UPI Transformed Financial Access In India: Study

Since its introduction in 2016, the Unified Payments Interface (UPI) has drastically transformed financial access in India, reaching 300 million individuals and 50 million merchants. A research paper released on Saturday revealed that by October last year, UPI accounted for 75 per cent of all retail digital payments in the country.

"Within a short span, UPI led to exponential penetration of digital payments across India and is used at all levels from street vendors to large shopping malls," noted the paper, authored by professors from IIM and ISB.

The study highlighted UPI’s role in extending formal credit access to underserved groups, including subprime and new-to-credit borrowers. It revealed that in areas with high UPI adoption, loans to new-to-credit borrowers grew by four per cent, while loans to subprime borrowers increased by eight per cent. The average size of fintech loans stood at Rs 27,778, approximately seven times the average monthly expenditure in rural areas.

The rapid growth of fintech lenders was another key takeaway, with these companies scaling their loan volumes 77 times faster than traditional banks, significantly catering to smaller and underserved borrowers.

The study attributed UPI's widespread adoption to the affordability of digital technology across India. "The affordability of digital technology played a critical role, enabling widespread UPI adoption in rural and urban areas alike," the paper stated.

Credit growth was also linked to UPI usage, with a 10 per cent increase in UPI transactions resulting in a seven per cent rise in credit availability. The authors emphasized that digital transaction data allowed lenders to better evaluate borrowers, leading to responsible credit expansion. "Between 2015 and 2019, fintech loans to subprime borrowers grew to match those of banks, with fintechs thriving in high UPI-usage areas," the report added.

Remarkably, the surge in credit did not lead to higher default rates, showcasing the responsible lending practices enabled by UPI transaction data.

The study concluded that UPI’s success holds global relevance, positioning India as a leader in helping other countries adopt similar digital payment technologies.

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