Up until a few years ago, India was a largely cash-based economy, with very few people feeling comfortable enough to make payments online using cards or internet banking. Today, on the other hand, cash payments have all but disappeared, replaced by the online alternatives of payments such as e-wallets and UPI apps.
Within this shift in the payment infrastructure in the country, a special place is held by the UPI payment network. Developed first by the National Payments Corporation of India or NPCI, the United Payments Interface became the face of the cashless movement in the country. The convenience and interconnectivity of the service have allowed people to completely shift to using UPI for both online and offline purchases. Currently, UPI has become the largest retail payment platform in the country.
How did UPI become the preferred payment system in India?
But what are the factors that allowed UPI to become the most preferred way of making payments in India? One clue lies in the ease of use offered by UPI and its third-party apps. UPI can be used on any of its third-party apps, such as Google Pay or PhonePe, but there is interconnectivity through the use of the virtual payment address or UPI ID generated for each user. Using the UPI ID, users can make payments to other users, whether or not they are on the same app.
Apart from this user-friendly feature, UPI also removes the added step of having to top up virtual wallets. Instead, UPI is directly tied to the user’s bank account, which makes it super convenient to withdraw or deposit money directly to the bank account. The NPCI has also recently started the effort to make smaller UPI transactions possible without the use of the internet, to integrate rural populations into the payment structure as well.
Other factors that contributed to the growth of UPI.
However, there are some other external factors that have also contributed to the growth of the payment service, and it all cannot be attributed to the quality of UPI itself. Beginning with the Demonetization, followed by the pandemic, UPI has had the perfect context in which it could gradually displace the cash economy in the country.
In fact, it was during the pandemic that UPI saw the most tremendous rise in the number of its monthly transactions, because due to the lockdowns imposed by the government, most people were at home, unable to go outside, and had to largely rely on online deliveries and payments.
Another benefit of the lockdown was that there was an immense rise in the number of people who began to find entertainment online – whether it was playing mobile games like PUBG or playing IPL satta, people found apps and websites which allowed them to play and make money. These apps and websites also promoted the use of a convenient payment service such as that of UPI.
Last but not least, the e-commerce industry has also had a huge role to play in the exponential growth of the UPI payment industry. With the Cash on Delivery option on hold due to the “No Contact Delivery” parameters, UPI was the next best option to make payments and buy essentials online.