Are Digital Payments Dominating India's Retail Sector with 99.8% Contribution in Q1 FY26?
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Synopsis
A recent report reveals that digital transactions accounted for a staggering 99.8% of India's retail payments in Q1 FY26, illustrating a significant shift towards digital finance. This transformation is largely driven by UPI, increasing internet penetration, and evolving consumer behavior, marking a crucial step towards economic inclusivity.
Key Takeaways
- Digital payments accounted for 99.8% of retail payments in Q1 FY26.
- Unified Payment Interface (UPI) is the leading platform for digital transactions.
- Internet penetration increased from 60.7% to 70.9% between March 2021 and June 2025.
- UPI transactions grew at a CAGR of 49% from FY23 to FY25.
- Cash still holds a 50% share in private final consumption expenditure.
New Delhi, Oct 13 (NationPress) Digital transactions accounted for 99.8% of India's retail payments during the first quarter of the ongoing financial year (Q1FY26), rendering paper-based instruments like cheques nearly obsolete. This significant shift is attributed to a robust policy framework, enhanced infrastructure, and extensive fintech integration, according to a report released on Monday.
The digital payments landscape, championed by platforms such as Unified Payment Interface (UPI), Aadhaar-enabled Payment System (AePS), and Immediate Payment Service (IMPS), now represents 92.6% of payment value and 99.8% of transaction volume in India as of Q1 FY26.
According to CareEdge Analytics and Advisory, this trend underscores the impact of rising internet accessibility, which surged from 60.7% in March 2021 to 70.9% in June 2025, along with increased smartphone adoption, facilitating financial inclusion by integrating previously unbanked populations into the formal digital economy.
The report further indicates that UPI is a pivotal driver behind the surge in digital transactions, recording 54.9 billion transactions in Q1FY26 and 185.9 billion transactions throughout FY25.
UPI transactions have experienced a remarkable CAGR of 49% from FY23 to FY25, illustrating rapid adoption and deepening penetration in tier 2 and tier 3 cities.
Tanvi Shah, senior director at CareEdge Research, stated, "UPI transactions have demonstrated a phenomenal 49% CAGR from FY23 to FY25, highlighting swift adoption driven by increasing internet access and expanding reach in smaller cities."
The report anticipates that UPI will continue its impressive growth trajectory, further solidifying its position in India's digital payments ecosystem.
Moreover, it was noted that the proportion of digital transactions in private final consumption expenditure (PFCE) has risen from 30% in FY23 to 50% in Q1 FY26, propelled by UPI adoption, policy evolution, and shifting consumer habits.
Despite this surge, cash maintains a resilient presence, holding a 50% share in PFCE.
India’s payment system is transitioning towards a hybrid model where both digital and cash methods coexist, fulfilling distinct but complementary roles.
With a supportive regulatory framework and innovations enhancing interoperability, UPI is poised to strengthen its role as the backbone of India’s payments system, fostering both transactional efficiency and broader economic engagement, as highlighted in the report.
Point of View
It is crucial to recognize the implications on economic participation and financial inclusivity. The rapid growth of digital transactions indicates a shift in consumer behavior and highlights the importance of evolving technology in shaping the future of payments in India.
NationPress
13/10/2025
Frequently Asked Questions
What percentage of retail payments are digital in India for Q1 FY26?
Digital payments contributed 99.8% of India's retail payments in Q1 FY26.
What are the main drivers of this digital payment growth?
The growth is driven by UPI, increasing internet penetration, smartphone usage, and supportive policies.
What role does UPI play in India's payment system?
UPI is a key driver of digital transactions, recording 54.9 billion transactions in Q1 FY26.
How has consumer behavior changed with digital payments?
There has been a significant shift towards digital transactions, with an increase in adoption due to changing preferences and convenience.
Is cash still relevant in the current payment landscape?
Yes, cash remains resilient, maintaining a 50% share in private final consumption expenditure despite the rise of digital payments.
