On 11th August 2016, the former governor of the Reserve Bank of India (RBI), Dr Raghuram Rajan, launched the pilot of India’s first government-backed digital payment system, UPI. The industry acronym for Unified Payments Interface, SCBs, NBFCs and SFBs rapidly followed suit and launched their own versions of the digital payment system by 25th August 2016.

Recently India marked the 5th year anniversary of UPI’s successful launch, and in this time duration, a lot has changed in India’s digital payment ecosystem, majorly due to the contributions of UPI.

Thus, in today’s article, we will take a closer look at how UPI has evolved since the 5 years of its launch and also try to understand how this groundbreaking technology is changing India’s digital economy for the better.

Without further ado, let’s get started.

Table of Contents

  1. What is UPI?
  2. 3 Pillars of Change
  3. Conclusion
  4. The Reference Shelf

What Is UPI?

Before we begin to comprehend how UPI is fostering innovation in India’s digital economy, let us start by understanding the essence of this technology. In simple terms, UPI can be understood as a single-window interface, which you can leverage to instantly transfer funds between bank accounts, pay a merchant or a service provider either online or offline simply by scanning a QR (quick response) code or via a UPI ID.

Source : How Do UPI Payments Work at Medium

In order to initiate a transaction via the UPI portal, all one needs is to have a full-KYC bank account and a mobile phone with the same number linked to the bank account. As the UPI framework combines multiple different services under one umbrella, a user can not only verify their identity via an SMS sent from the registered mobile number but also link a bank account of their choice via 2FA authentication, either via net banking or a debit card pin.

Once the setup is complete, and a UPI ID is successfully generated, users can send as well as receive funds instantly in their accounts, without the need of repeating routine formalities.

3 Pillars Of Change

The radicalizations brought forward by the UPI framework since its inception can be traced across 3 main pillars:

  1. Government Schemes
  2. Healthcare and Education
  3. Business and Miscellaneous.

Let us explore each of them in detail.

  1. Government Schemes

In 2015, the Government of India launched its marquee initiative titled Digital India, and one of the core problems it aimed to challenge was the inherent resistance among users to try out pre-existing online payment frameworks such as RTGS and NEFT.

While there are a multitude of reasons which contribute to this, one of the primary is the necessity to remember complex details such as bank account number, IFSC code, net banking password and more. Along with this, since most net banking portals across India rely on legacy technology to facilitate their operations, the challenge only becomes harder for the average consumer.

On the other hand, the UPI rails framework enables peer to peer transfer in a matter of minutes, and when applied at scale, such as in the case of government schemes such as DBT (Direct Benefit Transfer) and Jan Dhan Yojana, the benefits become apparent.

Recently both these schemes adopted the UPI framework, and as per reports, faulty transactions have decreased by a significant amount, since now authorities do not need to enter multiple credentials but only one, that is the customer’s UPI ID to authorize and subsequently proceed with a transaction.

Source : Volume of UPI-based digital payments across India from financial year 2017 to 2021 by Statista

2. Healthcare and Education

Prior to the introduction of the UPI framework, patrons across the healthcare as well as education sectors in India primarily relied on cash-based transactions. At first glance, the problems of this increased dependency are not apparent; however, upon closer examination, it becomes clear that there are several underlying issues, one of the most significant of them being, payment actualization.

Since, across both these industries, customers generally engage in high ticket transactions, relying on only cash-based payment methods often translates to the fact that merchants need to wait longer than ever before on the customer to complete the transaction. Along with this, the chances of financial fraud, either in the form of fake or unregulated currency was also prominent across institutions, which contributed to their loss in revenue.

However, post the adoption of UPI, not only were institutions able to instantly accept and verify customer transactions but also curb the frequency of financial fraud.

Additionally the adoption of UPI also meant that customers no longer had to carry bundles of currency with them every time they wanted to make a payment at either an educational institution or healthcare facility.

3. Business and Miscellaneous

Last but not least, businesses across India, right from the local kirana store at a Tier III city all the way to a conglomerate like Reliance, are seeing exponential growth in payments thanks to the adoption of UPI. As the core theme of this framework is to significantly reduce the friction involved in online transactions, it has made it easier than ever before for customers to avail services as and when required.

For example, earlier to UPI, if you needed to recharge your mobile phone, you would need to visit the local store and pay them in cash. While this method is convenient, it was highly unreliable mainly due to the presence of a number of variable factors. On the other hand, now, with the help of UPI, all you need to do is open a payment application of your choice, enter the desired amount, and your mobile will be successfully recharged in no time.


Over the past 5 years, the UPI framework in India has traversed leaps and bounds and made it simpler than ever before for merchants and customers alike to transact with each other from the comfort of their mobile screens.

As the government continues its efforts in nurturing India’s digital economy, we at Finflux are definitely hopeful for a brighter future.

Thank you for reading, and I will see you in the next one.

The Reference Shelf

  1. Ways How UPI is Changing the Payments Ecosystem in India [Link]
  2. How UPI is making India’s digital economy boom [Link]
  3. Rise Of Digital Payments And UPI In India [Link]
  4. Volume of UPI-based digital payments across India from financial year 2017 to 2021 [Link]
  5. What Is UPI And How Does It Work? [Link]
  6. How Do UPI Payments Work? [Link]