Govt's incentive scheme powered 11x surge in digital payments in three years, study shows

The Centre’s ₹8,276-crore incentive scheme to promote RuPay debit cards and low-value UPI transactions, which ran from FY22 to FY25, drove an 11-fold increase in digital payments over this period and cemented UPI’s position as India’s dominant payment rail, accounting for nearly 80% of total digital transactions, according to a government-commissioned impact study.

The report, titled ‘Socio-economic impact analysis of the incentive scheme for promotion of RuPay debit card and low-value BHIM-UPI (person-to-merchant) transactions’, was unveiled by the department of financial services (DFS) during a Chintan Shivir held on 13-14 February. The study was conducted by an independent third-party research agency in consultation with the National Payments Corporation of India (NPCI), which runs UPI.

The survey covered 10,378 respondents across 15 states, including 6,167 users, 2,199 merchants and 2,012 service providers. Face-to-face interviews were conducted between July and August 2025 across five regions—north, south, east, west and north-east India.

The DFS said the findings would inform future policy design and reinforce support for India’s digital payments ecosystem.

According to the report, the incentive support helped reduce cost barriers, expand merchant onboarding and strengthen the digital payments infrastructure across urban and semi-urban India.

Adoption is particularly strong among younger users. In the 18–25 age group, 66% prefer UPI, indicating a clear shift toward digital-first financial habits. Overall, 90% of users reported increased confidence in digital payments after using UPI and RuPay cards, which was accompanied by a noticeable decline in cash usage and ATM withdrawals. The study also observed a reduction in the share of lower-denomination currency notes, suggesting small-ticket transactions have migrated to digital platforms.

Speed emerged as the strongest driver of adoption, with 74% of UPI users citing it as the primary advantage. This was followed by the convenience of not carrying cash (59%), enhanced security (53%), and ease of use (52%). Cashback incentives were identified as a key motivator by 52% of respondents, underlining the importance of financial rewards in shaping behaviour.

The study also found that UPI’s dominance extends across spending categories. It is the most preferred mode for online shopping (64%), subscriptions (61%) and bill payments (58%). Even in traditionally cash-heavy segments such as groceries and daily essentials, UPI (48%) has overtaken cash (43%). For offline shopping and food and entertainment, more than half of respondents indicated a preference for UPI.

Improved internet access (37%) and enhanced security features (36%) were among the top factors users said would further increase their use of digital payments, alongside cashback and reward incentives. Accessibility measures such as vernacular interfaces and simpler app designs were found to be particularly important for lower-income and first-time users.

For merchants, quick payments (68%) emerged as the top benefit, followed by reduced dependency on cash (48%), convenience (46%) and enhanced security (43%). Around 38% said digital payments align with customer preferences, while 25% pointed to improved access to credit due to digital transaction records.

The report highlighted that digital payments are also contributing to broader socio-economic gains. Increased formalisation of transactions is creating digital footprints that enhance transparency and improve credit assessment. Respondents also acknowledged systemic benefits such as boosting the economy (18%), improving the digital payments ecosystem (17%), enhancing credit access (16%) and reducing financial inequality (14%).

While UPI’s growth story is firmly established, the report highlighted the need for targeted efforts to increase the use of RuPay debit cards, especially in rural and semi-urban areas. Recommendations include focused merchant enablement programmes, promotion of low-value digital transactions through solutions such as UPI Lite, and continued investments in connectivity, digital literacy and mitigating fraud risk.