Higher adoption of UPI leads to lower cash demand, RBI study shows

Higher adoption of India’s flagship real-time payments platform, the Unified Payments Interface (UPI), is associated with lower cash demand at both national and subnational levels, according to an article in the Reserve Bank of India’s (RBI) September bulletin.

 

The study, authored by the RBI staff, found that UPI volumes are negatively correlated with cash demand, underscoring its role as a substitute for physical currency. At the aggregate level, descriptive trends point to a structural shift in India’s payment landscape, with currency growth moderating from pandemic levels alongside sustained UPI expansion and shrinking ticket sizes.

 

Income was found to be positively associated with cash demand, while UPI usage and interest rates had a negative impact.

 

Launched in 2016, UPI’s user base has surged from just 30 million in 2017 to 420 million in 2024. Transaction volumes are nearing 200 billion annually, accounting for over 80 per cent of all digital payments.

 

“In less than a decade, UPI has become a leading payment system, processing more than 17 billion transactions a month and accounting for 84 per cent of total digital payment volumes and 9 per cent of values in 2024–25,” the article said. The rapid growth, it added, has been underpinned by its open, technology-agnostic architecture, user-friendly design, and rising digital awareness.

 

UPI crossed 20 billion monthly transactions for the first time in August 2025, with a transaction value of ₹24.85 trillion, slightly lower than July’s ₹25.08 trillion.

 

Despite this surge in digital payments, currency in circulation (CIC) has continued to rise, albeit at a slower pace, reflecting a dynamic interplay between cash and digital modes. CIC as a share of GDP has normalised from a peak of 14.4 per cent in 2020–21 to 11.7 per cent in 2023–24, and further to 11.2 per cent in 2024–25. Annual CIC growth has slowed to 4–6 per cent in recent years, driven by the structural shift towards digital payments, post-pandemic normalisation, phased withdrawal of ₹2,000 notes, and greater formalisation. Real CIC growth turned negative in 2023–24 and remained subdued in 2024–25, pointing to a decline in inflation-adjusted cash demand.

 

By contrast, digital payments (by value) as a share of GDP have risen sharply to over 800 per cent, with the pandemic accelerating adoption in both volume and value terms. Overall, total digital payments recorded a compound annual growth rate of 48 per cent in volume and 12.5 per cent in value between 2015 and 2025.

 

Monthly data show digital momentum remains broadly sustained even as CIC growth tapers. This shift is also reflected in the decline of the currency-to-demand deposit ratio to 1.31 in 2024–25 from 1.68 in 2015–16, alongside a steady fall in ATM cash withdrawals (as a share of GDP) since 2018–19.

 

The RBI study further highlighted that individuals in the top 20 per cent income group are twice as likely to use digital payments as those in the bottom 40 per cent. Recent data show an even steeper divide, with the top 10 per cent (by consumption expenditure) twice as likely to report the ability to use UPI as the bottom 25 per cent, though overall ability now stands at nearly 50 per cent.

 

At the state level, early UPI adopters continue to dominate transaction shares. However, a broad-based decline in cash demand and narrowing inter-state disparities in UPI adoption since the pandemic suggest early signs of convergence.

 

“While UPI largely substitutes cash, the effect moderates as digital adoption matures, possibly due to saturation or behavioural inertia. Income (proxied by night-time lights) and ATM density are positively associated with cash demand, whereas workforce formalisation and higher educational attainment are linked to lower cash reliance,” the article concluded. 

Taking stock

 

• UPI usage concentrated in 10 states, with 80% of transaction volumes
• Most states witnessed a surge in UPI adoption post-pandemic
• Intensity remains high in Telangana, Andhra, Delhi and Maharashtra
• Uptake modest in cashdependent regions like the north-east
• Overall trajectory positive, but moderated growth due to high base effect