Skipping the Traditional Bank: The UPI Transformation Underway in India

By Sanjay Daswani, International Business Development, Wildfire Systems

India’s Unified Payment Interface (UPI) has been a game changer for financial inclusion in the country. By providing easy, instant digital payments using only a mobile phone, UPI has brought hundreds of millions of previously unbanked Indians into the formal financial system. This peer-to-peer platform allows users to make payments directly from their bank accounts 24/7 using a simple Virtual Payment Address (VPA), removing the need to share sensitive banking details. In just a few years, UPI has exploded in popularity with over 10 billion transactions in August 2023 alone, thanks to the platform’s convenience and security. The Times of India reports there are now 300 million UPI users and 500 million merchants who use UPI to accept payments.

The impacts of UPI’s success have been wide-ranging. For individual consumers, it has enabled access to financial services and e-commerce that were previously out of reach for many. Digital payments allow more Indians to participate in the formal economy, build financial histories, and access additional services like microloans and insurance. For small businesses, UPI provides a free, instant way to accept digital payments from customers without expensive point-of-sale infrastructure. This has spurred entrepreneurship and financial inclusion especially in rural areas.

UPI has helped banks acquire new customers that were previously unwilling or unable to open traditional accounts. Part of the implementation of UPI was the creation of a nationwide digital ID system. This digital ID system makes it much easier to create bank accounts as it includes biometric verification processes. Now, many Indians have opened bank accounts, and government benefits can be paid into these accounts. In just one year, 166 million bank accounts were opened, and that figure doubled to 385 million in 2019.

Global Implications for UPI

The impacts extend beyond India as well. Seeing its success, many other countries are studying UPI as a model for improving financial access through instant, inexpensive peer-to-peer payments. Singapore recently launched a similar system called PayNow, which is linked to India’s UPI to enable cross-border transfers. Thailand, the Philippines, and other Asian nations are in various stages of implementing fast payment platforms inspired by India’s example.

UPI does present some risks and challenges, however. Cybersecurity and fraud monitoring are essential for building trust. And interoperability between bank accounts and digital wallets can still be improved. There are also concerns about tech giants dominating the payments space. Finally, financial literacy efforts must accompany any new digital system to ensure responsible usage.

But overall, UPI offers a blueprint for financial inclusion that could benefit billions of people globally. By meeting consumers where they are with easy mobile payments, UPI brings those at the margins into the formal financial fold and empowers individuals, small businesses, and the broader economy. It also opens the world of e-commerce up to the formerly unbanked, granting them access not just to online shopping but also to loyalty programs, shopping rewards, and the other perks of digital retail, including access to niche products, and easier product research and price comparisons.

As more countries continue to study India’s model, instant real-time payments could soon become the norm worldwide. In fact, UAE, Sri Lanka, and France recently began accepting UPI as a payment tender – significant especially for France, as the move allows UPI to establish a foothold in Europe for the first time.

As demonstrated in India, the technology could enable economic participation for huge, underserved populations, boosting prosperity and financial security. Beyond these benefits, UPI provides a glimpse into how digital finance could transform lives globally.

About the author

Sanjay Daswani heads up international business development for Wildfire. In this role, he oversees partnerships and market expansion across Europe, the Middle East, Asia Pacific, and Latin America. With over 20 years of experience in the technology and telecommunications industries, Sanjay specializes in identifying key strategic partners while also onboarding new relationships to drive business growth. An entrepreneur at heart, he has a passion for bringing innovative technologies to market across hardware, software, and services. Having lived and worked across multiple continents and cultures, Sanjay thrives on connecting people and ideas across borders.