Digital Payments Ecosystem: UPI, e-RUPI, CBDC Global Comparisons | Science & Technology for UPSC CSE PDF Download

India’s digital payments ecosystem, comprising the Unified Payments Interface (UPI), e-RUPI, and Central Bank Digital Currency (CBDC), has transformed financial transactions, driving inclusion, transparency, and economic growth. Launched under the Digital India initiative, these systems leverage technology to serve India’s 1.4 billion population, with UPI alone processing over 131 billion transactions worth ₹200 lakh crore in FY 2024-25. The ecosystem supports India’s Aatmanirbhar Bharat vision, aligns with SDG 8 (Decent Work and Economic Growth), and positions India as a global fintech leader. As of 2025, the 2025-26 Union Budget’s ₹1.5 lakh crore for digital infrastructure and international partnerships (e.g., UPI expansion to UAE) highlight their strategic importance. 

Unified Payments Interface (UPI)

• Launch: April 2016 by NPCI, under RBI oversight.

• Mechanism: Real-time, interoperable payment system linking bank accounts via mobile apps (e.g., BHIM, Google Pay, PhonePe). Uses Virtual Payment Address (VPA) for seamless transactions.

• Features:

  • Instant transfers (24/7) using QR codes, mobile numbers, or VPAs.

  • Supports P2P (peer-to-peer), P2M (peer-to-merchant), and bill payments.

  • Zero transaction fees for most users (merchant fees introduced in 2023 for select categories).

• Scale (2024-25): 131 billion transactions, ₹200 lakh crore value; 400 million users, 300 million merchants. UPI handles 80% of India’s retail digital payments.

Key Initiatives

• UPI Lite: Launched 2022, enables small-value offline transactions (up to ₹500) without PIN, easing server load.

• UPI 123Pay: Introduced 2022 for feature phone users, using IVR, missed calls, or sound-based payments for rural inclusion.

• UPI for NRIs: Extended to 10 countries (e.g., UAE, Singapore) by 2025, enabling cross-border remittances.

• UPI Circle: Launched 2024, allows shared account access for family/delegates, enhancing accessibility.

Recent Developments 

• International Expansion: UPI operational in UAE, Singapore, France, and Mauritius; MoUs signed with Nepal, Sri Lanka (2024). In July 2025, UAE’s Mashreq Bank integrated UPI for Indian diaspora.

• Budget 2025-26: ₹10,000 crore allocated for UPI infrastructure, aiming for 200 billion transactions by 2026.

• AI Integration: NPCI piloted AI-based fraud detection in 2024, reducing phishing by 15%.

• UPI on Cloud: Launched 2025 with Google Cloud, enhancing scalability and global outreach.

Significance for India

• Financial Inclusion: Reaches 80% of India’s unbanked population; rural penetration via UPI 123Pay.

• Economic Impact: Reduces cash circulation (cash-to-GDP ratio down from 12% in 2016 to 8% in 2025); boosts digital economy (~$1 trillion by 2030).

• Global Leadership: UPI’s low-cost, high-volume model is a blueprint for Global South nations.

e-RUPI

• Launch: August 2021 by NPCI, RBI, and Department of Financial Services.

• Mechanism: Digital voucher (QR code or SMS) issued by banks for specific purposes (e.g., welfare, healthcare). Non-transferable, redeemable only by intended beneficiaries.

• Features:

  • Purpose-specific: Tied to schemes like PMJAY (healthcare) or DBT (direct benefit transfer).

  • Cashless and contactless: Ensures targeted delivery without physical cash.

  • Interoperable: Works with UPI ecosystem; no bank account needed for recipients.

• Scale (2025): Used in 50+ welfare schemes; 10 million+ vouchers issued, worth ₹5,000 crore.

Key Applications

• Welfare Delivery: PM Kisan, Ayushman Bharat, and education subsidies.

• Corporate Use: Gifting, employee benefits (e.g., meal vouchers).

• Healthcare: Vaccination drives, medicine subsidies during pandemics.

Recent Developments

• Expansion: Integrated with 100+ state schemes in 2024; adopted by private hospitals for CSR.

• Budget 2025-26: ₹2,000 crore for e-RUPI in DBT, targeting 20 million vouchers by 2026.

• Rural Push: Linked with UPI 123Pay to reach feature phone users in rural areas.

• Pilot for Education: 2025 pilot in Uttar Pradesh for school fee vouchers, covering 1 million students.

Significance for India

• Targeted Welfare: Reduces leakage in subsidies (e.g., 20% savings in PM Kisan).

• Transparency: Tracks voucher redemption, ensuring accountability.

• Inclusion: Reaches underserved populations without digital banking access.

Central Bank Digital Currency (CBDC) – Digital Rupee

• Launch: Pilot launched December 2022 by RBI; retail pilot expanded in 2023.

• Mechanism: Blockchain-based digital currency issued by RBI, equivalent to fiat currency (1:1 with INR). Available in wholesale (interbank) and retail (public) forms.

