India’s public digital payments infrastructure, led by the Unified Payments Interface (UPI), has played a central role in deepening financial inclusion and expanding access to formal credit, the Economic Survey 2025-26 said.
The zero-cost, public-good design of the UPI network has been key to its rapid adoption, particularly among small merchants, the survey observed.
Going ahead, it added, sustaining UPI’s success will require continued investment in infrastructure, reliability, and digital capabilities to ensure that its benefits are more evenly distributed.
The observations come at a time when the domestic digital payments industry is trying to push for a return of the merchant discount rate (MDR), which they claim will make the payment network sustainable and revenue generating.
While the rapid expansion of bank accounts has provided the basic foundation for inclusion, the survey noted that active use of these accounts is key to actual financial empowerment among the masses. UPI has helped bridge this gap by converting account ownership into actual transactions.
Citing academic research, the survey said that UPI generates verifiable transaction histories and significantly reduces transaction costs, enabling banks and fintech firms to expand lending across a wider spectrum of borrowers. Fintechs, in particular, have played a critical role in reaching first-time and previously excluded borrowers, reshaping credit markets in the process.
Regions with widespread bank account penetration and affordable internet access recorded the strongest credit expansion, underscoring the layered nature of financial inclusion and the complementary roles played by traditional lenders and new-age digital players, the survey said.
The expansion in credit linked to digital payments has not been accompanied by a rise in defaults, the survey found. Instead, richer transaction data has allowed lenders to better identify underserved but creditworthy customers, supporting financial expansion without weakening portfolio quality.
Research cited in the Economic Survey found that adoption of digital payments is associated with higher economic output. A 2025 survey covering 4,800 respondents across Maharashtra and Bihar showed that UPI has become a general-purpose payment tool.
Over 60% of users use it for store purchases, peer-to-peer transfers, bill payments, and online commerce. Nearly 80% reported using UPI for three or more use cases, with similar adoption patterns across genders and rural-urban segments, suggesting deep integration into daily economic life.
At the same time, digital payments are complementing rather than replacing cash. More than 90% of UPI users continue to use cash, reflecting a hybrid payments ecosystem.
The zero-cost, public-good design of the UPI network has been key to its rapid adoption, particularly among small merchants, the survey observed.
Going ahead, it added, sustaining UPI’s success will require continued investment in infrastructure, reliability, and digital capabilities to ensure that its benefits are more evenly distributed.
The observations come at a time when the domestic digital payments industry is trying to push for a return of the merchant discount rate (MDR), which they claim will make the payment network sustainable and revenue generating.
While the rapid expansion of bank accounts has provided the basic foundation for inclusion, the survey noted that active use of these accounts is key to actual financial empowerment among the masses. UPI has helped bridge this gap by converting account ownership into actual transactions.
Citing academic research, the survey said that UPI generates verifiable transaction histories and significantly reduces transaction costs, enabling banks and fintech firms to expand lending across a wider spectrum of borrowers. Fintechs, in particular, have played a critical role in reaching first-time and previously excluded borrowers, reshaping credit markets in the process.
Regions with widespread bank account penetration and affordable internet access recorded the strongest credit expansion, underscoring the layered nature of financial inclusion and the complementary roles played by traditional lenders and new-age digital players, the survey said.
The expansion in credit linked to digital payments has not been accompanied by a rise in defaults, the survey found. Instead, richer transaction data has allowed lenders to better identify underserved but creditworthy customers, supporting financial expansion without weakening portfolio quality.
Research cited in the Economic Survey found that adoption of digital payments is associated with higher economic output. A 2025 survey covering 4,800 respondents across Maharashtra and Bihar showed that UPI has become a general-purpose payment tool.
Over 60% of users use it for store purchases, peer-to-peer transfers, bill payments, and online commerce. Nearly 80% reported using UPI for three or more use cases, with similar adoption patterns across genders and rural-urban segments, suggesting deep integration into daily economic life.
At the same time, digital payments are complementing rather than replacing cash. More than 90% of UPI users continue to use cash, reflecting a hybrid payments ecosystem.
