Aren't we all searching for something?

Not sure what to search? Here are some topics that we can suggest you:

UPI and its implications - Is it sustainable in the long run?

UPI and its implications - Is it sustainable in the long run?

Image Source :

Decoding UPI's Future: Explore Implications and Long-Term Sustainability. Unveil the Digital Financial Landscape Ahead!

Unified Payments Interface (UPI) has undeniably revolutionized the landscape of digital transactions in India, garnering widespread praise for its convenience and accessibility. However, the recent discourse on whether the government should impose charges on UPI services has ignited a fervent debate about its sustainability in the long run. The Ministry of Finance's recent clarification that no charges will be levied has only intensified the discussion, raising crucial questions about the financial viability of UPI and its impact on the various stakeholders involved.

What is UPI?

Unified Payments Interface (UPI) is a real-time payment system developed by the National Payments Corporation of India (NPCI). It allows users to link multiple bank accounts to a single mobile application, facilitating seamless and instant fund routing between banks with the help of a unique identifier known as a Virtual Payment Address (VPA).

Key benefits of UPI:

1. Ease of Use: 

UPI streamlines the payment process by enabling consumers to link numerous bank accounts to a single mobile application. Transactions can be initiated with just a few taps on a smartphone.

2. Real-Time Transactions: 

One of the most significant advantages of UPI is the ability to make instant and real-time transactions. This feature is particularly beneficial for quick payments and transfers.

3. Interoperability: 

UPI is designed to be interoperable, meaning it works across different banks and financial institutions. Users can send and receive money between different banks seamlessly.

4. 24/7 Availability: 

Because UPI transactions can be started at any time of day, users have the freedom to send and receive money whenever they need to, even on weekends and holidays.

5. Single ID for Multiple Bank Accounts

With UPI, users can link multiple bank accounts to a single UPI ID. This eliminates the need to remember multiple bank details, streamlining the payment process.

6. Financial Inclusion: 

UPI has played a crucial role in promoting financial inclusion by providing a digital payment solution that is accessible to a wide range of users, including those in rural areas.

7. Security: 

UPI transactions are secured with multiple layers of authentication, including the use of MPINs (Mobile Personal Identification Numbers) and biometric authentication methods. This ensures a high level of security for users.

8. Cost-Effective: 

UPI transactions often come with lower or no transaction charges compared to traditional payment methods, making it a cost-effective option for users.

9. Promotes Digital Economy: 

UPI has been a key driver in India's transition towards a digital economy. It has significantly reduced the reliance on cash transactions, promoting a more efficient and transparent financial system.

10. Innovation in Payments: 

The UPI framework has provided a platform for innovation in the payments sector. Various third-party applications and services have been developed to leverage the UPI infrastructure, offering users a wide range of payment options and features.

The Finance Ministry, in a series of tweets, emphasized UPI's role as a "digital public good" that has not only brought immense convenience to the public but has also led to productivity gains for the economy. While this stance aligns with the government's commitment to financial inclusion, it has left companies providing UPI services grappling with the challenge of generating revenue and turning profitable in a zero-charge model.

D.K. Mittal, Former Banking Secretary, sheds light on the multi-faceted nature of the issue. He acknowledges the benefits UPI brings to both banks and the common man but raises a critical point: How can companies offering UPI services sustain themselves and build a viable business model if they cannot charge for their services? Mittal points out that while banks benefit from the reduced costs associated with UPI, service providers are left seeking alternative means of cost recovery.

Sarvatra Technologies, a key player facilitating UPI adoption, counters the argument of a rich-poor divide, asserting that transaction preferences are based more on the ticket size than the economic status of users. Their observation that UPI is widely used across urban and rural areas further reinforces its ubiquity and transformative impact on the payments system in India.

Awareness is one factor because it is not confined only to bringing people onto the digital payment landscape but also retaining them there, so they have very good positive experience which can help them to continue with this digital payment.
- Amitabh Khandelwal,  General Manager, Payment & Settlement Systems, RBI                                                                                                                    

UPI's performance in comparison to digital payment systems in other countries:

Transaction Volume and Value: UPI has seen remarkable growth in transaction volume and value, surpassing 10 billion transactions in a month. This has positioned UPI as one of the leading digital payment systems globally in terms of transaction volume.

Innovation and Interoperability: 

Thanks to UPI's novel interoperability approach, consumers can connect several bank accounts to a single interface. Many other countries have taken note of this approach and are exploring similar models to enhance the convenience and efficiency of digital payments.

Financial Inclusion: 

UPI has played a crucial role in promoting financial inclusion in India by providing a simple and accessible digital payment solution. Its impact on reaching unbanked and underbanked populations has been a notable achievement.

Government Support: 

The Indian government's support for UPI and its commitment to a cashless economy have contributed to its success. This level of government backing may differ in other countries.

Global Recognition: 

UPI has gained international recognition, with discussions about its model and potential adoption in other countries. However, the implementation and success of digital payment systems depend on various factors, including regulatory frameworks, infrastructure, and consumer behaviour.

Competition with Card Networks: 

In some countries, digital payment systems face competition with well-established card networks. UPI's success in India, despite the prevalence of traditional card payments, showcases its ability to coexist and complement existing payment methods.

