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India’s Unified Payments Interface Has Revolutionized Its Digital Payments Market

By: Divyam Raj MEng '25
Illustration showing two hands holding cell phones with money flowing from one phone to the other.

The Unified Payments Interface (UPI) has revolutionized the digital payments market in India in ways that have outpaced many seasoned banking systems, especially when compared to the banking system in the United States. Established by the National Payments Corporation of India(NPCI) in 2016, UPI is a real-time, instant payment system that allows users to transfer money between bank accounts using multiple mobile apps. Since 2016, the impact of UPI on the Indian economy has been profound, as it has greatly simplified business-to-consumer, business-to-business, and peer-to-peer payments, promoting digital inclusion while reducing dependency on cash.

The cash-to-digital transformation in India

Before UPI, India’s payment ecosystem was heavily reliant on cash, which accounted for more than 90 percent of transactions. UPI changed the game by offering an easy-to-use, free, and fast way for users to make digital payments. It brought together the convenience of mobile apps with the security of bank accounts, allowing users to make instant transfers across multiple banks 24/7.

The key to UPI’s triumph lies in its interoperability and speed. Unlike traditional banking systems, wherein interbank transfers could take hours or even days to process (especially during weekends or holidays), UPI enables the immediate transfer of funds with just a phone number or UPI ID. Furthermore, it integrates with various third-party applications such as Google Pay, PhonePe, Paytm, and others, ensuring the user experience remains seamless, user-friendly, and favorably accessible. UPI has also evolved to include features like recurring payments, bill splitting, and QR code-based transactions, which have been crucial for its widespread adoption. At least seven other countries had adopted UPI as of February 2024.

Comparing banking systems in India and the U.S.

While technologically advanced in many ways, the banking system in the United States lags behind India in terms of payment speed and ease of use. The primary method of transferring money between bank accounts in the U.S. relies on systems like Automated Clearing House (ACH) transfers and wire transfers. It is only recently that mobile payment apps such as Venmo, Zelle, CashApp and PayPal, were launched. However, ACH transfers are notoriously slow, often taking one to three business days to settle, and while wire transfers are faster, they usually come with hefty fees and are limited to business hours. Even mobile payment apps like Venmo or Zelle, though instant for some transactions, are still tied to traditional banking rails and can take time when moving funds to bank accounts.

There are several reasons why the U.S. system is slower and less efficient compared to UPI in India:

  1. Estate infrastructure: The U.S. banking system has long relied on legacy payment infrastructures, notably ACH, which was established decades ago. Although modernized over time, it has not been rebuilt to offer the speed and flexibility that UPI provides. Furthermore, there are multiple clearinghouses in the U.S., each with its systems and rules, making it harder to introduce a single, unified solution like UPI.
  2. Regulatory environment: The regulatory landscape in the U.S. is more fragmented, with various financial regulators controlling different aspects of the payments industry. This has resulted in slower adoption of faster payment mechanisms. There is also less collaboration across the financial sector compared to India’s more centralized approach under the NPCI and Reserve Bank of India (RBI).
  3. Lack of interoperability: In the U.S., many payment systems are siloed. For instance, Venmo or Zelle might work for peer-to-peer transfers, but they are not as widely accepted for merchant payments. UPI, on the other hand, integrates across banks, payment providers, and merchants, making it universally accepted for peer-to-peer, business-to-consumer, and business-to-business transactions.
  4. Cost structures and fees: U.S. banks charge fees for several types of transactions, including wire transfers, which has slowed the adoption of faster payment methods. UPI transactions in India are typically free, encouraging widespread use and small-value transactions that would be considered too costly in the U.S.
  5. Market incentives: U.S. financial institutions, which derive revenue from fees associated with existing payment methods like credit cards, wires, and ACH, have less incentive to push for a free, real-time payment system. There is also an attitude of “if it ain’t broke, don’t fix it.” In India, the government and regulators have worked actively to promote cashless transactions, ensuring that UPI has regulatory and institutional support to grow rapidly.

Where UPI excels and the U.S. lags

UPI’s transformative success stems from its ability to offer a fast, secure, and cost-effective payment solution that benefits all stakeholders—banks, consumers, and merchants alike. It eliminates the friction typically associated with digital payments and empowers even small-scale vendors and rural consumers to embrace the digital economy.

In contrast, the U.S. system, while functional and reliable, lacks immediacy and universality. The slow speed of money transfers in the U.S. can be frustrating, especially in an era where people expect instant solutions. The complexity and cost involved in processing interbank transfers or merchant payments through credit card networks further slow down innovation in this space.

UPI has set a global benchmark for digital payments by transforming India’s financial ecosystem. It created a near-frictionless environment for money transfers. While the U.S. remains a leader in various fintech innovations, its banking system still lags behind India in payment efficiency. Unless the U.S. undergoes significant reforms to modernize its payment infrastructure, which will require government and regulatory support, it will continue to fall short of the seamless and instant nature of systems like UPI.

About Divyam Raj, MEng ’25

headshot of Divyam Raj.

Divyam Raj is a master of engineering student in the engineering management department at the Cornell University College of Engineering, where he is specializing in leveraging tech and strategy to drive business growth. With more than three years of corporate experience, Raj has a proven track record of analyzing trends and uncovering opportunities in emerging markets, particularly in the telecom industry. Originally from New Delhi, India, Raj brings a unique perspective shaped by his understanding of diverse and dynamic economies.

As an Emerging Markets Institute Fellow, Raj actively contributes to the Emerging Markets Institute at the Cornell SC Johnson College of Business by researching critical topics that have revolutionized emerging markets. He applies his professional and academic expertise to explore solutions for businesses and how they could learn and adopt new tech from emerging markets, aligning with EMI’s mission to prepare future leaders in global markets.