Digital payments contribute 99.8 pc of India's retail payments in Q1 FY26 — Report

NEW DELHI — 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, a report said on Monday. 

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).

"It highlights that rising internet penetration (from 60.7 per cent in March 2021 to 70.9 per cent in June 2025) and smartphone usage have accelerated this shift, enabling financial inclusion by bringing previously unbanked populations into the formal digital economy," CareEdge Analytics and Advisory said in its report.

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.

"UPI transactions have registered a phenomenal 49 per cent CAGR between FY23 and FY25, underscoring rapid adoption with rising internet penetration as well as deepening penetration in tier 2 and tier 3 cities," said Tanvi Shah, senior director at CareEdge Research.

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.

India's payments system is undergoing a structural shift towards a hybrid model, where digital and cash channels coexist, serving distinct yet complementary roles.

Supported by a conducive regulatory environment and innovations that enhance interoperability, UPI is well-positioned to consolidate its role as the backbone of India’s payments landscape, driving both transactional efficiency and broader economic participation, the report highlighted.