Impact of UPI on India’s Digital Economy in 2024

Ease of Use and Popularity

The Unified Payments Interface (UPI), introduced in 2016 by India’s central bank in collaboration with the banking sector, has transformed how transactions are performed in India. This app-based instant payment system enables users to send and receive money, settle bills, and authorize payments without needing to enter bank details. Its user-friendly nature and zero transaction fees have contributed to its immense popularity, with India leading the real-time payments market, recording 14 billion transactions in May 2024 alone.

Benefits of UPI

• Convenience: Users can finalize transactions swiftly by scanning a code and entering a PIN.
• Cashless Transactions: UPI minimizes the need for cash handling, enhancing the transaction process for vendors like Arun Kumar, a fruit seller in Mumbai, who finds UPI simplifies his daily operations.
• Accessibility: UPI is reachable even in rural regions where traditional banking services are scarce, aiding small business owners like Poonam Untwal in Rajasthan to manage their businesses effectively.

Risks and Vulnerabilities

Despite its advantages, the rapid adoption of UPI presents challenges, particularly concerning fraud:

• Scams: Fraudsters manipulate the system by convincing users to share their UPI PIN or by distributing counterfeit apps to steal credentials.
• Digital Literacy: The rapid digital shift has surpassed the level of digital literacy and safe internet practices, making users susceptible to scams. Shashank Shekhar from the Future Crime Research Foundation indicates that nearly half of all financial fraud cases from January 2020 to June 2023 involved UPI.
• Financial Fraud: Government statistics reveal over 95,000 cases of UPI fraud in the financial year ending April 2023, an increase from 77,000 in the previous year.

Case Study: Victim of Fraud

Shivkali, a 22-year-old resident of Bihar, experienced a UPI scam while attempting to buy a scooter online. After transferring $200 through UPI, the scooter was never delivered, illustrating the advanced tactics scammers employ to deceive even educated individuals.

Government and Bank Measures

The government and central bank are seeking methods to safeguard UPI users. However, obtaining compensation for victims currently necessitates contacting the bank, which poses difficulties due to lax identity verification by banks and telecom providers. Dr. Durgesh Pandey, a specialist in financial crime, points out that both banks and victims share responsibility for fraud losses, highlighting the need for a balanced approach to identity verification.

Promoting UPI in Rural Areas and Abroad

UPI’s outreach to rural areas is bolstered by initiatives that educate the public about digital banking. It is also gaining international acceptance, with merchants in nations such as Bhutan, Mauritius, Nepal, Singapore, Sri Lanka, and the UAE now accepting UPI payments. France has become the first European country to embrace UPI payments, commencing with ticket sales for the Eiffel Tower.

Conclusion

While UPI has greatly facilitated financial transactions and advanced cashless economies, especially in rural settings, it also poses risks that require addressing through enhanced digital literacy and robust fraud prevention strategies. Arun Kumar, a street vendor in Mumbai, values the convenience but remains wary of potential fraud, wishing for better protections for small vendors like himself.

Frequently Asked Questions (FAQs)

Q1. What is UPI and how does it work?
Answer: UPI, or Unified Payments Interface, is a digital payment system that allows users to transfer money and make payments instantly through mobile applications without needing bank details.

Q2. What are the main benefits of using UPI?
Answer: UPI offers convenience, cashless transactions, and accessibility, particularly in rural areas, making it easier for users to conduct financial operations quickly and efficiently.

Q3. What risks are associated with UPI transactions?
Answer: The primary risks of UPI include scams, the need for improved digital literacy, and increasing instances of financial fraud, making users vulnerable to exploitation.

Q4. How is the government addressing UPI fraud?
Answer: The government and central bank are working on enhancing protections for UPI users, although challenges remain with compensation processes and identity verification.

Q5. Is UPI being accepted internationally?
Answer: Yes, UPI is expanding globally, with many countries, including France, now accepting UPI payments, thus facilitating international transactions for users.

UPSC Practice MCQs

Question 1: What year was UPI launched in India?
A) 2014
B) 2016
C) 2018
D) 2020
Correct Answer: B

Question 2: What is a significant risk associated with UPI?
A) High transaction fees
B) Scams and fraud
C) Limited accessibility
D) Paper-based transactions
Correct Answer: B