You probably do not remember the last time you paid a fee for a UPI transaction. That is precisely what makes the current debate around UPI so interesting.
For millions of Indians, paying Rs 30 for chai, Rs 200 for groceries or sending Rs 500 to a friend has become so routine that the payment itself barely registers. You scan a QR code, enter your PIN and carry on with your day. The machinery that moves the money from one bank account to another is almost completely invisible.
That invisibility is not a fluke. It is the result of a policy choice that helped UPI grow from a relatively small payment system into something that now looks more like public infrastructure.
And after a decade of keeping the basic payment experience free, India is beginning to ask a question that was always going to become harder to avoid as UPI grew: who should ultimately pay for the system that has made digital payments so cheap and easy?
The immediate trigger is a change to the law that opens the door to charges on some digital-payment transactions. But if you are wondering whether your Rs 500 payment to a friend is about to come with a fee, the answer, for now, is no.
Finance Minister Nirmala Sitharaman has said consumers will not be charged for UPI transactions and that no final Merchant Discount Rate, or MDR, framework has been decided. The legal change is just an enabling provision, and it does not itself impose a UPI fee.
To understand why the government is even considering a change, though, it helps to go back to the beginning — to a time when UPI was not something you used to pay your neighbourhood shopkeeper, but a new system that only 21 banks had signed up for.
HOW UPI WENT FROM A NEW IDEA TO A DAILY HABIT
Unified Payments Interface or UPI was launched in April 2016 by the National Payments Corporation of India, or NPCI. There were 21 banks on the platform when it began, and its first month produced just 373 transactions.
The numbers today almost make that first month look like a different era. In May 2026, UPI processed 23.20 billion transactions worth Rs 29.90 lakh crore, with 720 banks live on the network.
Across FY2025-26, UPI processed about 24,162 crore transactions worth more than Rs 314 lakh crore. The government says UPI now accounts for around 85% of India’s digital-payment volume, while more than 700 banks are connected to the system.
The remarkable part is not simply the scale. It is what that scale represents. A payment system that once had to persuade people to try digital payments has become so familiar that most of us no longer think of it as a separate piece of technology.
You simply say, “I’ll UPI it.”
That tells you how completely the system has entered everyday life.
THE BACKBONE BEHIND YOUR UPI PAYMENT
There is a distinction worth making here because it explains much of what is happening behind that QR code on the counter.
PhonePe is not UPI. Google Pay is not UPI. Paytm is not UPI. They are apps through which you access UPI.
UPI is the underlying payment infrastructure that allows money to move between bank accounts in real time. NPCI built the system to allow different banks and payment applications to work with each other, rather than forcing customers and merchants into closed networks.
India already had electronic payment systems before UPI. NEFT and RTGS were established bank-transfer mechanisms, while IMPS had brought instant interbank transfers to consumers.
UPI built on that infrastructure but changed the experience of making a payment. You no longer needed to know a recipient’s bank account number and IFSC code for a routine payment. A UPI ID, mobile number or QR code could do the job.
The less you have to think about a payment, the more likely you are to make it digitally. And then the QR code took that convenience from consumers to millions of small businesses.
THE QR CODE CHANGED SMALL SHOPS
Think about a roadside tea seller. A customer wants to pay Rs 20. A card machine would have been an expensive proposition for a transaction that small. A QR code changed that calculation. The merchant could simply display one and allow customers to transfer money directly through UPI.
That is one reason the system spread far beyond large retailers and urban consumers.
A 2026 assessment by the Department of Financial Services found that 94% of surveyed small merchants reported accepting UPI. About 72% were satisfied with digital payments, while 57% said digital payments had increased their sales. Merchants also cited faster transactions, improved record-keeping and operational convenience.
The same report found that 57% of surveyed users preferred UPI as a payment mode, compared with 38% who preferred cash, while 65% of UPI users said they made multiple digital transactions a day.
So when we talk about UPI changing India, this is what we mean. It did not merely give people another way to pay. It made digital payments viable for transactions where the old alternatives often did not make much economic sense.
A Rs 20 payment could be digital. So could Rs 50 or Rs 100. And once enough people started using it, the system acquired something even more valuable than technology: habit.
WHY GOVERNMENT KEPT UPI FREE
The next part of the story is MDR.
Merchant Discount Rate is, broadly, the fee paid by a merchant to the payment ecosystem for processing a digital transaction. Card payments have traditionally operated with such fees. UPI, for bank-account-based merchant transactions, has largely operated without them.
That distinction mattered enormously when UPI was trying to build scale. If you are a large retailer processing a Rs 5,000 payment, a small percentage of the transaction may be manageable. If you run a small tea stall where customers are paying Rs 20 or Rs 30 at a time, even a small payment fee can eat into already thin margins.
India, therefore, made the decision to keep UPI payments free for merchants, while using government incentives to support the ecosystem.
Economist Ajit Ranade has described this as one of the reasons UPI became such a success. In a Mint column, he wrote that UPI’s growth was helped by a “significant subsidy” that kept it “frictionless and free for the end user”.
