Mumbai: Parliamentarians are recommending charging of fees for transactions on India’s real-time payments network, a move that could change the government’s ‘free-for-all’ policy. A new committee report suggests a tiered revenue model is necessary to sustain the Unified Payments Interface (UPI), as budgetary sops fail to cover rising maintenance costs.
The proposal marks a significant moment for a system that processed about ₹300 trillion in 2025. While Prime Minister Narendra Modi’s government has supported UPI as a public good, the infrastructure behind it, managed by banks and fintechs, is weighed down by a massive funding gap.
Industry participants, who have long sought a Merchant Discount Rate (MDR), view the parliamentary backing as a signal of reforms. In FY24, the ecosystem collectively spent ₹12,000 crore to process merchant transactions but received only ₹3,000 crore in return, leaving a huge shortfall that private players say obstructs innovation and security.
The shift comes as UPI’s swift growth begins to cool, with volume growth expected to slow to 25% by FY26. With government sops covering less than a fraction of costs, the push for a tiered fee structure aims to protect small vendors while finally allowing payment providers to monetize commercial traffic.
“The committee’s suggestions have just come in. Now it is to be seen whether the government remains silent on the suggestions or this is their way of testing the waters and getting industry feedback before they officially introduce fees,” a senior industry official said on the condition of anonymity.
In its report, the standing committee had observed that incentive support under the government scheme constitutes only 11% of the cost incurred by the industry and 14% of the potential merchant discount rate (MDR) collected by the industry.
The cost of digital scale
Kunal Jhunjhunwala, founder of payments ecosystem platform Airpay Payments, said there is a need for payment service providers and banks to establish direct revenue streams, which currently do not exist due to the lack of MDR.
“The ecosystem can achieve self-sustainability through a tiered structure that protects unbanked users and small-value transactions. The key is that any such framework must emerge from a government-led consultative process,” he said.
The report of Parliament’s standing committee believes that the UPI ecosystem is capable of expanding 10 times, given demographics, economic growth, and geographic spread. UPI is expected to add 600 million users and process 100-150 billion transactions per month over the next five to seven years.
The committee expects the volume growth rate of UPI transactions to decline to 25% in FY26 from 42% in FY25.
“The economics of the situation need to be evaluated,” Jhunjhunwala said, adding that in FY24, banks, payment applications and NPCI collectively received only ₹3,000 crore against spends of around ₹12,000 crore to process P2M UPI transactions.
The committee report also suggested that, in the absence of MDR, adequate government budgetary support is essential to prevent further strain on the UPI payment ecosystem and the broader payments infrastructure.
Despite a massive mid-year hike for FY26, the government’s ₹2,000 crore allocation for FY27 reflects a stagnating subsidy commitment to the UPI ecosystem.
However, the Payments Council of India had said that the lower budgetary allocation will choke the industry and make it difficult for UPI platforms to tap the next set of the population and deploy acceptance mechanisms in the hinterland.
Key Takeaways
- Parliament recommends tiered UPI charges to ensure the digital ecosystem’s future sustainability.
- Current government subsidies cover only 11% of the industry’s total operational costs.
- Ecosystem players faced a ₹9,000 crore shortfall in processing merchant transactions last year.
- Transaction volume growth is projected to slow significantly by the next fiscal.
Bridging the budgetary gap
Around 60 million merchants accept digital payments in India today, of which 90% are categorized as small merchants under the Reserve Bank of India’s definition of a turnover of less than ₹20 lakh. Around 5 million merchants are categorized as large enterprises.
UPI processed 228 billion transactions worth a cumulative ₹300 trillion in 2025, 33% more than in 2024 in terms of the number of transactions (volume) and 21% higher in terms of value, according to National Payments Corporation of India data.
