How Effectively Is UPI Promoting a Cashless Economy?

Image by on Freepik.

Image by on Freepik.

Liza Wahi

The digital transformation of financial services has heralded a new era of economic inclusivity and accessibility in India, challenging traditional paradigms of banking and transactional engagements. At the heart of this transformation is the idea of financial inclusion, a strategic objective aimed at providing affordable, accessible, and relevant financial products to all individuals irrespective of their background. Within this context, digital payment systems emerge as pivotal tools, facilitating the transition towards a more inclusive and efficient financial ecosystem. As UPI has become an integral part of life for millions of Indians, its rapid rise raises intriguing questions about how technology shapes society.

While UPI has the potential to make India a cashless society, the reality is more complex. Factors like societal attitudes, technology access, and regulations all play a crucial role in how widely UPI can displace cash. Amongst the public, there are varied views on the role of UPI in promoting a cashless economy: while some believe that it is the best way to transform into a cashless economy, others believe it’s a huge concern when considering factors such as safety regulations, and as a result, can never have enough impact to achieve such a feat. There have been studies on how despite these benefits, adoption of digital payment methods in most emerging markets has been low. This brings us to question if UPI has been successful in its goal of achieving a cashless economy.

Observers who are more optimistic about UPI focus on the increase in digital financial inclusion and empowerment. They stress the idea that UPI has significantly contributed to a cashless economy by enhancing financial inclusion. This viewpoint is supported by the exponential growth in UPI transactions over the years, a testament to its widespread acceptance and usage. For instance, the National Payments Corporation of India (NPCI) reported that UPI transactions crossed a staggering 10 million in a single month in 2023, with a total transaction value exceeding ₹10 trillion. This surge reflects UPI’s critical role in integrating millions into the formal financial system, many of whom were previously reliant on cash transactions due to a lack of access to traditional banking services.

Real-life examples underscore UPI’s transformative impact. Small business owners and street vendors, who once operated entirely in cash, have adopted UPI to facilitate transactions. The story of an auto driver who discovered substantial savings in his digital account turned a moment of financial uncertainty into one of joy and relief showcasing how digital payments can transform the financial stability of individual entrepreneurs. Such narratives are echoed across India, showcasing UPI’s role in not just advancing financial inclusion but also in fostering economic empowerment at the grassroots level.

Conversely, people more skeptical of this payment method emphasize the hurdles that still impede the realization of a fully cashless economy through UPI. This perspective points to the infrastructural challenges and regulatory hurdles that limit UPI’s potential impact. Despite the robust transaction numbers, disparities in digital literacy and access to internet connectivity across different regions of India persist. A report by the Internet and Mobile Association of India (IAMAI) indicated that while internet penetration in urban areas stands at approximately 71%, it drops significantly to around 41% in rural areas. Such disparities highlight the digital divide that stymie the adoption of digital payment systems like UPI.

Regulatory challenges further complicate the landscape. The imposition of GST on digital transactions, for example, has been cited as a deterrent for both merchants and consumers. Factors such as harsh regulations and inadequate digital infrastructure play a pivotal role in the widespread adoption of the technology, thereby reducing its influence and effectiveness in creating a cashless economy. Additionally, concerns around digital fraud and data security have prompted calls for tighter regulatory oversight, potentially slowing down the pace of UPI adoption. 

Critically evaluating both views, it becomes evident that while each offers valuable insights, they have limitations. The first perspective focuses on the technology’s impact, framing the infrastructural challenges and regulatory issues as external while the other considers these barriers as inherent obstacles to its transformative potential. Both viewpoints require a more comprehensive exploration of the cultural and behavioural nuances influencing UPI adoption.T he research gap between these two revolves around an analysis regarding the psychological and behavioural aspects influencing the adoption of UPI. Understanding how individuals perceive and interact with this technology is a crucial yet unexplored facet of this situation that can significantly impact the technology’s success in achieving a cashless economy.

Tracking and Tackling Consumer Behaviour
Trust, or the lack thereof, in digital payments, significantly influences UPI’s acceptance, with concerns over security and fraud potentially deterring users, particularly among older and rural demographics. Equally critical is digital literacy; without a widespread understanding of how to navigate digital financial tools, individuals may hesitate to embrace UPI, fearing errors or exploitation. Moreover, cash has not only been a longstanding pillar of India’s economy but also holds cultural significance, making the shift to digital a challenge that transcends mere transactional convenience. 

This is why I am positing that the success of UPI in achieving a cashless economy, while dependent, also goes beyond technological aspects. The evidence also consistently highlights some of the following key aspects. In a country like India that is filled with misinformation and skepticism, a change in societal behaviour like increased awareness, trust in digital systems, and a cultural shift towards embracing electronic payments, is required for UPI to move from being a mere technology to a transformative force in India’s journey toward digital financial inclusion and a cashless society. Moreover, the success of UPI requires a seamless interplay between various components of public infrastructure. Enhanced internet connectivity is crucial, especially in rural and remote areas where access remains limited. Additionally, the security framework underpinning UPI, including encryption and authentication mechanisms, must be state-of-the-art to safeguard against fraud and breaches, instilling confidence in users about the safety of their financial data and transactions.

The realization of a cashless society in India, empowered by the widespread adoption of UPI, would not only signify a monumental shift in the financial landscape but also cause a ripple effect beyond economic metrics; it has the potential to foster a culture of transparency, reduce corruption, and streamline governance. Financial empowerment would not be a privilege but a widespread reality with the power to redefine economic participation, spur innovation, and drive growth across all sectors of the economy. Making this a reality requires a truly holistic approach, encompassing societal behaviour, regulatory reforms, and robust infrastructure development.

Liza Wahi is pursuing a BTech from Plaksha University, Mohali, where she specialises in Computer Science and Artificial Intelligence.