As the National Payments Corporation of India (NPCI) grapples with a moderation in growth of the Unified Payments Interface, it is turning its focus to the Hindi heartland and northeastern states to drive the next phase of adoption.
The shift in geographical focus comes despite multiple product launches and new use cases introduced over the past three years, many of which are yet to see meaningful traction. While recurring payments and IPO-linked transactions have gained popularity, consumer-facing features such as UPI Lite and UPI Circle remain in early stages of adoption.
According to bankers familiar with the matter, NPCI is nudging fintech firms to prioritise states such as Uttar Pradesh, Rajasthan and Madhya Pradesh, along with the northeastern region, where penetration remains relatively low.
States including Gujarat, Madhya Pradesh, West Bengal and Rajasthan contribute about 2.5–3% each to total UPI volumes, translating into roughly 500–600 million transactions per month, NPCI data showed.
“There is a need to deepen adoption in these large states, and fintech firms will have to rely on incentives to drive usage,” said a banker cited above.
Maharashtra continues to account for the highest share of UPI volumes at 10.4%, followed by Karnataka (5.3%) and Uttar Pradesh (5.2%).
The renewed push for deeper penetration comes amid a visible slowdown in growth. A recent report by the Parliamentary Standing Committee on Finance projected UPI growth to moderate to 25% in FY26, down from 42% in FY25 and 82% in FY24.
Industry executives, however, believe significant headroom for expansion remains, driven by new use cases and incremental user additions.
Where's the incentive?
“The absence of MDR is a key challenge. Private players are not investing enough in expanding the ecosystem,” said another banker.
MDR, or merchant discount rate, is the fee paid by merchants to banks for enabling digital payments. The Union government has mandated zero MDR on UPI and RuPay debit card transactions.
Bankers noted that while UPI has emerged as the default merchant payment rail in India, the current subsidy support is insufficient to offset the costs incurred by banks and fintech firms.
In February, merchant payments accounted for nearly 63% of the 20 billion UPI transactions recorded during the month.
The Parliamentary panel also flagged concerns over the adequacy of government support, noting that the Rs 2,000 crore subsidy covers only about 11% of industry costs and 14% of potential MDR earnings.
A lack of sustained incentives and promotional efforts has further slowed adoption of newer features, the report added.
Industry estimates suggest that UPI Lite has processed around 150 million transactions so far, while UPI Circle—designed to enable shared access to a single bank account—saw about 2 million transactions in February. NPCI does not publish product-wise data.
“Fintechs that drove the first wave of UPI adoption are now rationalising spending amid profitability pressures. NPCI is stepping in with limited incentives through BHIM,” the banker said.
The shift in geographical focus comes despite multiple product launches and new use cases introduced over the past three years, many of which are yet to see meaningful traction. While recurring payments and IPO-linked transactions have gained popularity, consumer-facing features such as UPI Lite and UPI Circle remain in early stages of adoption.
According to bankers familiar with the matter, NPCI is nudging fintech firms to prioritise states such as Uttar Pradesh, Rajasthan and Madhya Pradesh, along with the northeastern region, where penetration remains relatively low.
States including Gujarat, Madhya Pradesh, West Bengal and Rajasthan contribute about 2.5–3% each to total UPI volumes, translating into roughly 500–600 million transactions per month, NPCI data showed.
“There is a need to deepen adoption in these large states, and fintech firms will have to rely on incentives to drive usage,” said a banker cited above.
Maharashtra continues to account for the highest share of UPI volumes at 10.4%, followed by Karnataka (5.3%) and Uttar Pradesh (5.2%).
The renewed push for deeper penetration comes amid a visible slowdown in growth. A recent report by the Parliamentary Standing Committee on Finance projected UPI growth to moderate to 25% in FY26, down from 42% in FY25 and 82% in FY24.
Industry executives, however, believe significant headroom for expansion remains, driven by new use cases and incremental user additions.
Where's the incentive?
“The absence of MDR is a key challenge. Private players are not investing enough in expanding the ecosystem,” said another banker.
MDR, or merchant discount rate, is the fee paid by merchants to banks for enabling digital payments. The Union government has mandated zero MDR on UPI and RuPay debit card transactions.
Bankers noted that while UPI has emerged as the default merchant payment rail in India, the current subsidy support is insufficient to offset the costs incurred by banks and fintech firms.
In February, merchant payments accounted for nearly 63% of the 20 billion UPI transactions recorded during the month.
The Parliamentary panel also flagged concerns over the adequacy of government support, noting that the Rs 2,000 crore subsidy covers only about 11% of industry costs and 14% of potential MDR earnings.
A lack of sustained incentives and promotional efforts has further slowed adoption of newer features, the report added.
Industry estimates suggest that UPI Lite has processed around 150 million transactions so far, while UPI Circle—designed to enable shared access to a single bank account—saw about 2 million transactions in February. NPCI does not publish product-wise data.
“Fintechs that drove the first wave of UPI adoption are now rationalising spending amid profitability pressures. NPCI is stepping in with limited incentives through BHIM,” the banker said.
