India’s Unified Payment Interface (UPI) has emerged as the crown jewel of the nation’s digital transformation, processing an astounding 59 crore transactions daily and accounting for nearly 46% of global digital transactions. This explosive growth—a 90-fold increase in retail digital payments over the past 12 years—has positioned India at the forefront of financial technology innovation. However, as UPI sets its sights on even more ambitious expansion, cracks in the foundation are beginning to show.
The Rise of a Digital Payments Powerhouse
What began as an ambitious project has evolved into the backbone of India’s digital economy. UPI now facilitates 85% of all online transactions in the country, translating to a staggering 1,700 crore transactions monthly valued at approximately ₹24 lakh crore. The system has successfully brought digital payments to the masses, enabling transactions from as small as a cup of tea to as large as ₹5 lakh with just a smartphone and QR code.
The market is dominated by two major players—PhonePe with a 47.25% share and Google Pay with 36.04%—who together handle 83% of all UPI transactions. This duopoly creates a concentrated ecosystem where technical issues can have widespread impacts.
Ambitious Expansion Plans
Despite its already impressive reach, the National Payments Corporation of India (NPCI), the body behind UPI, isn’t resting on its laurels. Dilip Asbe, NPCI’s managing director and CEO, has outlined plans to bring an additional 200-300 million Indians into the UPI ecosystem, primarily targeting those who still rely on cash transactions.
Innovative initiatives in the pipeline include delegated accounts for children and household staff who may lack traditional bank accounts, expansion of multilingual features, and vision recognition technology for applications like parking payments. NPCI is also exploring ways to expand UPI’s credit offerings for retail customers, potentially leveraging transaction data to improve credit approval decisions.
Beyond domestic growth, India is actively pitching UPI for international adoption, particularly in countries with significant Indian diaspora populations. The government has already struck deals with Singapore and the UAE, with aspirations to expand into Western markets like the UK, US, and Australia. The goal is to make remittances—which reached a record $129 billion flowing into India in 2024—more affordable and real-time for the Indian diaspora.
Growing Pains and Infrastructure Challenges
However, this breakneck growth is revealing significant vulnerabilities in UPI’s infrastructure. A series of outages in early 2025—on March 26, April 1, and April 12—have raised serious concerns about the system’s reliability. In total, UPI has experienced 282 minutes of downtime over the past three years, including 95 minutes in March 2025 alone.
While these outages might seem brief, their impact is substantial. Even a one-hour disruption can potentially delay economic activity worth ₹1,200 crore, stranding retail customers at checkout counters, halting QR-code dependent businesses, and delaying salary disbursements for gig workers.
The Investment Conundrum
At the heart of UPI’s infrastructure challenges lies a fundamental investment problem. Since 2020, UPI transactions have been free for merchants due to the Zero Merchant Discount Rate (MDR) policy—a government decision to accelerate adoption by waiving the 0.3% fee that was previously charged.
To offset this loss, the government reimburses the industry at 0.15% for transactions below ₹2,000. However, the allocated subsidy has dropped to ₹1,500 crores against an estimated requirement of ₹4,500 crores, creating a significant funding gap. This shortfall has resulted in underinvestment in digital payment infrastructure, putting pressure on the UPI network.
The Payments Council of India has proposed reinstating a 0.30% MDR for large merchants with an annual turnover exceeding ₹40 lakh. This would allow payment platforms to monetize their services and reinvest in strengthening the infrastructure. However, there’s resistance to this idea—a recent survey indicated that 73% of UPI users would stop using the service if transaction fees were imposed.
A Penny for our Thoughts
As UPI stands at this critical juncture, balancing explosive growth with sustainable infrastructure investment presents a formidable challenge. The system maintains an impressive 99% uptime, but as transaction volumes continue to climb, the stakes for maintaining reliability grow ever higher. And that’s before you factor in the massive growth ambitions of those at the highest levels.
The UPI ecosystem is now working with the government and the Reserve Bank of India to make the platform financially viable “by creating a small fee for large merchants,” according to Asbe. How this delicate balancing act between growth, accessibility, and financial sustainability plays out will determine whether UPI can truly fulfill its billion-user dream while maintaining the reliability that India’s digital economy now depends upon.
