India now processes faster payments than any other country, thanks to the rapid expansion of the Unified Payments Interface (UPI), while the use of other payment instruments such as debit and credit cards is on the decline, according to a recent note by the International Monetary Fund (IMF).
UPI, developed by the National Payments Corporation of India (NPCI), is an instant, real-time payment system that facilitates inter-bank transactions via mobile phones.
In its Fintech Note titled "Growing Retail Digital Payments: The Value of Interoperability," the IMF noted that since UPI’s launch in 2016, the platform has seen swift adoption, coinciding with a noticeable drop in some indicators of cash usage.
Currently, UPI handles over 18 billion transactions each month and has become the dominant mode of electronic retail payments in India.
“India now makes faster payments than any other country. At the same time, proxies for cash usage have fallen,” the note stated.
The report relies on detailed transaction data from UPI, which has grown into the world’s largest fast retail payment system by volume. It highlights that UPI’s interoperable nature—allowing seamless transactions between different service providers—has significantly boosted the uptake of digital payments.
It also observed that systems like UPI, which enable interoperability, offer a strong alternative to closed-loop payment systems and play a key role in promoting digital payments. Such interoperability allows users of different platforms to transact with each other without friction.
“Importantly, total digital payments also rise relative to a proxy for cash usage,” the note added.
While tracking cash use directly remains challenging—given its anonymous and unrecorded nature, especially in the informal sector—the IMF used ATM withdrawals as a proxy to estimate cash usage. It found that in districts where interoperability improved, the value of digital transactions grew significantly in relation to cash withdrawals.
This trend, according to the report, provides strong evidence that interoperability supports digital payment adoption and encourages a shift away from cash-based transactions.
The Fintech Note was authored by Alexander Copestake, Divya Kirti, and Maria Soledad Martinez Peria.
Looking ahead, the authors advised that as interoperable platforms like UPI continue to expand and attract more participants, policymakers should remain vigilant against the rise of dominant private players. They stressed the need to preserve an open, competitive, and interoperable payment ecosystem.
They also recommended that payment authorities use a variety of metrics to detect any signs of anti-competitive behaviour and respond accordingly.
At every stage of development, the system operator should actively engage with both current and potential private sector participants to ensure that the design and evolution of the platform foster a healthy, inclusive digital payments environment, the note concluded.
(With PTI inputs)
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