Rural Trumps Urban As Youth Lead UPI Adoption Surge

Within the age group of 15-29 years, who can make online banking transactions, about 99.5 per cent of persons reported to have the ability to perform online banking transactions through UPI, according to the Comprehensive Modular Survey:Telecom (CMS:T) for January-March 2025, carried out by NSO (National Statistical Office) under MoSPI (Ministry of Statistics and Programme Implementation).

Existing Govt Policies Producing Good Results

Various government policies and initiatives have contributed to this spectacular surge in UPI. Earlier, the central government provided a Rs 1,500 crore incentive scheme for 2024-25, specially targeted towards low-value BHIM-UPI transactions up to Rs 2,000 for small merchants.

For small merchants, there is a 0.15 per cent per transaction incentive under this scheme. This is to encourage these merchants to accept UPI payments and reduce the cost barrier to adoption, as these small merchants cannot avail of MDR (Merchant Discount Rate). Banks charge MDR as a fee for processing payments in real-time.

High-value payments above Rs 3,000 can avail the MDR facility. The government continues to commit to keeping UPI transactions free of merchant charges for high-value payments.

Therefore, waiving of merchant charges for practically all kinds of transactions is a major factor behind this rapid UPI adoption. The Digital India initiative also provided ample regulatory support for payment gateways, even in areas with limited internet connectivity.

Rural Youth More Likely To Use UPI

When paying at a tea stall, rural youth are more likely to use UPI than their urban counterparts. The CMS:T for January-March 2025 also showed that around 86.7 per cent of the rural population in the age group of 15-24 years made use of UPI between January and March 2025. On the other hand, 74.4 per cent of the urban population in the same age group used UPI during the same time.

The government’s targeted digital literacy programmes in rural areas and incentives for small merchants in those areas contributed to the lead of rural youth in UPI adoption.

The convenience of scanning a QR code and making payment directly from one's bank account seems to have caught the fancy of the younger generation.

The contrast is quite stark when one considers the use of netbanking (and means other than UPI) for any kind of payment by the youth aged 15-24 years during January-March 2025. Only 0.4 per cent of rural youth and 0.6 per cent of urban youth made payments through netbanking in this period.

Apart from the obvious convenience of UPI, there may be less availability of the other means of payment, including debit and credit cards. The banks are probably wary of credit risks of the younger population. Moreover, point-of-sale devices are not always available at the sellers’ end.

There is another category for the country’s youth in the age bracket 15-24, who are adept at making payments both through UPI and netbanking. Urban youths are more likely to fall under this category. The CMS:T data show that while 25.1 per cent of urban youth in this age group use both modes of payment, around 12.9 per cent of rural youth do the same.

Early-2025 Witnessed A UPI Surge

The data of the first five months of 2025 at National Payments Corporation of India (NPCI) shows the continued surge of overall UPI transactions. The month of May saw around 1,868 crore UPI transactions, with a value of Rs 25.1 lakh crore — a 33 per cent rise in the number of transactions, and a 23 per cent increase in value compared to the same month in 2024.

There are seasonal variations in both monthly volumes and values of UPI transactions. During the new year period in January 2025, there were around 1,700 crore transactions worth about Rs 23.5 lakh crore. However, both the volume and value declined in February, before increasing again in March.

A Clear Future Policy Roadmap

The future policy pathway to sustain the current UPI momentum is clear: Continuing and, if possible, increasing incentives for small-value transactions can go a long way in even larger adoption of UPI, particularly for small merchants and rural businesses.

Further targeting incentives towards women-led businesses, micro-entrepreneurs, and uncovered geographies is also a possible way to increase UPI adoption.

At some point in time, the free-of-charge transactions for businesses will have to end to make financial operators financially viable and profitable. While protecting small-value transactions, a gradual introduction of small merchant charges for high-value transactions can be considered. However, care should be taken not to deter the low-income users.

Digital literacy campaigns should also continue, particularly in rural areas, addressing gaps in financial understanding and trust in the digital payments infrastructure.

A larger investment, both public and private, in a robust and scalable digital infrastructure can supplement other efforts to popularise UPI and digital payments.