How Digital Transactions Are Powering India's Economic Momentum

Over the past few years, digital transactions have moved from the periphery to the core of India’s economic engine. What began as an experiment in convenience has evolved into a systemic enabler of efficiency, inclusion, and scale. Today, the velocity and volume of real-time digital payments are helping shape the contours of India’s formal economy, from credit access and insurance adoption to government transfers and business productivity.

In June 2025 alone, the UPI platform recorded over 18.39 billion transactions, amounting to Rs 24.03 lakh crore in value. But these numbers tell only part of the story. What matters more is how this infrastructure is creating second-order effects: expanding formal financial access, reducing cash friction, and laying the groundwork for a digital-first economy.

A Foundation Built on Public Digital Infrastructure

India’s payments transformation did not happen by chance. It is the result of deliberate public infrastructure design. The JAM trinity, Aadhaar, eKYC, interoperable banking rails, and above all, UPI, have come together under the guidance of institutions like RBI, NPCI, and MeitY.

Unlike many countries where digital payment systems evolved in silos, India built a layered, inclusive, and open digital stack. This architecture allowed even the smallest merchant or rural consumer to transact in real time with zero fee. Features like offline UPI, voice-based 123PAY for feature phones, and cross-border UPI corridors are expanding reach every day.

The result is a habit of digital transactions that is no longer limited to metros or specific income groups. It has become embedded in daily life, across geographies and economic strata.

Digital Payments Are Formalizing the Informal Economy

The impact of this infrastructure is most visible in how it has brought large segments of the informal economy into the formal fold. When a kirana store accepts digital payments, it begins to leave behind a financial footprint. That footprint becomes useful for lenders, and financial service providers.

Small businesses that were previously ineligible for credit due to lack of documentation can now access formal loans based on transaction data. Banks and NBFCs are increasingly evaluating repayment capacity, cash flow patterns, and operational stability through these digital trails.

In the insurance sector, recurring digital payments are making protection products more accessible and sustainable. Customers using UPI Autopay demonstrate stronger renewal behavior and higher monthly premium discipline, particularly in semi-urban and rural areas.

Digital payments are not just replacing cash. They are creating data, building identity, and unlocking eligibility for a wider financial net.

Building for the Future at Scale

Digital transactions have already changed how India pays. The next chapter is about what they will enable: embedded credit, real-time insurance, paperless investments, and direct-to-citizen transfers, all integrated into digital journeys.

The government continues to play a key role in enabling this future. Initiatives like Account Aggregator, the Open Credit Enablement Network (OCEN), and the larger Digital India stack are designed to make financial services modular, interoperable, and consent-driven. These are not just pilots or proof-of-concept experiments. They are national digital infrastructure designed for long-term impact.

At the same time, digital literacy and user trust will be essential to maintain momentum. As we move toward a cash-lite economy, the transition must be inclusive. Tools like voice-led interfaces, assisted journeys, and robust grievance redressal mechanisms will ensure that digital finance works for everyone.

The logic is simple. The more digital transactions become a part of everyday life, the more we unlock economic potential for individuals, households, and enterprises.

Conclusion

India’s digital payments ecosystem has evolved from a convenience layer into a structural pillar of economic growth. It reduces friction, improves transparency, and democratizes access to financial tools. As India scales from billions to trillions of digital interactions each month, these transactions will not only support the economy. They will shape its direction and define its future.

Author: Harsh Vardhan Masta, Head of Payments at Policybazaar

Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of IIA and IIA does not assume any responsibility or liability for the same