UPI Dominance: 1 Rupee Increase Reduces Debit Card Use by 14 Paise

A Re 1 increase in UPI transaction value has led to a 14 paise reduction in debit card transaction value between 2021 and 2025, according to an SBI Research report. UPI has solidified its dominant position in India's digital payments ecosystem, with a 91% share of retail demand for money by May 2025, replacing debit card usage. State-owned banks were the leading remitter members, while private sector banks were primarily the beneficiary members.

The Unified Payments Interface (UPI) has emerged as a dominant force in India's digital payments landscape, according to the latest report from the State Bank of India (SBI). As of May 2025, UPI has solidified its position, capturing a 91% share of retail demand for money, which has significantly reduced the usage of debit cards [1].

The SBI report highlights that a Re 1 increase in UPI transaction value has resulted in a 14 paise reduction in debit card transaction value between 2021 and 2025. This shift underscores UPI's growing importance in the financial ecosystem, with a substantial increase in transaction volume and value [1].

State-owned banks were identified as the leading remitter members, while private sector banks primarily benefited from the UPI transactions. This dynamic reflects the broader trend of digital payments, where UPI has facilitated seamless and cost-effective transactions for both consumers and merchants [1].

The dominance of UPI has not been without its challenges. The report notes that the current ecosystem is dominated by a few third-party application providers (TPAPs) such as PhonePe, Google Pay, and Paytm. This concentration may hinder India-centric fintech innovation and data control [1].

Additionally, the SBI economists have expressed concerns about the subsidy outlay for UPI and RuPay transactions. The Rs 437 crore subsidy allocated in FY26 may need to be revised upwards due to the high costs faced by UPI participants, which could be as much as Rs 5,000 crore [2]. The economists also flagged the dominance of foreign-owned TPAPs and emphasized the need for better data reporting across more merchant categories [2].

The potential impact of a transaction tax on UPI payments has also been a topic of debate. A tax could stifle economic growth and reduce purchasing power, pushing India back towards a cash-dominated economy. The Ministry of Finance has clarified that there is no proposal to levy GST on UPI transactions over Rs 2,000, emphasizing the government's commitment to promoting digital payments [3].

In conclusion, UPI's dominance has reshaped India's digital payments landscape, with significant implications for debit card usage and the broader financial ecosystem. However, the challenges posed by the concentration of transactions among a few TPAPs and the potential impact of a transaction tax highlight the need for ongoing policy and regulatory support.

References:
[1] https://m.economictimes.com/industry/banking/finance/banking/india-needs-a-desi-counter-intuitive-upi-app-to-truly-leverage-data-sbi-report/articleshow/123356500.cms
[2] https://economictimes.indiatimes.com/tech/technology/subsidy-outlay-of-rs-437-crore-for-upi-rupay-transactions-may-be-revised-upward-sbi-economists/articleshow/123378901.cms
[3] https://www.theweek.in/news/biz-tech/2025/08/16/opinion-taxing-upi-payments-a-short-sighted-move-that-could-choke-indias-digital-economy.amp.html