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Are Unified Payments Interface (UPI) Transactions Taking Over India’s Retail Space?

Boaz Gam

Boaz Gam


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Article content
  1. What Exactly Is UPI?
  2. UPI Adoption in India: Current State & Growth Prospects
  3. What Does UPI’s Increasing Ubiquity Mean for India’s Retail Sector?
  4. A Glance at UPI’s Future in the Retail Sphere

The Rise of UPI Transactions in India’s Retail Landscape

In recent years, India has witnessed a revolutionary shift in the way financial transactions are conducted, particularly within the retail sector. This is largely attributed to the advent of the Unified Payments Interface (UPI), which is a convenient and secure real-time payment system used by both consumers and businesses.

As UPI’s adoption grows and the number of transactions this platform processes continues to soar, it is only natural to wonder about the scale of its influence on India’s payments landscape. In this article, we delve into the current impact of UPI on the local retail industry and explain how it could evolve in the years to come - read on not to miss out on all the insights!

What Exactly Is UPI?

The Rise of UPI Transactions in India’s Retail Landscape

Before we talk about the growing influence of UPI, let’s take a moment to review what this platform is all about. In a nutshell, the Unified Payments Interface is a real-time payment solution introduced by the National Payments Corporation of India (NPCI) in 2016.

This revolutionary platform simplifies the process of making and processing payments by providing a single interface for various banking services, including online purchases, peer-to-peer transfers, bill payments, and beyond.

UPI is rooted in a mobile-centric approach, allowing users to perform transactions conveniently through their smartphones. It also eliminates the need for traditional payment methods like cash or cheques while making digital transactions seamless and hassle-free. UPI transactions can be initiated using different identifiers, such as mobile numbers, virtual payment addresses (VPAs), or QR codes.

Thus, one of the main advantages of this payment solution is its interoperability, due to which users can transact across different banks using a single UPI-enabled app. This factor has led to UPI’s widespread adoption across various sectors, including retail.

UPI Adoption in India: Current State & Growth Prospects"

The Rise of UPI Transactions in India’s Retail Landscape

The digital payments market in India has been consistently excelling over the past few years, with a compound annual growth rate (CAGR) of 50% in transaction volume. Moreover, it is expected to continue its upward trend, reaching 411 billion transactions in the fiscal year 2026-27, which represents a significant increase from the 103 billion payments recorded in FY 2022-23.

With this in mind, it comes as no surprise that the Unified Payments Interface is also demonstrating a substantial growth trajectory, with a shift from 83.71 billion transactions recorded in 2022-23 to 379 billion transactions by 2026-27. This means that in 3 to 4 years, UPI is estimated to facilitate a staggering 1 billion transactions per day.

What’s even more impressive is that UPI is expected to account for 90% of all retail digital transactions in India already by 2027, as opposed to 75% in 2023.

Will UPI Replace Bank Cards in India?

The Rise of UPI Transactions in India’s Retail Landscape

While UPI is clearly the frontrunner in India’s retail payments, it’s essential to note the importance of the local bank card sector, which continues to exhibit strong growth. Both debit and credit cards remain popular choices for retail digital transactions in the country. However, experts predict a shift in dominance from debit to credit cards by FY 2024-2025.

Credit and debit card issuance is projected to rise at a CAGR of 21% and 3% until 2027, respectively. The lower pace on the debit card usage side is mainly due to the fact that their primary use case, cash withdrawals, is effectively replaced by the convenience of UPI.

With that said, even though UPI has gained significant traction, it is unlikely to completely replace bank cards in the near future, as they still hold a significant share of India’s retail payments ecosystem.

Besides, they feature unique advantages and use cases that make them relevant and preferred by different segments of the population. For instance, while UPI is convenient for small-value retail transactions and person-to-person transfers, bank cards offer advantages like reward programs, credit facilities, wider acceptance, and higher transaction limits.

What Does UPI’s Increasing Ubiquity Mean for India’s Retail Sector?

The Rise of UPI Transactions in India’s Retail Landscape

The increasing usage of UPI in India’s retail transactions has multiple benefits, such as:

  • Convenient and seamless payments. UPI offers a simple and user-friendly interface, enabling customers to make quick and hassle-free payments using their smartphones. This convenience encourages more people to adopt digital payments, even in remote areas, consequently leading to a surge in retail transactions.
  • A step toward a cashless economy. As UPI gains wider acceptance, it reduces the dependence on cash transactions and promotes digital transactions. This shift can lead to greater transparency in the retail sector, reduced black market activities, and improved tax compliance among merchants and consumers.
  • Financial inclusion. UPI allows linking mobile wallets and Jan Dhan accounts, contributing to the promotion of financial inclusion. The system enables individuals without traditional bank accounts to participate in the formal economy and make online purchases.
  • A boost for small businesses. UPI provides small retailers with a cost-effective and efficient payment solution. It eliminates the need for physical point-of-sale infrastructure and reduces transaction fees compared to traditional payment methods, helping merchants to streamline their operations, reduce cash handling risks, and expand their customer base.
  • Data-driven insights. With the rise of UPI, a significant amount of transaction data is generated, offering valuable insights for businesses. Retailers can analyze consumer spending patterns, preferences, and purchase behaviors, which allows them to make informed decisions on inventory management, marketing strategies, and customer engagement.
  • Fostering innovation. The increasing adoption of UPI is driving innovation in the Indian retail sector as businesses are developing solutions to integrate UPI into various platforms, including e-commerce websites, mobile applications, and payment gateways. This enables retailers to provide excellent personalized shopping experiences to their clients.

All in all, the growing adoption of UPI in India is enhancing payment convenience, promoting online shopping accessibility, driving digital transformation, and supporting the overall growth of the retail sector in the country.

A Glance at UPI’s Future in the Retail Sphere

The Rise of UPI Transactions in India’s Retail Landscape

As you can see, the future of UPI in the retail sphere in India appears promising, with several trends and developments indicating its continued increase in significance, namely:

  • Continuing adoption. UPI has already witnessed significant adoption since its introduction in 2016. As awareness and familiarity with this system continue to grow, more retailers are likely to adopt it as a preferred payment method.
  • Integration with offline retail. E-commerce platforms and online marketplaces already widely accept UPI payments. Moving forward, more traditional brick-and-mortar stores, small retailers, and street vendors are likely to adopt it, replacing or complementing cash transactions.
  • Enhanced security. UPI transactions are already secured through features like two-factor authentication, PIN codes, and encryption. Yet, there is a continuous focus on strengthening security measures around them to further protect users and combat fraud. Future advancements may include biometric authentication and advanced encryption techniques.
  • Integration with loyalty programs and offers. UPI platforms have the potential to integrate loyalty programs, discounts, and cashback offers to incentivize consumers and encourage repeat purchases.
  • Innovation in payment solutions. UPI’s success has fueled payment innovation, and this trend is likely to continue. Businesses will continue to develop new FinTech solutions and platforms built around UPI, potentially offering value-added services like instant credit, installment options, and customized payment solutions for specific retail segments.
  • Cross-border transactions. While UPI is currently mainly focused on domestic transactions within India, there is a possibility of its expansion for cross-border transactions. Efforts to enable UPI-based international payments are already underway, with the integration with Singapore’s PayNow system being one prominent example.

In summary, UPI’s role as a key driver of digital payments in the retail sector is expected to strengthen further, contributing to a more inclusive, efficient, and digitally enabled retail ecosystem in India.

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