The promise that UPI will remain free, with a business model distinct from credit and debit cards, raises intriguing questions about data monetization. Mandar Agashe, Founder & MD at Sarvatra Technologies, highlights the significant reduction in cash usage, resulting in banks having a wealth of data that can be potentially monetized. However, Deepak Shenoy, Founder of Capital Mind, downplays concerns about data, stating that banks already possess and share extensive data. He argues that the benefits of UPI far outweigh the potential costs associated with data privacy concerns.

It has emerged as a transformative force in the Indian banking ecosystem, offering a plethora of benefits that extend from enhanced interoperability to fostering innovation.

Substantial advantages UPI to the Indian Banking System:


The hallmark of UPI is its ability to unify the entire Indian banking ecosystem, breaking down barriers and facilitating interoperability. This integration allows different payment system players to access each other seamlessly, promoting simplicity and removing the need for complex authentication processes. The shift towards single or two-factor authentications enhances security across all payment applications.


Traditional banking often grapples with high transaction costs, especially for low-value transactions. UPI disrupts this norm by encouraging low-cost, high-volume payments. The shared platform ensures that every bank adopts the same ecosystem, leading to a streamlined reduction in transaction costs for all.

One of India's success story is digital infrastructure. UPI enables everybody to make transactions in seconds. Millions of Indians use it.         

- Volker Wissing, Germany's Federal Minister, Digital & Transport   

Reduction of Merchant Acquisition Costs:

Merchants stand to benefit significantly from UPI's unified payments platform. The need for purchasing and installing point-of-sale equipment diminishes as merchants can now utilize smartphone apps for transactions. This revolutionary change slashes merchant acquisition costs, leveling the playing field for businesses of all sizes.

Serving a Wider Audience:

The simplicity and accessibility of UPI empower individuals to operate businesses seamlessly, lowering entry barriers for startups and new ventures. This democratization of financial transactions enables a broader spectrum of entrepreneurs, from the 1% to the common middle-class worker, to participate in the economic landscape.

Convergence on a Common Platform:

With UPI, all key stakeholders—consumers, merchants, and banks—operate on a single platform. This convergence fosters cross-pollination of ideas, services, and apps, leading to the combination of different systems and services. Banks can offer enhanced discounts, services, prizes, and loyalty points, creating a more vibrant and competitive ecosystem.

Foster Innovation:

A pivotal contribution of UPI to the Indian banking sector is its role in fostering innovation. The platform serves as a catalyst for the industry's evolution, propelling it into the future. Much like the advent of iOS and Android transformed smartphones, UPI is reshaping the banking landscape, encouraging banks to explore new apps, authentication mechanisms, and services.

Convenience and Ease of Use:

The simplification of online banking through UPI enhances the overall convenience and ease of use for consumers. Digital wallet services and various subscription-based apps seamlessly integrate with the UPI system, providing a unified experience for users. From ride-sharing services to grocery options, companies can register their identifiers with UPI, creating a streamlined payment process for customers.

Remittance Transfers Made Easier:

UPI's influence extends beyond national borders, with efforts to improve remittance transfers in collaboration with countries like the UAE and Singapore. Major players like Google, Facebook, and Xiaomi have entered the UPI payments space, facilitating easier remittance transfers for millions of NRIs worldwide. The real-time global transfers enabled by companies like Western Union further connect over 200 countries to India financially.

Most of the businesses and customers are still very new to digital payments and we are seeing increasing adoption from tier 3 cities and other beyond rural areas.         
                                                                                                                                      - Shashank Kumar, Co-founder & CTO, Razorpay         

Mastercard's Chief Financial Officer, Sachin Mehra, applauds UPI for its impressive performance but raises a red flag about the financial losses incurred by ecosystem participants. In a candid assessment, Mehra notes that participants in the UPI ecosystem often find themselves at a financial disadvantage. This echoes concerns expressed earlier by Mastercard about the long-term sustainability of the UPI model.

The data from the National Payments Corporation of India (NPCI) paints a picture of UPI's staggering success, with transaction volumes and values witnessing significant year-on-year growth. The milestone of surpassing 10 billion transactions in August underscores the platform's popularity. However, as Mehra pointed out, the success of UPI comes at a cost, with banks facilitating transactions often facing financial losses.


The crux of the matter lies in finding a delicate balance between the admirable goals of financial inclusion and the pragmatic need for sustainable business models. UPI has undoubtedly played a pivotal role in reducing cash transactions and driving the digital payments revolution in India. Still, the challenge remains: how to ensure that the ecosystem thrives without imposing financial burdens on its participants.

As India embraces digital payments with fervor, it becomes imperative to explore innovative solutions that allow UPI service providers to flourish without compromising the accessibility and affordability that make UPI a preferred choice among users. The government's commitment to keeping UPI free is commendable, but it demands a collaborative effort from all stakeholders to devise a model that ensures the long-term viability and success of UPI in India's dynamic financial landscape. Only time will tell whether UPI can sustain its impressive momentum while addressing the financial concerns of its ecosystem participants.