In April 2016, the Modi government launched UPI as a pilot with 21 banks and a few hundred transactions. By FY 2025‑26 it had processed 24,162 crore transactions worth about ₹314 lakh crore, accounting for 85 % of India’s digital payments and nearly half of global real‑time volume.
The National Payments Corporation of India (NPCI), backed by the Reserve Bank of India and banks, built UPI on an open, interoperable platform. Users link multiple bank accounts to a single mobile app and transfer money instantly using a Virtual Payment Address, mobile number or QR code, without sharing account numbers.
Demonetisation in November 2016 created an urgent need for digital alternatives. The government launched the BHIM app in December 2016 to popularise UPI. Meanwhile, the Jan‑Dhan‑Aadhaar‑Mobile trinity had already brought hundreds of millions into the formal financial system, giving UPI a ready infrastructure.
Growth was steady at first. From about 2 crore transactions in FY 2016‑17, volumes rose to billions by FY 2019‑20. Private players such as PhonePe and Google Pay entered the market, competing on user experience while riding the same NPCI rail.
The real turning point came in January 2020 when the government mandated zero Merchant Discount Rate for UPI Person‑to‑Merchant transactions funded from bank accounts. This allowed roadside vendors and kirana stores to accept digital payments simply by displaying a QR code, free of cost.
During the COVID‑19 pandemic, UPI volumes nearly doubled year on year. By FY 2022‑23, transactions crossed 83 billion, and by FY 2025‑26 they exceeded 241 billion. Daily averages reached about 66 crore transactions. The number of banks on UPI grew from 21 to over 700, and user onboarding crossed 55 crore.
UPI 2.0, launched in 2018, added overdraft accounts, one‑time mandates, invoice details, AutoPay for recurring payments, UPI Lite for low‑value offline transactions, credit lines, and 123PAY for feature‑phone users.
International expansion began in the early 2020s. By mid‑2026 UPI operated in Singapore, UAE, France, Mauritius, Nepal, Bhutan, Sri Lanka, Qatar, Cambodia and Greece, allowing Indian travellers to pay by scanning local QR codes.
Visa and Mastercard run closed‑loop networks with a Merchant Discount Rate of 0.9 % to 3.75 % and settlement in T + 2 or T + 3 days. UPI, by contrast, offers near‑instant settlement with zero network MDR for bank‑account‑funded P2M transactions, thanks to government subsidies.
In August 2026, the Taxation and Other Laws (Amendment) Bill amended the Payment and Settlement Systems Act. It allows the central government to notify which electronic payment modes may attract charges, but P2P transfers remain free.
Critics fear a selective MDR could hurt merchants, while supporters argue a tiered structure protects small merchants and recovers costs on high‑value payments. The Parliamentary Standing Committee on Finance has reiterated that UPI will stay free for P2P transactions.
UPI’s success stems from treating digital infrastructure as a public asset, enforcing interoperability, keeping costs near zero during early adoption, and integrating with Aadhaar, Jan‑Dhan and Direct Benefit Transfer.
The result is formalisation of the informal economy, improved tax compliance, reduced cash logistics costs, and a powerful exportable digital public infrastructure that other countries study.
In its tenth year, UPI faces a crossroads: the first decade achieved scale and inclusion; the second decade must focus on sustainability, fraud prevention, deeper credit integration and measured global expansion while remaining free for users and small merchants.