• Features:

  • Legal tender: Fully backed by RBI, unlike cryptocurrencies.

  • Offline capability: Supports transactions without internet (tested in 2024).

  • Programmable: Allows smart contracts for targeted payments (e.g., subsidies).

• Scale (2025): Retail pilot in 50 cities, 5 million users; wholesale pilot with 15 banks. ₹10,000 crore in transactions.

Key Initiatives

• Retail CBDC: For P2P and P2M transactions via digital wallets (e.g., SBI, HDFC apps).

• Wholesale CBDC: Streamlines interbank settlements, reducing costs by 10%.

• Interoperability: Integrated with UPI in 2024, allowing seamless CBDC-UPI transactions.

• Cross-Border Pilot: Tested with UAE and Singapore (2025) for remittance and trade.

Recent Developments

• Scale-Up: Retail pilot expanded to 100 cities in July 2025; 10 million users targeted by 2026.

• Budget 2025-26: ₹5,000 crore for CBDC infrastructure, including blockchain upgrades.

• Global Collaboration: India joined Project mBridge (2024) with China, UAE for cross-border CBDC trials.

• Privacy Features: RBI introduced anonymized transactions in 2025, addressing privacy concerns.

Significance for India

• Monetary Control: Reduces cryptocurrency risks; strengthens RBI’s oversight.

• Efficiency: Lowers transaction costs (0.5% vs. 2% for card payments).

• Inclusion: Reaches unbanked via offline CBDC, complementing UPI.

Global Comparisons

UPI vs. Global Systems

• China (WeChat Pay, Alipay): 1.2 billion users, but closed-loop (platform-specific); higher fees (1–2%). UPI’s open-loop, zero-fee model is more inclusive.

• US (PayPal, Venmo): 400 million users, $1.5 trillion value (2024). Limited to specific apps; higher costs (2–3% fees). UPI’s interoperability and scale surpass.

• EU (SEPA Instant): Real-time payments, but limited to eurozone; 500 million transactions vs. UPI’s 131 billion.

• India’s Edge: UPI’s low-cost, high-volume model (50%+ of global digital transactions) is unmatched; adopted by countries like Nepal, Bhutan.

e-RUPI vs. Global Voucher Systems

• China (Digital Yuan Vouchers): Used for welfare, but tied to e-CNY; less flexible than e-RUPI’s purpose-specific design.

• US (SNAP EBT): Electronic benefits for food, but not interoperable with broader payment systems like e-RUPI with UPI.

• India’s Edge: e-RUPI’s integration with UPI and focus on welfare delivery make it unique; scalable to private sector use.

CBDC vs. Global Digital Currencies

• China (e-CNY): Fully rolled out, 400 million users (2025). Centralized control limits privacy. India’s CBDC balances privacy and programmability.

• EU (Digital Euro): Pilot stage, targeting 2027 rollout. Focused on retail; slower progress than India.

• US (No CBDC): Exploratory phase; private systems (PayPal) dominate. India’s pilot is more advanced.

• India’s Edge: Early pilot success, UPI integration, and offline capability position India ahead of most nations.

Challenges, Future Prospects, and Significance

Challenges

• Infrastructure: Scaling UPI and CBDC requires robust cybersecurity; 2024 saw 10% rise in phishing attacks.

• Digital Divide: 30% of rural India lacks smartphone/internet access, limiting UPI/e-RUPI reach.

• Regulation: CBDC’s legal framework needs clarity; privacy concerns persist.

• Interoperability: Global UPI/CBDC integration faces regulatory and technical barriers.

• Cost: Infrastructure upgrades (e.g., blockchain for CBDC) require ₹20,000 crore by 2030.

Future Prospects

• UPI Growth: Targeting 200 billion transactions by 2027; expansion to 20 countries by 2030.

• e-RUPI Scale-Up: 50 million vouchers by 2028, covering education, health, and agriculture.

• CBDC Rollout: Full retail launch by 2027; cross-border payments with 10 nations by 2030.

• AI and Blockchain: AI-based fraud detection and blockchain scalability to enhance efficiency.

• Global Leadership: India aims to export UPI/CBDC models to Global South, strengthening fintech diplomacy.

Significance for India

• Financial Inclusion: Reaches 500 million unbanked; UPI/e-RUPI empower rural economies.

• Economic Growth: Digital payments contribute ~$1 trillion to GDP by 2030; reduces cash economy.

• Global Standing: UPI’s global adoption and CBDC pilot success position India as a fintech leader in G20 and BIS forums.

India’s digital payments ecosystem, driven by UPI, e-RUPI, and CBDC, has revolutionized financial transactions, fostering inclusion and economic growth. UPI’s unmatched scale, e-RUPI’s targeted welfare delivery, and CBDC’s innovative potential position India ahead of global counterparts like China’s e-CNY or EU’s SEPA. Recent developments, including the 2025-26 budget and international expansions, signal robust growth. By addressing challenges like cybersecurity and rural access, India can sustain its fintech leadership, supporting its $5 trillion economy goal and global digital influence.