A Digital Lifeline for India
In the last few years, the Unified Payments Interface (UPI) has revolutionized the way India transacts. From street vendors to large businesses, UPI has enabled seamless, real-time money transfers with a few taps on a smartphone. With over 60 crore transactions occurring daily, it has become an essential tool in everyday life and a symbol of India’s digital transformation. However, this convenience currently comes at a hidden cost—one that the government bears to ensure zero charges for users and merchants.
Now, the Reserve Bank of India (RBI) is hinting that this cost-free model may not last forever.
RBI Sounds the Alarm on UPI’s Financial Sustainability
Speaking at a Financial Express event, RBI Governor Sanjay Malhotra voiced concerns about the long-term viability of a fully subsidized UPI ecosystem. “Payments and money are a lifeline,” Malhotra said. “But someone has to bear the cost.”
Currently, UPI transactions do not carry any fees, thanks to the government’s decision to maintain a zero MDR (Merchant Discount Rate) policy. This means banks, payment service providers, and the National Payments Corporation of India (NPCI) operate without any direct revenue from users or merchants.
Malhotra emphasized that while the intent to maintain a low-cost digital infrastructure remains firm, sustainability must take precedence in the long run. “The government is subsidising various players such as banks and stakeholders. Obviously, some costs have to be paid,” he noted, pointing to the increasing backend strain.
Unprecedented Growth, But at What Cost?
UPI has witnessed exponential growth in just a few years. Daily transactions have surged from 31 crore in 2022 to over 60 crores in 2024. With the rising demand for quick, secure digital payments, banks and payment platforms are under growing pressure to maintain service quality and infrastructure without a direct revenue stream.
This situation has raised questions across the industry. Payment service providers have long voiced concerns about the financial strain of maintaining a system that is free to the user but expensive to run. The lack of a monetization model has also deterred innovation and scalability among smaller fintech players.
While Malhotra did not announce any imminent change in the fee structure, he made it clear that the decision on the zero MDR policy rests with the government, signaling that a policy shift could be on the horizon.
UPI’s Growing Global Footprint
As India fine-tunes its domestic digital payments landscape, UPI is also finding takers around the world. Countries like Singapore, UAE, France, Sri Lanka, and Bhutan have either adopted or expressed interest in integrating UPI for cross-border payments.
This expansion is positioning UPI not only as a domestic success but also as a diplomatic and economic tool, helping India export its fintech expertise. The global traction, however, further underlines the need for a robust, financially viable architecture that can sustain both scale and reach.
Future of UPI Hinges on Balance Between Access and Viability
UPI has undeniably transformed how India and increasingly the world conducts digital transactions. But the RBI’s cautionary message signals the start of a crucial conversation: how to preserve the accessibility and simplicity of UPI while ensuring it remains financially sustainable.
The future course of action could include a review of the MDR policy, introduction of nominal fees for certain categories of transactions, or a tiered pricing model. The government, RBI, and stakeholders must now collaborate to chart a path that balances affordability, innovation, and longevity—ensuring that UPI continues to be a powerful tool for financial inclusion without becoming a financial burden.
(With agency inputs)