That absence of a fee helped make UPI behave like cash for the user: you could make a small payment without stopping to calculate whether the method of payment itself was costing you money.
Dilip Asbe, NPCI’s MD and CEO, said in 2024 that large merchants could eventually pay a “reasonable” charge for UPI while smaller merchants remained protected. The comment is worth revisiting now because it shows that the question of how UPI should eventually pay for itself is not new. Even as the system was expanding, its architects were aware that its economics could not remain an afterthought forever.
YOU PAY NOTHING. SOMEONE DOES
When you make a UPI payment, there are still banks processing the transaction, technology systems supporting it, payment providers operating their platforms, fraud-monitoring systems checking transactions and infrastructure handling authentication and settlement. NPCI operates the central payment infrastructure connecting the ecosystem.
The government has therefore supported the zero-MDR model through incentives. The Department of Financial Services says the scheme has helped reduce cost barriers for merchants and acquiring banks and accelerate merchant onboarding. The government says budgetary support under the scheme has totalled Rs 8,276 crore.
RBI Governor Sanjay Malhotra made the same point in 2025. The fact that users were not being charged did not mean UPI itself was costless, he said. “Someone is paying for it,” Malhotra said, noting that the government was subsidising the system.
More recently, Malhotra described UPI as a public good and said the costs of maintaining and strengthening such infrastructure have to be met somehow.
That is really the question at the centre of the current debate: not whether UPI has a cost, but who should bear it.
There is another complication. SBI chairman CS Setty has said it is difficult to isolate how much banks’ operating costs have increased specifically because of UPI, since much of the underlying banking infrastructure is shared.
So there is no neat, universally accepted price tag for each UPI transaction.
What we do know is that UPI has become enormous, the infrastructure behind it needs constant investment and the current zero-MDR model has required government support.
SO WHO PAYS FOR IT?
The legal change passed by Parliament does not itself introduce a UPI fee. It creates a framework under which the government can later notify charges or exemptions. Sitharaman has explicitly said that no MDR framework has been finalised and that consumers will not be charged.
The proposals being discussed are also much narrower than the phrase “UPI charges” suggests.
One reported model would impose an MDR of roughly 0.3% to 0.5% on UPI transactions above Rs 2,000 made to large merchants.
News agency Reuters reported that such transactions account for only about 4% of UPI’s transaction volume but roughly 67% of its transaction value. Another report has put the potential MDR range at around 0.25% to 0.4%. There is still no final rate or threshold.
The thinking is fairly straightforward: don’t put a charge on the Rs 50 payment at your local shop; see whether a much smaller number of higher-value commercial payments can contribute towards the cost of the wider system.
That brings us back to Asbe’s argument from 2024: protect the small merchant, but consider asking larger merchants to contribute.
So, will you pay more? For the moment, there is no reason to change the way you use UPI.
If you send Rs 500 to a friend, the proposed MDR does not apply. If you transfer money to your parents, it does not apply. If you buy a Rs 200 item from a small shop, the government’s stated position is that ordinary users and low-value transactions will remain protected.
The current discussion is about merchant-side charges, not a fee that will suddenly appear on your UPI screen.
But there is a more interesting consumer question underneath: if a merchant is charged, does the customer eventually pay anyway?
That is possible, but it is not automatic. A merchant can absorb the cost, negotiate with its payment provider or accept a lower margin. It can also choose to reflect part of the cost in its pricing. Whether that happens will depend on the merchant, the size of the charge and how competitive the market is.
So it would be wrong to say that MDR automatically means higher prices for customers. At the same time, it would be equally wrong to pretend that a merchant-side cost can never affect customers.
But the customer and the shopkeeper are only two parts of this ecosystem. There are also the companies and banks that make that payment possible, and they have had to build a business around a system where the basic transaction itself does not generate a fee.
WHAT ABOUT THE APPS YOU USE TO PAY?
You use PhonePe or Google Pay constantly, but the basic UPI payment itself has not traditionally been a transaction-fee business for these apps.
So why build the infrastructure and spend money acquiring customers? Because payments can be the beginning of a much larger relationship. Once an app becomes the place where you make payments, it can potentially offer other financial products and merchant services.
The zero-MDR model therefore pushed the ecosystem towards other forms of monetisation.
A change in MDR could alter that balance by giving banks and payment companies a direct revenue stream from some merchant transactions.
Whether that money ultimately improves infrastructure, supports innovation or simply changes how revenue is divided across the ecosystem is something the final policy will have to establish.
UPI AFTER A DECADE OF FREE PAYMENTS
In 2016, there were 21 banks on UPI and just 373 transactions in its first month. A decade later, more than 700 banks are connected and UPI processes more than 23 billion transactions in a single month.
That scale is what makes the question of who pays for the system harder to ignore. There is a case for making large businesses contribute towards the cost, but UPI’s biggest advantage has always been that the customer never had to think about it.
For now, you will keep doing what you have done thousands of times already: scan, enter your PIN and carry on.
That may be UPI’s biggest achievement — making an extraordinarily complicated piece of financial infrastructure feel almost invisible.
The challenge now is to decide who pays for it without making the payment itself something you have to think about again.
– Ends
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