The next phase of India’s digital payments revolution

UPI has given India one of the strongest digital institutions of the twenty-first century. The challenge now is not merely to celebrate its remarkable success, but to deepen it through complementary institutions that make digital finance an integral part of everyday economic life

‘Institutions are the rules of the game in a society.’ Nobel laureate Douglass C. North made this deceptively simple observation while explaining why some nations prosper and others struggle. Economic progress, he argued, is rarely the result of technology alone. It depends on institutions that reduce uncertainty, build trust and make everyday transactions easier. India’s digital payment revolution is perhaps the finest contemporary illustration of this principle. The country’s greatest innovation has not been a smartphone application. It has been the creation of a new institutional architecture for moving money.

Few countries have transformed the everyday act of payment as rapidly as India. Since its launch in 2016, the Unified Payments Interface has altered the financial behaviour of millions of citizens. It now processes more than 20 billion transactions every month and accounts for nearly half of all real-time payment transactions in the world. In a remarkably short period, UPI has become one of India’s most successful digital public goods, admired by governments, multilateral institutions and central banks alike.

These achievements deserve recognition. They also invite a more difficult question. Has India reached the limits of its digital payments revolution, or is it merely completing its first phase?

The answer lies beyond transaction volumes. Despite UPI’s spectacular success, cash continues to account for a significant share of household spending, particularly outside metropolitan India. Most UPI transactions are of low value, reflecting impressive inclusion but also revealing that digital payments have yet to dominate larger everyday commercial activity. India has solved the problem of scale. The next challenge is to achieve depth by embedding digital payments more comprehensively into transport, credit, commerce and international finance.

This is where the experiences of Japan, the United Kingdom and Singapore become instructive. None offers a template to copy. Each demonstrates how strong institutions evolve by solving the next problem rather than celebrating the previous achievement.

Japan’s experience reminds us that payment systems become powerful when they become invisible. The Suica card began as a transport ticket for Tokyo’s railway network. Over time, it evolved into a universal payment instrument accepted at convenience stores, restaurants, vending machines and neighbourhood retailers. Millions of commuters developed the habit of making digital payments not because they consciously embraced technology, but because technology quietly simplified everyday life.

That insight has particular relevance for India. Every day, millions of Indians travel by metro, suburban railways and city buses. Yet urban transport payments remain fragmented across cities, with different cards, tokens and ticketing systems coexisting. The National Common Mobility Card was conceived to address precisely this challenge by creating a single interoperable platform for mobility payments. Its progress, however, has been slower than originally envisioned.

A genuinely universal mobility payment system would do far more than improve urban transport. It would make digital payments an effortless daily habit for millions of commuters. Japan demonstrated that transport is not merely a public service. It is one of the most effective gateways to building a cashless economy. Significantly, Japan itself is now preparing to accept UPI at merchant outlets through collaborations between NPCI and NTT Data, reflecting the growing convergence between two countries that have approached digital payments from different directions.

If Japan teaches the importance of habit, the United Kingdom demonstrates the value of regulatory courage.

Open Banking in Britain did not emerge because banks voluntarily embraced competition. It emerged because regulators concluded that entrenched institutions had insufficient incentives to innovate. By requiring major banks to share customer data securely through standardised application programming interfaces, subject to customer consent, policymakers created an entirely new ecosystem of financial services. Consumers gained greater control over their financial information, while fintech companies found space to innovate without compromising trust.

India’s Account Aggregator framework rests on a similar philosophy. It allows individuals to share financial information securely and with explicit consent across banks and financial institutions. The framework has expanded rapidly and represents one of the world’s most sophisticated consent-based financial data architectures.

Yet the real challenge lies ahead. Adoption remains uneven across smaller banks, cooperative institutions and rural financial networks. The businesses that stand to benefit most from easier access to formal credit, including small enterprises, self-employed workers and gig economy participants, often remain outside the system’s reach. The lesson from Britain is that digital public infrastructure must be accompanied by consistent regulatory execution. Institutions become transformative only when participation is broad rather than selective.

Singapore offers a different lesson, one centred on simplicity. Its SGQR system unified multiple payment platforms into a single QR code that could be used by consumers regardless of their preferred payment application or bank. For merchants, particularly small businesses, the complexity of managing multiple payment systems disappeared almost overnight. The elegance of the reform lay not in inventing new technology but in eliminating unnecessary friction.

India’s Bharat QR embodies much the same philosophy in principle. It is an interoperable acceptance solution designed to work across UPI, RuPay, Visa and Mastercard, giving merchants a single QR-based route for receiving payments rather than forcing them to manage different payment-specific codes. In practice, however, many neighbourhood merchants continue to display multiple QR codes linked to different payment providers. Technical failures, inconsistent customer support and uneven merchant awareness continue to weaken confidence, particularly in smaller towns. Singapore’s experience illustrates that interoperability is not merely a technical standard. It is a governance objective requiring continuous implementation and monitoring.

India has already begun extending its payment architecture beyond national borders. The UPI-PayNow linkage with Singapore has demonstrated how inexpensive and instantaneous cross-border transfers can replace slower and more expensive conventional channels. UPI is now operational in several countries, while Japan’s planned acceptance of UPI represents another important milestone. These developments point towards a larger strategic possibility. India can move beyond exporting technology and begin shaping the architecture of international retail payments, particularly across the Global South.

The broader lesson emerging from these three countries is not that India has fallen behind. On the contrary, India has established one of the world’s most successful digital payment ecosystems in less than a decade. What distinguishes mature institutions, however, is their capacity to evolve. Scale creates opportunity, but institutional depth sustains leadership. The coming decade should therefore focus less on counting transactions and more on expanding their economic significance. Digital payments should seamlessly integrate with public transport, credit delivery, small business finance, cross-border commerce and government services. Success should increasingly be measured not simply by the number of payments made but by the range of economic activity those payments enable.

India’s digital payment revolution has already changed how money moves. Its next phase should change how the economy functions.

Douglass C North reminded us that institutions determine the long-run performance of economies because they shape incentives, reduce uncertainty and build trust.

Douglass C North reminded us that institutions determine the long-run performance of economies because they shape incentives, reduce uncertainty and build trust

Ashutosh Kumar Thakur is a writer and columnist based in Bengaluru. He writes on literature, society, politics, business and South Asian cultural histories for leading publications; Views presented are personal.