India’s Unified Payments Interface (UPI) has revolutionized digital transactions since its launch in 2016 by the National Payments Corporation of India (NPCI). It has rapidly evolved into one of the world’s most widely used payment systems. In 2023 alone, UPI processed over 117 billion transactions each month, with a total value of Rs 182 lakh crore.

Despite UPI’s broad adoption across various demographics, a substantial financial inclusion gap persists in India. Although there are over 420 million UPI users, this accounts for less than half of the country’s population. This gap is primarily driven by millions of Indians lacking access to formal banking services, often due to insufficient documentation, limited banking infrastructure, and low levels of financial literacy.

Although UPI has introduced convenience and efficiency, a bank account is required to use the platform. Additionally, many people remain hesitant to adopt digital payments. NPCI also notes that approximately 6% of UPI users make transactions on behalf of others, highlighting a key barrier to broader adoption. This is the challenge that UPI Circle aims to address.

What is UPI Circle?
UPI Circle is a new feature designed to enhance digital payment accessibility. It allows primary users to add family members or friends as secondary users, enabling them to make transactions using the primary user’s bank account within pre-set limits. This feature aims to extend the convenience of UPI to individuals who may not have their own bank accounts or are hesitant about using digital payments, making it easier for them to participate in the digital economy.

A Big-Bank Opportunity
Banks incur significant costs when acquiring new and entry-level customers. The expenses include acquisition costs such as Know Your Customer (KYC) processes, as well as ongoing account servicing, including customer support, transaction processing, and compliance requirements. Despite these investments, many accounts are used infrequently, with a high potential for dormancy. The low lifetime value undermines the initial customer acquisition costs and increases the operational burden, as banks must continue to manage and monitor these accounts.

UPI Circle, on the other hand, offers banks a seamless opportunity to acquire new customers, particularly from the unbanked and underbanked segments. By introducing these individuals to the simplicity and convenience of digital banking and payments, it bridges the gap between traditional financial systems and emerging digital platforms. UPI Circle not only educates users about the ease of conducting transactions but also helps them establish a digital financial footprint by tracking financial behaviors.

This digital trail opens doors for banks to provide personalized services such as savings accounts, fixed deposits, and a variety of investment products tailored to individual needs. It also facilitates access to credit, enabling banks to assess the creditworthiness of users who may not have traditional financial histories. Moreover, UPI Circle can drive financial inclusion on a larger scale by offering low-cost banking solutions to previously underserved communities, ultimately helping banks expand their customer base. With enhanced insights into customer behavior, banks can refine their product offerings and better meet the needs of diverse customer segments, fostering stronger relationships and long-term customer loyalty.

Potential Impact
UPI Circle has the potential to significantly impact financial inclusion by bringing millions of unbanked individuals into the formal banking system. As more people adopt digital payments, it can help ease their transition into banking, enhance financial literacy, and create new economic opportunities. UPI Circle could also accelerate India’s financial inclusion efforts, driving economic growth and reducing poverty. By offering a scalable and accessible platform, banks can use UPI Circle to transform how underserved populations engage with the financial system, narrowing the gap between the banked and unbanked in India.