UPI Payment Dominance: Is UPI Outpacing Cards in Merchant Transactions?
Walk into almost any shop in India today, from a kirana store to a roadside food cart, and you will likely see a small QR code taped near the counter. Shopkeepers rarely ask, “cash or card” anymore. This shift in consumer behavior reflects a significant transformation in India’s payments market, with the Unified Payments Interface (UPI) now dominating transactions at the expense of traditional card payments.
UPI’s Rapid Growth
In August, UPI processed a record 24.51 billion transactions valued at Rs 29.82 lakh crore, according to the National Payments Corporation of India (NPCI). This figure represents an increase from 23.66 billion transactions in July and marks a 22% rise compared to the same month last year. The festive season, including Raksha Bandhan, contributed to this surge through everyday transfers and small gifts. Over the past decade, UPI’s annual transaction value has skyrocketed from Rs 0.07 lakh crore in FY17 to an estimated Rs 314 lakh crore in FY26, reflecting a growth of more than 4,000 times.
UPI is now operational in 11 countries, with Uzbekistan being the latest to adopt the system. The scale of UPI’s impact on the payments landscape is evident as it continues to gain traction among users.
The Current State of Card Payments
In July, India’s digital merchant payments market grew by 19.6% year-on-year to Rs 11.73 lakh crore. UPI’s share of person-to-merchant (P2M) transactions reached a record 77.3%, up from 74.9% the previous year. In contrast, credit cards accounted for 17.7% of merchant payments, down from 19.8%, while debit cards fell from 3.9% to 3.2%. This trend has been developing over several years; in 2021, cards held 26% of merchant payment volume and 53% of merchant payment value, while UPI’s P2M volume share was 56%.
Despite the overall growth in the payments market, cards have lost significant ground at the checkout counter.
The Decline of Debit Cards
Debit cards have experienced the most substantial decline. According to Worldline’s 2025 data, usage of debit cards at physical stores fell nearly 8% year-on-year, despite over a billion debit cards still in circulation. The report indicates that debit cards are now primarily used for cash withdrawals rather than for in-store purchases. A separate study by SBI Research found that for every Rs 1 increase in UPI transaction value, debit card transaction value decreases by 14 paise.
The convenience of a quick QR scan, which costs merchants nothing, has made traditional card payments less appealing.
Credit Cards: A Changing Role
Credit card spending continues to grow, with a 2.6% month-on-month increase in May, reaching Rs 2.02 trillion. However, UPI P2M spending grew at a faster rate of 25.2% year-on-year compared to credit cards’ 6.6%. The number of credit cards in circulation also increased, surpassing 120.5 million. While credit cards are not disappearing, their role is evolving. They are increasingly used for larger purchases, such as electronics and travel, rather than everyday transactions.
The Credit Card Market’s Limitations
Despite the growth in credit card usage, the market remains relatively small. A recent TransUnion CIBIL report revealed that only one in four credit-active Indians owns a credit card, translating to about 5.2 crore cardholders out of roughly 25 crore credit-active consumers. This is significantly lower than credit card penetration in other countries, such as 62% in Colombia and 98% in Hong Kong.
Growth in the credit card market has been driven more by existing customers acquiring additional cards rather than attracting new users. The share of individuals holding three or more credit cards has risen from 12% a decade ago to 22% today.
Cards Integrated with UPI
A notable shift is the integration of credit cards within UPI. Since 2022, RuPay credit cards can be linked directly to UPI apps like Google Pay, PhonePe, and Paytm. This allows users to scan QR codes while drawing funds from their credit lines instead of their bank accounts. Currently, only RuPay cards can be linked to UPI, which has contributed to NPCI’s growing share of credit card volumes.
The Future of Payments
UPI has transformed the landscape of everyday spending in India. While debit cards are losing their relevance at the point of sale, credit cards are adapting to serve different purposes, particularly in e-commerce and larger purchases. The QR code has become the preferred method for routine transactions, pushing debit cards to the margins. As UPI continues to evolve, it is clear that the traditional swipe is no longer the dominant method for everyday purchases in India.
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