UPI Strengthens India's Digital Payment Landscape: IMF

India has witnessed a sharp rise in real-time digital transactions, led by the expansion of the Unified Payments Interface (UPI), according to a recent note published by the International Monetary Fund (IMF).

The IMF's Fintech Note titled" Growing Retail Digital Payments: The Value of Interoperability", emphasises the importance of interoperability for encouraging acceptance of digital payments. The note mentions UPI as an example of that platform and notes how quickly it has grown since it started in 2016.

According to a PTI report citing the IMF note, UPI now handles more than 18 billion transactions per month, making it the largest fast retail payment system globally by volume.

The report analyses detailed transactional data to assess the impact of interoperable systems on payment trends. It shows that digital payments increased significantly in regions where payment platforms became more integrated. As cash transactions are not always recorded, the IMF employs ATM withdrawals as a substitute for cash usage.

"Importantly, total digital payments also rise relative to a proxy for cash usage," the note states.

The IMF highlights that as interoperability expands, it may influence a broader shift away from cash. The findings show that areas with higher levels of integration experienced a more sustained increase in digital transaction volumes than areas with less interoperability.

The note also outlines potential regulatory challenges as more participants join such systems. It advises payment authorities to keep track of market dynamics and intervene when necessary to maintain an open and competitive environment.

The authors suggest that regular consultation with private sector participants, both existing and potential, is important to support the development of a sustainable digital payments ecosystem.

The note was authored by IMF staff members Alexander Copestake, Divya Kirti, and Maria Soledad Martinez Peria. It emphasises the importance of interoperable platforms like UPI in driving transaction behaviour and facilitating the larger shift toward digital retail payments.