The era of completely free digital transactions via the Unified Payments Interface (UPI) may be over soon, RBI Governor Sanjay Malhotra hinted at the Financial Express BFSI event in Mumbai today.
While the UPI system remains free for the users, the cost for maintaining the payment infrastructure behind the service is borne by the government through subsidising banks and other stakeholders.
What did Malhotra say about the future of UPI?
“Payments and money are a lifeline. We need a universally efficient system. As of now, there are no charges on the UPI service. The government is subsidising various players such as banks and other stakeholders in the UPI payments system. Some costs have to be paid,” Malhotra told the Financial Express.
“Any important infrastructure must bear fruit,” he said, adding that for any service to be truly sustainable, “its cost should be paid whether collectively or by the user.”
What reasons were cited by the governor for this push?
Malhotra further emphasised that the unprecedented scale of UPI operations has intensified the strain on the service’s backend infrastructure, which is largely maintained by banks, payment service providers, and the National Payments Corporation of India (NPCI).
Furthermore, due to the government’s zero merchant discount rate policy, UPI transactions generate no revenue. This has led industry players to consistently warn that the current model is financially unsustainable.
What is the Merchant discount rate policy?
In December 2019, the government waived the Merchant Discount Rate (MDR) on RuPay debit cards and BHIM-UPI transactions. This fee, typically 1% to 3% of the transaction value, is charged to merchants by banks for processing digital payments. The reintroduction of MDR and whether users will share the cost of UPI infrastructure remains uncertain.
The RBI governor’s remarks coincide with UPI’s surpassing of global payments giant Visa. India has emerged as the world leader in fast payments, with UPI processing over ₹24.03 lakh crore through 18.39 billion transactions in June.
Currently, UPI facilitates approximately 85% of all digital transactions within India and nearly 50% of all real-time digital payments globally.