Charges For UPI Transactions: India’s widely celebrated Unified Payments Interface (UPI) may soon undergo a major transformation. In a recent announcement, Reserve Bank of India (RBI) Governor Sanjay Malhotra hinted at a future where free UPI transactions may no longer be viable. As UPI continues to scale new heights in adoption and transaction volume, the RBI has raised concerns about the sustainability of its current zero-cost model. This development could mark the end of an era in India’s digital payments ecosystem.
UPI’s Meteoric Rise: A Digital Payment Revolution
Since its launch in 2016, UPI has changed the way India transacts. Designed as a real-time payment system, UPI allows seamless bank-to-bank transfers via mobile apps like Google Pay, PhonePe, Paytm, and others.
In 2023, UPI processed over 31 crore transactions daily.
By mid-2025, that number has surged to over 60 crore transactions daily.
India’s UPI model has become a global benchmark, with countries such as France, Singapore, and the UAE looking to adopt or integrate with it. The zero MDR (Merchant Discount Rate) policy—a decision by the Indian government to make UPI transactions free for users and merchants—played a key role in this phenomenal growth.
The Hidden Costs of “Free” Transactions
Despite its massive success, the “free UPI” model comes with significant hidden costs. Governor Malhotra pointed out that the government has been subsidizing the entire UPI ecosystem, including:
Banks
Fintech companies
Payment service providers
According to him, “payments and money are a lifeline, and every critical infrastructure must pay for itself over time.“
Why Subsidies Aren’t Sustainable?
The current model, where no revenue is generated per transaction, is increasingly financially unsustainable. Maintaining the digital infrastructure for UPI involves:
High server and data security costs
Maintenance of banking apps
System upgrades
Customer service expenses
These expenses have so far been borne by the government to encourage adoption, but with rising transaction volumes, the costs are ballooning.
RBI’s Sustainability Concerns: The Case for UPI Charges
Governor Malhotra’s recent remarks make it clear: for UPI to remain robust, it must become financially sustainable. He noted:
“For a service to be genuinely sustainable, its cost should be paid—either collectively or by the user.”
This statement suggests a policy shift may be on the horizon—possibly in the form of:
Introducing nominal user charges
Reinstating the MDR fee for merchants
Implementing a hybrid model where both users and merchants contribute
Understanding MDR and Its Role
The Merchant Discount Rate (MDR) is a small fee charged to merchants for processing digital payments. It traditionally allowed banks and service providers to:
Recover transaction costs
Invest in better infrastructure
Offer secure and seamless payment services
Since January 2020, the Indian government has enforced zero MDR for UPI and RuPay transactions, leading to no earnings for service providers despite growing demand. This has raised alarms about the long-term viability of the “free” model.
Government’s Position: A Delicate Balancing Act
The Indian government has repeatedly emphasized that UPI is a digital public good. Its reluctance to impose charges is understandable, especially given its commitment to:
Financial inclusion
Digital literacy
Cashless economy goals
To offset the lack of MDR revenue, the government has rolled out incentive schemes to support banks and service providers. However, as transaction volumes increase, so do these incentive payouts—raising questions about how long such support can continue.
Industry Demands and Public Sentiment
Banks and fintech companies have long lobbied for the reintroduction of MDR—at least for high-value transactions—arguing that free services are not scalable indefinitely.
Meanwhile, consumers have grown accustomed to zero-fee transactions. Any attempt to introduce charges could face:
Public backlash
Political resistance
Disruption in user behavior
This makes the road ahead particularly complex for policymakers.
Banking Sector Outlook: Broader Financial Reforms
In the same address, Governor Malhotra also praised the successful merger of public sector banks, stating it improved value and efficiency. Future consolidations, he noted, will be pursued only if they:
Are cost-effective
Enhance competitiveness
Support broader digital infrastructure growth
This signals a wider reform vision, with a focus on creating sustainable digital financial services.
What to Expect Next?
Possible Scenarios:
Reintroduction of MDR: Merchants may be charged a small fee per transaction, especially for large payments.
Tiered User Charges: Free transactions up to a limit; fees beyond a threshold.
Hybrid Cost-Sharing: Both users and merchants contribute a nominal amount.
The Big Challenge:
Finding a middle ground that preserves UPI’s accessibility while ensuring its sustainability will be the key test for India’s digital economy.
Conclusion
The RBI’s recent remarks indicate that the era of completely free UPI transactions may be nearing an end. While no official policy change has been announced yet, the conversation around sustainability and infrastructure costs is gaining traction. As India continues to lead the global digital payment revolution, ensuring that its systems are both inclusive and economically viable will be crucial.
