Friction Illusion
India’s digital payments revolution has been sold as a triumph of speed, scale and inclusion.
The Department of Financial Services (DFS), under the Ministry of Finance, has released a report titled “Socio-Economic Impact Analysis of the Incentive Scheme for Promotion of RuPay Debit Card and low-value BHIM-UPI (Person-to-Merchant) transactions”.
The study was conducted by an independent third-party research agency in consultation with the National Payments Corporation of India (NPCI). It evaluates the effectiveness of the Government’s incentive framework in promoting digital payments, strengthening payment infrastructure, and advancing financial inclusion across the country.
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The Incentive Scheme, introduced in FY 2021–22 and continued through FY 2024–25, was conceptualised to accelerate universal adoption of digital payments, reduce dependence on cash, and formalise routine economic activity.
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The scheme provided structured budgetary support to acquiring banks and ecosystem participants to keep digital payments affordable, accessible, and sustainable for citizens and merchants.
The socio-economic impact analysis is based on a primary survey of 10,378 respondents across 15 States, comprising 6,167 users, 2,199 merchants, and 2,012 service providers.
The survey covered urban and semi-urban areas across five geographical zones — North, South, East, West, and North-East. Fieldwork was conducted between July 22 and August 25, 2025, using face-to-face Computer Assisted Personal Interviews (CAPI), the Ministry of Finance said in a statement sharing the report insights.
According to the report, there has been a significant and sustained increase in digital payment adoption across socio-economic segments.
Among surveyed users, BHIM-UPI emerged as the most preferred mode of transaction at 57 per cent, surpassing cash transactions at 38 per cent, primarily due to ease of use and instant fund transfer capability.
The study noted that 65 per cent of UPI users reported making multiple digital transactions per day. Adoption was particularly strong among younger users aged 18–25 years, where usage stood at 66 per cent.
The evaluation further indicated that 90 per cent of users reported increased confidence in digital payments after using UPI and RuPay cards. Cashback incentives were identified as a key adoption driver by 52 per cent of users, while 74 per cent cited speed of payment as the primary advantage.
Among merchants, 94 per cent of small businesses reported adopting UPI.
Around 72 per cent expressed satisfaction with digital payments, highlighting faster transactions, improved record-keeping, and operational convenience. Additionally, 57 per cent of merchants reported an increase in sales following digital adoption.
The report highlighted that government incentives played a critical role in reducing cost barriers for merchants and acquiring banks, accelerating merchant onboarding, and building trust in digital payment systems.
During the implementation period of the scheme, digital transactions increased nearly 11 times. UPI’s share in total digital transactions surged to approximately 80 per cent, establishing it as the primary payment rail. UPI QR code deployment expanded from 9.3 crore to about 65.8 crore, while the number of banks operational on the UPI platform rose from 216 in March 2021 to 661 by March 2025. Third-party app providers also increased from 16 to 38.
The period also witnessed a decline in the share of lower-denomination currency notes and ATM withdrawals, reflecting a behavioural shift toward low-ticket digital transactions.
The Government allocated Rs 8,276 crore in budgetary support for the scheme. Incentive disbursements stood at Rs 1,389 crore in FY 2021–22, Rs 2,210 crore in FY 2022–23, Rs 3,631 crore in FY 2023–24, and Rs 1,046 crore in FY 2024–25.
Beyond transactional growth, the study underscored broader socio-economic benefits of digital payments, including increased formalisation of the economy through digital footprints, enhanced transparency, improved business efficiency, and stimulus to fintech innovation.
The report stated that coordinated efforts by the Government, NPCI, banks, fintech players, and payment service providers have strengthened India’s digital payments ecosystem and advanced the vision of a less-cash, digitally empowered economy.
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