As government incentives for low-value UPI transactions and RuPay debit card payments reduces, UPI apps are increasingly seeking new ways to monetise their vast customer base, including imposing convenience fees on certain transactions.
For instance, recently, Google Pay introduced a convenience fee of 0.5–1% on payments such as electricity and cooking gas bills made via credit and debit cards. These services were previously free for low-value transactions. However, UPI transactions linked directly to bank accounts remain free. Similarly, PhonePe and Paytm also levy convenience fees on various bill payments, including utilities, credit card payments, and mobile recharges.
“Convenience fees help monetise the customer base through value-added services,” said Yashraj Erande, global leader – fintech and India leader – financial institutions at BCG. “Third party application providers (TPAP) already generate significant gross margins from peer-to-merchant (P2M) transactions, as these are not operationally intensive. They are building a profitable business despite earning only a small portion of the total interchange fee.”
Currently, payment service providers (PSPs) and third party application providers receive just 5 basis points (0.05%) of each transaction, shared equally between them. Meanwhile, the bulk of the interchange fee — up to 0.25% of the transaction value — is retained by the remitter and receiver banks.
The government had initially made UPI transactions below Rs 2,000 and RuPay debit card payments free of merchant discount rate (MDR) to drive adoption. To offset costs, it reimbursed banks, PSPs, and TPAPs through incentives. However, these incentives have sharply declined since FY24.
Budget allocations for these reimbursements have dropped significantly — from Rs 2,484 crore in FY24 to Rs 2,000 crore (revised estimate) for FY25, and a much lower Rs 437 crore for FY26.
Despite the reduction in subsidies, convenience fees are just one revenue stream for UPI apps. Many also generate significant earnings through distribution fees from cross-selling financial products such as insurance, mutual funds, and loans, as well as from flight and travel bookings.
In FY24, PhonePe’s revenue from operations surged 74% to Rs 5,064 crore, while its losses narrowed to Rs 1,996 crore from Rs 2,795 crore in FY23. The company’s primary revenue driver remained its payment services.