpassing 10 billion transactions in the month of August, according to the National Payments Corporation of India (NPCI).

In July, UPI recorded 9.96 billion transactions with a total value of Rs 15.34 lakh crore, based on data from NPCI.

Relevance:

GS3-Indian Economy

Dimensions of the article:

1. About UPI
2. About NPCI
3. Status of digital transaction in India
4. Positive Impacts of UPI
5. Negative Impacts of UPI
6. Way Forward

About UPI:

• UPI is an enhanced version of the Immediate Payment Service (IMPS), offering round-the-clock funds transfer for quicker, smoother, and easier cashless transactions. It integrates multiple bank accounts into a single mobile application, consolidating various banking features such as seamless fund routing and merchant payments.
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• NPCI manages various payment systems, and UPI stands as the largest among them, including the National Automated Clearing House (NACH), IMPS, Aadhaar-enabled Payment System (AePS), Bharat Bill Payment System (BBPS), and RuPay.
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• Prominent UPI applications include PhonePe, Paytm, Google Pay, Amazon Pay, and BHIM, the latter being a government initiative. As part of an agreement, India’s UPI will be linked to Singapore’s PayNow.
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• NPCI introduced UPI with the collaboration of 21 member banks in 2016.

About the National Payments Corporation of India (NPCI):

• The National Payments Corporation of India serves as the umbrella organization for various retail payments systems in India. Established with guidance and support from the Reserve Bank of India (RBI) and the Indian Banks’ Association (IBA), its objectives include streamlining and integrating multiple systems into a standardized national process for retail payments. The goal is to provide affordable payment mechanisms for the general public across the country, fostering financial inclusion.
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• The digital payments sector in India is projected to grow from Rs. 2,153 trillion at a compounded annual growth rate (CAGR) of 27% to Rs. 7,092 trillion by 2025. In 2022, India emerged as the global leader in digital payments, accounting for 46% of global real-time payments and surpassing other top countries in terms of combined digital payments.

Positive Impacts of UPI:

• Ease of usage: Simplified digital transactions via smartphones.
• Financial Inclusion: Access to digital payments for all individuals.
• Decreased Cash Dependency: Curbing illicit transactions and risks.
• Boost to Digital Economy: Promoting digital entrepreneurship and innovation.

Negative Impacts of UPI:

• UPI as Petty Cash Alternative: Growing reliance on UPI for smaller transactions, replacing petty cash.
• Limited Transaction Flexibility: Confusing limits set by various apps and banks impacting transaction flexibility.

• Infrastructure Challenges: Difficulties keeping up with the surge in UPI payments, necessitating infrastructure upgrades.
• Security and Fraud Prevention: Rising cyber threats and fraud risks requiring robust security measures.

Way Forward:

• Agile Infrastructure Development: Invest in advanced infrastructure and technology solutions to manage increased UPI transaction volume.
• Personalized Financial Insights: Utilize data analytics and AI to offer tailored financial insights to UPI users.
• Blockchain Integration: Explore integrating blockchain for enhanced security and scalability.
• AI-Powered Fraud Prevention: Implement AI and machine learning for real-time fraud detection and prevention.

These measures can contribute to a seamless and secure UPI experience for both users and banks, facilitating the continued growth of digital payments in India.