UPI transaction
UPI transactions have increased rapidly, but government incentives are decreasing. Companies say that without a sustainable model, the digital payment ecosystem may face crisis. UPI has become the backbone of digital payments in India today. From vegetable vendors to malls, payment through QR code has become common everywhere. But now the concern of the fintech companies running this free system has increased. Many companies including PhonePe say that if a permanent way of earning is not found, then the UPI ecosystem will not be able to survive for a long time.
According to PhonePe, it costs heavily to run the UPI network. Thousands of crores of rupees are spent on technology infrastructure, servers, cyber security, fraud prevention, customer support, adding new users and shopkeepers. The company said that it received an incentive amount of Rs 3,900 crore from the government in FY23-24, but that too was less than the expenses. It came down to Rs 1,500 crore in FY24-25 and a provision of only Rs 427 crore has been made in the current budget.
UPI has benefited the country a lot
RBI Governor Sanjay Malhotra has also spoken openly on this issue. He said that UPI has given a lot of benefits to the country, but its cost will have to be borne by someone. He clearly says that UPI cannot remain free forever, it has a cost and someone will have to pay it. Payments Council of India (PCI) has also warned that the current model is not sustainable for companies. The organization says that if no solution is found soon, many fintech companies may have to limit their operations, especially in rural and small towns.
The interesting thing is that on one hand the use of UPI has reached a record level. According to NPCI data, 20.7 billion UPI transactions took place in the month of October alone, whose total value was Rs 27.28 lakh crore. About 85% of digital payments in the country are now made through UPI. Its scope has expanded rapidly even in Tier-2 and Tier-3 cities.
Demand from fintech companies
Meanwhile, fintech companies are demanding from the government that either the subsidy should be increased significantly or permission should be given to implement Merchant Discount Rate (MDR). The proposal is to keep UPI free for small shopkeepers and common users, but a nominal MDR of 0.25% to 0.30% should be charged from large merchants (whose annual turnover is more than Rs 10 crore).
The companies argue that this will not burden the general public, but will provide the necessary funds to make the system sustainable. This issue is becoming heated before Budget 2026. The question now is that the system which has become a convenience for crores of people today, will it be completely free in the future too, or has a sustainable model become necessary for UPI too?