India’s Unified Payments Interface (UPI) has revolutionized the way people transact, transforming the country into one of the world’s leading digital payment ecosystems. Launched in 2016 by the National Payments Corporation of India (NPCI), UPI has seen exponential growth — processing over 13 billion transactions monthly by 2025 and facilitating seamless peer-to-peer and merchant payments with ease.
However, as usage skyrockets, a critical question looms: Is UPI financially sustainable in the long term? Currently, the infrastructure is largely subsidized, with no direct cost to consumers or small merchants, raising concerns about viability for banks, payment service providers (PSPs), and other ecosystem players.
The Current Financial Landscape of UPI
UPI operates on a zero-Merchant Discount Rate (MDR) model, which means that merchants pay no fees for accepting UPI payments. This decision, made by the Indian government in 2019 to promote digital adoption, was instrumental in UPI’s mass adoption. However, it also left banks and third-party app providers with limited revenue streams, despite bearing significant infrastructure, compliance, and operational costs.
Banks incur expenses for building APIs, maintaining fraud detection systems, ensuring cybersecurity, and managing settlements. Similarly, PSPs like PhonePe, Google Pay, and Paytm invest heavily in user experience, infrastructure scaling, and customer support — often without any transactional revenue.
Principles for a Sustainable UPI Model
- Cost Recovery Without Burdening Users
UPI must find a balance between maintaining free access for the masses while enabling service providers to recover costs. This doesn’t mean charging the end-user for small-value transactions but could involve tiered monetization models for businesses or premium services. - Equitable Revenue Sharing
Revenue generated through value-added services like data analytics, credit scoring, and financial product distribution (like insurance or loans via UPI platforms) should be equitably shared among ecosystem participants — including banks, FinTechs, and app developers. - Incentivizing Innovation and Infrastructure Growth
A portion of revenue should be reinvested into developing UPI’s capabilities — such as offline payments, voice-based transactions, and enhanced security features. This ensures continuous improvement and broader reach.
Potential Revenue Models for UPI
- Tiered MDR for High-Value Transactions or Large Merchants
Reintroducing a nominal MDR for specific use cases — such as high-value transactions or large enterprise merchants — could help subsidize smaller transactions. For example, micro-payments could remain free, while transactions above ₹2,000 at large retail chains might attract a minimal fee. - Subscription-Based Premium Services
UPI apps could introduce optional paid services such as:- Advanced bookkeeping tools for merchants
- Instant loan access or overdraft via UPI
- Custom payment solutions for large businesses
These generate recurring revenue while keeping basic services free.
- Transaction Bundling for Businesses
Offer bundled digital services to businesses (e.g., billing, GST compliance, CRM) with UPI payments as part of the package. This indirect monetization supports ecosystem sustainability without impacting user experience. - Government Incentives and Infrastructure Subsidies
To promote inclusive digital finance, the government can provide targeted subsidies or viability gap funding for low-margin players, especially rural or cooperative banks managing high transaction volumes at low margins. - Data Monetization with Privacy Controls
Anonymized transaction data can be used (with consent) to create insights for credit underwriting, financial planning tools, and consumer behavior analytics. Ethical monetization of data could become a significant revenue stream.
A Public-Private Governance Model
Ensuring UPI’s sustainability isn’t just a technical or financial issue — it’s also about governance. A collaborative framework involving:
- NPCI as the neutral operator
- Banks and FinTechs as co-creators
- The Reserve Bank of India (RBI) as the regulator
can build a model where financial incentives align with national goals.
Transparent governance, regular stakeholder consultations, and adaptive regulation will be essential to evolve the financial model without disrupting service continuity or trust.
Conclusion: The Road Ahead
UPI has become the backbone of India’s digital economy. But as it scales, the system must transition from a growth-driven, subsidy-reliant model to a self-sustaining, innovation-friendly financial architecture.
A balanced approach — maintaining affordability while enabling fair compensation for ecosystem players — will ensure that UPI continues to thrive, not just as a volume engine, but as a resilient and scalable national asset.