Post-pandemic payments landcape: Digital payments surge, but some gaps remain; cash comes back too

To be sure, the range of digital payment products has widened since the pandemic — having started with the ECS (electronic clearing service), and NEFT, RTGS, IMPS, NACH (that has replaced ECS), the newer modes that have caught on include AePS, UPI, NETC etc. UPI itself has seen some innovations, such as UPI123Pay and UPI Lite; linking RuPay credit cards to UPI, processing payment mandates with single-block-and-multiple-debits, enabling Credit Lines for UPI, linking prepaid payments instruments (PPIs) with UPI, etc.

While these features have been innovative solutions to the UPI ecosystem, there is also a doubt on innovation beyond UPI. For instance, six years after it was first proposed, the Reserve Bank of India’s New Umbrella Entity (NUE) scheme continues to remain in limbo. The scheme was imagined to produce a competitor to the National Payments Corporation of India (NPCI), which managed the UPI platform, but has so far failed to produce any incremental innovation beyond UPI.

There is also a lot of scope to further deepen and expand digital payments in the country. In January 2025, according to RBI data, more than 20 billion payments worth almost Rs 250 lakh crore were made in India through digital modes. However, surveys have shown that nearly 40 per cent of India’s adult population still do not use digital payments, with lack of awareness or familiarity with using digital payments being a major reason.

Also, while in domestic payments, the success of UPI has helped push India to a leadership position with a share of 48.5 per cent in global real-time payments by volume, cross-border payments is still a gap. While India is the largest receiver of personal remittances globally, having received remittances totalling approximately $130 billion in 2024, the expansion of the reach of UPI for facilitating efficient cross-border payments has still not picked up.

While among the initially stated aims of demonetisation was to also reduce the reliance on cash, in order to increase transparency through digital transactions, that has not fructified, as the increase in digital payments has not proportionately reduced reliance on cash – in fact, currency in circulation more than doubled from Rs 13.35 lakh crore in 2016-2017, the year of demonetisation, to Rs 35.15 lakh crore in end March 2024. This, despite the RBI withdrawing Rs 2,000 notes in circulation in 2023.

There are also concerns that UPI’s growth itself might be stalling, as service providers find it increasingly difficult to build a business model around the volume of UPI transactions owing to the zero merchant discount rate (MDR), which the government has mandated for UPI payments to encourage the service. MDR is a fee merchants pay to banks for supporting digital payments.

“The reality is that UPI growth has now slowed to just 20-25 per cent. Digital payments haven’t been fully taped. Base number isn’t large and this growth is low. Investment in UPI deployments for small markets have dried up. UPI needs to become a business, to fund its own growth,” Amrish Rau, CEO of payments firm Pine Labs, said in a post on X.

Earlier this month, the Union Cabinet approved the extension of a Rs 1,500 crore incentive for the promotion of small-value BHIM-UPI (P2M) transactions, which are under Rs 2,000. However, the payments industry believes that with zero-MDR for UPI, the government incentive may not be enough, raising concerns over the sustainability of the UPI ecosystem.