Government-led design and growth of India’s UPI ecosystem: a time series analysis of associated factors

Purpose This paper aims to identify the key determinants driving the growth of Unified Payments Interface (UPI) transactions in India, addressing a significant gap in the literature on digital payment ecosystem dynamics in emerging economies. Design/methodology/approach Using monthly data on UPI transaction volume from July 2016 to May 2022 obtained from the National Payment Corporation of India (NPCI) database, this study uses the Autoregressive Distributed Lag Error Correction Model approach to examine the determinants of long-term UPI payment growth. Findings This study found that the UPI ecosystem, including internet penetration, payment applications on the UPI interface, particularly BHIM app transaction volumes and the COVID-19 pandemic structural break, significantly influences UPI payment volume growth. Alternative payment channels, including POS terminals and cash circulation, demonstrate negative relationships with UPI growth, confirming substitution effects. Although UPI and other digital payment systems provide substantial benefits, cash remains preferable for certain transaction categories and regional contexts. Practical implications The findings offer actionable insights for policymakers, regulators and practitioners on the factors driving UPI growth, enabling the development of targeted policies that promote financial inclusion, digital infrastructure investment and payment system innovation in emerging economies. Originality/value This study provides the first comprehensive econometric analysis of UPI growth determinants, addressing a literature gap where previous research focused primarily on forecasting. The authors uniquely examine the impact of alternative payment channels and quantify COVID-19’s structural impact on digital payment adoption, areas that have received limited empirical attention.