No smartphone, no internet? PhonePe brings UPI to 220 million feature-phone users

For much of the past decade, India’s digital transformation has been synonymous with smartphones. At Global Fintech Fest (GFF) 2026 in Mumbai, PhonePe argued that the next phase of growth may come from a far simpler device: the feature phone. The digital payments and financial services company announced that its app would now support unified payments interface (UPI) 123Pay on feature phones, with the SMS-based, internet-free payments stack pre-loaded on HMD, Nokia, Lava and itel handsets. The company says that it is the first major third-party application provider to extend UPI services to feature-phone users across India through the National Payments Corporation of India (NPCI) UPI 123Pay framework, targeting an estimated 200 million-plus Indians who do not have smartphones. On the Nokia device demonstrated at the event, the PhonePe app allowed users to send money peer-to-peer, make merchant payments via QR scan, and check bank balances, all without mobile internet.

More than 200 million Indians still use feature phones, according to PhonePe, with many concentrated in rural and semi-urban markets where smartphone uptake among older and female populations lags. Secondary analyses from Telecom Regulatory Authority of India (TRAI) and Internet and Mobile Association of India (IAMAI) data place rural internet penetration at roughly 35 to 37 per cent, compared with over 70 per cent in urban areas. The opportunity is larger than it may initially appear.

The last mile of India’s digital payments story

India’s digital payments infrastructure has matured at a pace few predicted a decade ago. UPI, launched in April 2016 by NPCI, has grown from 2 crore transactions in FY 2016-17 to over 24,162 crore transactions in FY 2025-26, a nearly 12,000-fold surge in volume, according to government data. UPI now accounts for about 85 per cent of India’s digital payments by volume in FY 2025-26, with 703 banks live on the network, up from 44 at inception.


Yet, for all this scale, a significant slice of the population remains outside the smartphone-led payments mainstream. As of mid-2025, India’s overall mobile penetration stood at 82.74 per cent, but with a stark urban-rural split: 125.3 per cent in urban areas versus 58.8 per cent in rural India, according to Ookla’s connectivity report. Government survey data shows that while 85.5 per cent of Indian households owned at least one smartphone, rural households continued to lag on smartphone ownership and internet access within the home.

Beyond infrastructure, this digital divide has to be read in the context of India’s vast socioeconomic inequalities. Survey findings highlight a usage-versus-ownership gap: mobile phone usage rates stood at 98.0 per cent for rural males and 95.7 per cent for rural females, far exceeding ownership rates and pointing to heavy reliance on shared or household devices. Among rural mobile-phone owners aged 15 to 29, over 95 per cent owned a smartphone and most had used the internet in the prior three months, but older cohorts and women, especially in low-income households, remain disproportionately on feature phones with limited or no internet access.

In this context, digital inclusion cannot mean only smartphone inclusion. If UPI is to be India’s public payments rail for everyone, it must work on the devices people actually use, and in the connectivity conditions they actually live with.

How UPI 123Pay works, and why it matters

UPI 123Pay on PhonePe uses the SMS protocol to execute transactions, meaning it does not require mobile internet and can operate over basic cellular connectivity. In practice, this allows users in areas with patchy data connectivity to continue transacting as long as basic cellular services remain available.

The service is already live on select HMD and Nokia feature phones and will shortly expand to Lava and itel devices, with more handset partnerships in the pipeline. On supported handsets, the PhonePe app comes pre-bundled, so users do not need to download anything via an app store.

On the Nokia device demonstrated at GFF, the PhonePe app allows users to send money peer-to-peer to contacts in their phonebook or to any mobile number linked to UPI. They can make merchant payments via ‘Scan and Pay’ by scanning any UPI QR code, or by sending money to a merchant’s VPA, or Virtual Payment Address. Users can also check bank balance and view transaction history, all without the internet.

Because the flow is SMS-based, it works “across the length and breadth of the country,” as PhonePe put it, effectively separating UPI access from smartphone ownership and data affordability. The company also indicated that recharges and electricity bill payments will be added for these users in the coming months, expanding the utility of the feature beyond person-to-person and merchant transactions.

From a policy and industry standpoint, this is significant. UPI was designed as a public good, but its mainstream adoption has been smartphone-led. By bringing UPI to feature phones through NPCI’s UPI 123Pay framework via a secure, SMS-based stack, PhonePe is extending the public infrastructure to a demographic that has so far been largely on the sidelines of the digital payments boom.

What this means for the industry

For the fintech industry, PhonePe’s feature-phone UPI implementation signals a shift from smartphone-first to population-first design. It acknowledges that India’s next wave of financial users will not necessarily resemble the first 50 crore: many will be older, rural and on non-smart devices.

It also sets a new benchmark for third-party application providers (TPAPs). Until now, UPI on feature phones has largely been discussed in the context of unstructured supplementary service data (USSD) and interactive voice response (IVR) flows managed by banks and NPCI. PhonePe’s implementation, pre-bundled on multiple handset brands, with a consumer app experience and peer-to-peer plus merchant payments, raises the bar for what a feature-phone UPI product can be.

For merchants, especially in semi-urban and rural markets, this expands the addressable base of digital payers. A kirana store that already accepts UPI QR codes can now serve customers who previously paid in cash simply because they did not have a smartphone or data. Over time, this can accelerate the formalisation of small-ticket commerce and improve cash-flow visibility for micro-businesses.

A decade of PhonePe, and the next frontier

PhonePe’s own journey mirrors India’s digital payments arc. Launched in 2016, it was among the first apps to go live on UPI and has since grown into a fintech super-app processing over 100 million transactions daily and serving hundreds of millions of registered users and tens of millions of merchants, according to industry profiles. The company has leveraged its payments foothold to build out insurance, investments, lending, and commerce verticals, effectively becoming a financial services distribution layer for a large share of India's digitally active population.

At GFF 2026, PhonePe CEO Sameer Nigam outlined a decade-long roadmap that explicitly centres inclusion: removing obstacles such as the necessity for smartphones or bank accounts, simplifying wealth-building through daily savings and micro-investments, and enhancing credit availability. PhonePe’s UPI 123Pay implementation for feature phones is a concrete expression of that vision, taking the core UPI capability and re-engineering it for the constraints that still define large parts of India.

For India’s digital story, PhonePe’s feature-phone UPI implementation is less about a new product and more about addressing one of the biggest gaps in India’s digital finance story: the millions of consumers for whom digital services have remained inaccessible because they do not own a smartphone.