The Revolution of Free Payments
Launched in 2016 by the National Payments Corporation of India (NPCI), UPI transformed the nation’s relationship with money. It allowed users to instantly transfer funds between bank accounts using a single mobile app, a simple and powerful innovation.
But its most disruptive feature was its cost: zero. In January 2020, the government mandated a zero Merchant Discount Rate (MDR) for UPI transactions. MDR is the fee merchants typically pay to banks for processing digital payments. By eliminating it, the government removed a major barrier that had kept small vendors away from digital transactions, paving the way for mass adoption.
Fueling a Less-Cash Society
The zero-fee model, combined with demonetisation in 2016 and a mobile-first culture, created explosive growth. From just two crore transactions in its first full fiscal year, UPI volume surged to over 24,162 crore in FY 2025-26. The value of these transactions grew from ₹0.07 lakh crore to a staggering ₹314 lakh crore in the same period. In 2025 alone, UPI processed over 228 billion transactions, contributing to roughly 85% of all digital payment volumes in India. This massive scale turned UPI into the backbone of India's digital economy, making everyday transactions, from buying groceries to splitting bills, seamless and cash-free for hundreds of millions of users.
The Hidden Cost of 'Free'
While UPI is free for users and merchants, it is not free to operate. Behind every instant payment lies a vast and expensive infrastructure for authentication, settlement, fraud detection, and cybersecurity that requires constant investment. Currently, the cost is borne by the ecosystem's participants—primarily banks and payment service providers. To offset these costs, the government has provided budgetary support through incentive schemes. However, these subsidies cover only a fraction of the industry's estimated operational costs, leading to a growing financial strain as transaction volumes soar. This has sparked a critical debate about the long-term financial sustainability of the platform.
The Great Debate: To Charge or Not to Charge?
The conversation around UPI's future now centers on sustainability. Proponents of introducing charges argue that a viable revenue model is necessary to fund ongoing innovation, enhance security, and ensure the system remains resilient. They suggest that relying on government subsidies is not a sustainable long-term solution. On the other hand, opponents fear that introducing fees could deter users, especially small merchants, potentially reversing some of the gains in financial inclusion and pushing people back towards cash. The debate is no longer about whether UPI has succeeded, but about how to ensure its continued growth and stability for the next decade.
What Could Charges Look Like?
Recent legislative changes have empowered the government to allow charges, but officials have clarified their intent. The government has repeatedly stated that UPI will remain free for regular person-to-person (P2P) and most person-to-merchant (P2M) transactions. Any future MDR, if introduced, is expected to be nominal and would likely apply only to a limited category of transactions, such as high-value payments made to large merchants. One proposal reportedly being considered involves a threshold of ₹2,000, above which a small fee could be levied on businesses. The final decision-making power on the structure of any potential fee rests with the NPCI-led steering committee, which will act only after the new law is fully enacted.
