The Sidecar Revolution in UPI Infrastructure

India’s Unified Payments Interface (UPI) has scaled to become the backbone of the country’s digital economy, processing over 18 billion transactions each month and serving a user base of more than 400 million individuals. What began as a peer-to-peer payments system has rapidly evolved into a foundational layer for commerce, credit, and embedded financial services.

But with this exponential growth comes increasing complexity, and for many banks, a growing realization that early-generation UPI switch infrastructure is no longer fit for purpose.

UPI’s Evolution Isn’t Linear. It’s Exponential

The leap from basic peer-to-peer fund transfers to a full-fledged digital financial ecosystem has fundamentally transformed the demands placed on UPI infrastructure.

Today’s UPI use cases span far beyond simple payments:

• High-volume merchant transactions across both online and offline acceptance networks
• Credit on UPI and contextual, transaction-linked lending journeys
• Rising traffic from Third-Party Application Providers (TPAPs)
• Integration of credit card rails through UPI-linked switching

Each new use case adds layers of architectural complexity—requiring not just scalability and uptime, but also deep configurability, observability, security, and compliance.

Yet, many legacy UPI switches were built for a much narrower, simpler world. Their static design and monolithic architecture limit adaptability—making them increasingly misaligned with the fast-evolving landscape of digital payments.

Two Paths Forward: Sidecar vs Full Replacement

Banks are responding by reimagining their switching strategy. Two dominant models are emerging:

Sidecar Switch: Parallel Innovation, Lower Risk

A sidecar switch is a modern, secondary UPI platform deployed alongside the bank’s primary switch. It allows banks to extend capability whilst preserving investments in the primary switch.

Banks are increasingly leveraging secondary switches to isolate and optimize distinct use cases, such as merchant payments, credit on UPI, or traffic originating from TPAPs, without disrupting the performance or stability of their primary Switching platforms.

Benefits of a Sidecar Approach

• Faster time to market for new services
• Traffic segmentation for improved SLA control and resource optimization
• Load balancing to handle volume spikes without downtime
• Lower operational risk compared to full system replacement
• Regulatory agility to meet evolving mandates with minimal disruption

Full Core Replacement: Rebuild from the Ground Up

For banks facing deep technical debt or recurring outages, a complete replacement may be unavoidable. This approach allows for:

• Architectural reset to support modern UPI use cases
• Integrated compliance tooling for mandates like ODR and AutoPay
• Advanced observability for better control and performance insight
• Future-ready extensibility for services like ONDC and embedded credit

Though more resource-intensive, full replacements position banks for long-term competitiveness in a digital-first landscape.

Why This Shift Can’t Wait

The case for secondary switches is not just technical—it’s strategic.

Relentless Volume Pressure

UPI volumes are now at 18+ billion transactions monthly. Current switching systems are straining under this scale, especially during high-traffic periods like festivals or seasonal events.

Regulation Is Now Architectural

 The RBI and NPCI are enforcing mandates around faster dispute resolution, enhanced fraud detection, and better customer protection—requirements that must be designed into the switch architecture, not bolted on as an afterthought.

Ecosystem Innovation Is Accelerating

Initiatives like embedded finance require seamless integration with marketplaces, lenders, and digital service providers. Legacy platforms can’t support this fluidity.

User Experience is the New SLA

 In a world of sub-second expectations, even milliseconds of downtime or latency can lead to abandoned transactions and brand erosion.

What Tomorrow’s UPI Infrastructure Must Deliver

 Regardless of approach— sidecar or full replacement—the future-ready UPI switch must align with these six strategic pillars:

Infrastructure As Differentiator

In the early days of UPI, the switch was a utility—functional, operational, and invisible. Today, it’s a strategic differentiator.

Banks that adopt modern, modular switching strategies—whether through sidecar extensions or full-stack transformations—will not only de-risk their operations but unlock new revenue streams, new partnerships, and entirely new business models.

NPST: Powering the New UPI Era

At NPST, we are actively enabling banks to modernize their UPI infrastructure through secondary switch deployments in both sidecar and full-stack configurations. Our systems currently process 7% of India’s UPI traffic and are purpose-built for modularity, scale, and compliance.

Contact us at sales@npstx.com whether you're exploring a sidecar deployment or planning a full-scale migration.