Digital transactions contributed 99.8 per cent of India’s retail payments in the first quarter of the current financial year (Q1FY26), with paper-based instruments (cheques) nearly obsolete, owing to policy push, infrastructure support, and deep fintech penetration, according to the reports by an Indian credit rating agency, CareEdge.
Digital payments, led by Unified Payment Interface (UPI), Aadhaar-enabled payment system (AePS), Immediate Payment Service (IMPS), and others, dominate retail transactions, accounting for 92.6 per cent of payment value and 99.8 per cent of transaction volume as of the first quarter of the current fiscal (Q1 FY26).
According to the report, UPI is the driving force behind the behavioural shift of growing digital transactions, with 54.9 billion transactions in Q1FY26 and 185.9 billion transactions in FY25. UPI transactions grew at a CAGR of 49 per cent between FY23 and FY25, underscoring rapid adoption and deepening penetration in tier 2 and tier 3 cities. The report noted that UPI is expected to continue its rapid growth, further solidifying its dominance in India’s digital payments landscape.
Additionally, as per the report, the share of digital transactions in private final consumption expenditure (PFCE) has increased from 30 per cent in FY23 to 50 per cent in Q1 FY26, driven by UPI adoption, policy changes, and evolving consumer behaviour.
Despite this growth, cash remains resilient, maintaining a 50 per cent share in PFCE. Rising internet penetration, which stood at 70.9% in June 2025 and is expected to rise to at least 85% in 2028, as well as smartphone usage, have accelerated this shift, CareEdge said. These have also enabled financial inclusion by bringing previously unbanked populations into the formal digital economy.
The government and the Reserve Bank of India’s (RBI) promotion of digital adoption, especially in Tier 2 and Tier 3 cities, has accelerated digital payments adoption in underserved regions. The RBI Digital Payments Index (RBI) rose to 493.22 in March 2025 from 445.50 in March 2024. India’s payments system is undergoing a structural shift towards a hybrid model, where digital and cash channels coexist, serving distinct yet complementary roles.
