Explained: The story of UPI - How India built the world's most successful real-time payments network

Ten years ago, sending money digitally in India often meant navigating bank websites, remembering IFSC codes or relying on wallets that required pre-loading funds.Today, a payment can be completed in seconds by scanning a QR code, entering a mobile number or selecting a contact on a smartphone.That transformation has largely been driven by the Unified Payments Interface (UPI)—a homegrown payments infrastructure that has become one of India's most significant technology exports and a cornerstone of its digital public infrastructure. What began as a domestic payments innovation is now expanding internationally, with countries across Asia, Europe and the Middle East adopting or integrating the system. Read more: India's UPI expands to Greece, extending global payments footprint to 10 countriesWhat is UPI?UPI is an instant, interoperable payments system developed by the National Payments Corporation of India (NPCI), which operates under the regulatory oversight of the Reserve Bank of India (RBI).Built on the existing Immediate Payment Service (IMPS) infrastructure, UPI enables real-time bank-to-bank transfers around the clock. Unlike earlier digital payment systems, users no longer need to remember bank account numbers or IFSC codes. Payments can be made using a Virtual Payment Address (UPI ID), QR codes or linked mobile numbers. Its defining feature is interoperability: consumers can use one app to transact with customers of any participating bank.Why was UPI created?The idea predates smartphones becoming ubiquitous.In the early 2010s, India's digital payments ecosystem remained fragmented despite rapid growth in banking. Cash dominated retail transactions, while card acceptance remained limited outside larger cities.The RBI's payments vision emphasised building a payment system that would be secure, interoperable, accessible and available at all times. NPCI was tasked with creating a platform that could connect banks through a common digital infrastructure rather than allowing each institution to operate in isolation.The result was UPI. 2016: A quiet launch that changed everythingUPI was officially launched in April 2016, initially with 21 participating banks.At the time, few anticipated its eventual scale.The first year saw only 44 live banks, but the infrastructure had been designed for expansion rather than immediate scale. Later that year, the government launched BHIM (Bharat Interface for Money), a UPI-powered app aimed at encouraging digital payments among consumers. The rollout coincided with India's broader push toward digital transactions following demonetisation in November 2016, significantly accelerating public awareness and merchant adoption.Why did UPI succeed where others struggled?Unlike digital wallets, UPI did not require users to maintain a separate balance.Money moved directly between bank accounts.The system also adopted an open architecture, allowing banks and fintech companies alike to build applications on the same infrastructure.This created an ecosystem where companies such as PhonePe, Google Pay, Paytm and BHIM competed on user experience while relying on the same underlying payment rails.The result was rapid innovation without fragmenting the payments network. From peer-to-peer payments to everyday commerceInitially designed for person-to-person transfers, UPI quickly expanded into merchant payments.Today it powers payments across neighbourhood grocery stores, taxis, restaurants, e-commerce platforms, utility bills, education fees, healthcare services and government payments.QR codes have become ubiquitous across India's retail economy, allowing even the smallest merchants to accept digital payments without investing in expensive point-of-sale infrastructure.UPI 2.0 expanded its capabilitiesIn 2018, NPCI introduced UPI 2.0, adding several new features beyond simple money transfers.These included:One-time mandates for future paymentsInvoice verification within payment requestsSigned intent and QR functionality for enhanced securitySupport for overdraft accountsThe enhancements positioned UPI as more than a retail payments platform, enabling recurring payments and more sophisticated financial services. Building inclusion beyond smartphonesOne criticism of digital payments was that they primarily benefited smartphone users.To address this, RBI and NPCI launched UPI 123PAY in 2022, enabling feature-phone users to make digital payments through interactive voice response (IVR), missed calls and sound-based technologies.The initiative sought to extend digital payments to millions of Indians without internet-enabled smartphones. NPCI has also introduced innovations such as UPI Lite for small-value offline transactions and AutoPay, allowing recurring subscription and bill payments. These additions have expanded UPI's role from occasional transfers to everyday financial management. UPI by the numbersUPI's growth has been extraordinary.According to official government data marking its tenth anniversary:Participating banks increased from 44 in FY2016-17 to 703 by FY2025-26.The platform has processed hundreds of billions of transactions annually.India now accounts for nearly half of the world's real-time digital payment transactions, with UPI serving as the country's primary payments infrastructure. What began as a banking product has evolved into critical national infrastructure.Taking UPI globalUPI is no longer confined to India.NPCI International has been working with foreign governments, banks and payment networks to extend UPI's acceptance overseas.Indian travellers can now use UPI in countries including Singapore, the United Arab Emirates, France, Mauritius, Nepal, Bhutan, Sri Lanka, Qatar, Cambodia and Greece, with additional partnerships under development. Rather than exporting an app, India is exporting payment infrastructure—a model increasingly described as part of the country's broader Digital Public Infrastructure (DPI) strategy.Read: PhonePe, Google Pay’s combined UPI share falls below 80% as smaller apps gain groundAlso read: Amazon, Meta move to challenge PhonePe, Google Pay dominance in UPIChallenges aheadDespite its success, UPI faces new questions.Its dominance has reduced the relative importance of several older digital payment systems managed by NPCI, prompting discussions around maintaining a balanced payments ecosystem.The rapid rise in transaction volumes has also brought greater focus on fraud prevention, cybersecurity and platform resilience. NPCI has introduced tighter operational guidelines, improved recurring-payment management and additional safeguards to strengthen consumer protection as usage continues to grow. Another challenge is commercial sustainability. Because most consumer UPI transactions remain free, policymakers and industry participants continue to debate long-term funding models that preserve innovation while keeping the platform affordable.More than a payments appUPI's significance extends beyond digital transactions.It has fundamentally altered consumer behaviour, accelerated financial inclusion, lowered payment acceptance costs for merchants and enabled thousands of fintech businesses to build services on top of common public infrastructure.For much of the world, digital payments are still viewed as products offered by private companies. India's approach has been different: build public digital rails, allow private innovation to flourish on top of them, and create interoperability from the outset.A decade after its launch, UPI has become more than a payment mechanism. It has become one of India's most influential technology platforms—and one of its most closely watched digital exports.Also read: AI could become India’s next digital revolution after UPI, says Microsoft’s Jay Parikh