Free UPI Model Not Sustainable in the Long Run: RBI Governor

India's UPI system has emerged as the world's most successful real-time digital payments platform, facilitating billions of transactions every month. But as the ecosystem continues to grow at an exponential rate, concerns are rising over its financial sustainability.

In a recent address in Mumbai, RBI Governor Sanjay Malhotra signaled the need to rethink the zero-cost model currently powering UPI.

RBI Governor Calls for UPI Sustainability

UPI's Free Model Under Scrutiny

Speaking at a financial event, RBI Governor Sanjay Malhotra noted that while UPI transactions remain completely free for users, the system incurs substantial operational costs that must eventually be recovered.

“Costs will have to be paid. Someone will have to bear the cost,” Malhotra remarked.

He added that although the government is currently subsidizing the ecosystem—including banks and payment service providers—such a setup is not sustainable in the long run.

“Payments and money are a lifeline. We need a universally efficient system. As of now, there are no charges. The government is subsidising various players such as banks and other stakeholders in the UPI payments system. Obviously, some costs have to be paid.”

Growing Pressure on UPI Infrastructure

Explosive Growth, Minimal Revenue

India’s UPI processed a record ₹24.03 lakh crore across 18.39 billion transactions in June 2025 alone, surpassing the transaction volumes of global payment giants like Visa. The platform now contributes to:

• Nearly 85% of India’s digital payments

• Approximately 50% of global real-time digital transactions

However, this tremendous scale has placed significant stress on the backend systems, which are largely managed by banks, fintech service providers, and NPCI.

Why the Revenue Model Needs Change

Zero MDR: A Double-Edged Sword

Since the December 2019 government mandate of zero Merchant Discount Rate (MDR) on RuPay debit card and BHIM-UPI transactions, service providers have had no clear source of revenue. Previously, MDR—typically 1% to 3% of the transaction value—was charged to merchants and served as a critical income stream for ecosystem players.

Industry stakeholders have repeatedly flagged this financial gap, urging the reintroduction of MDR or an alternative cost-sharing mechanism to support the operational backbone of UPI.

“Any important infrastructure must bear fruits,” the RBI Governor said. “For any service to be sustainable, its cost should be paid—whether collectively or by the user.”

What This Means for Users and the Future

Could UPI Users Be Charged in the Future?

Though the government has not yet issued a formal response or hinted at an upcoming policy change, Malhotra’s comments suggest a shift may be inevitable. Whether this results in charges being passed on to users or merchants, or a new subsidy structure, remains to be seen.

With the fintech sector booming and UPI being a key pillar of India’s Digital Public Infrastructure (DPI), ensuring its sustainability will be a critical priority for regulators and stakeholders alike.

Conclusion

India’s UPI revolution has transformed the digital payments landscape, making it faster, secure, and widely accessible across socio-economic segments. From small kirana stores to large retailers, and from daily wage earners to salaried professionals, UPI has democratised digital finance like never before.

However, sustaining such a robust and high-volume system with zero charges is becoming increasingly challenging. As RBI Governor Sanjay Malhotra rightly emphasised, even the most efficient financial infrastructure comes with operational costs that must eventually be covered. While the government's subsidy model has helped drive UPI adoption, a long-term solution is essential for maintaining the system’s integrity and resilience.

A well-calibrated revenue-sharing model—one that doesn’t burden users excessively but ensures fair compensation to banks, fintech firms, and other stakeholders—could be the way forward. Ensuring financial sustainability without compromising accessibility will be the key to keeping UPI a global benchmark in real-time digital payments for years to come.