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Is UPI really financially unsustainable? Show citizens the accounts


The government's central defence of the new charge on UPI merchant payments is sustainability.

From 15 October 2026, eligible person-to-merchant payments above ₹2,000 will attract a Merchant Discount Rate (MDR) of 0.4 per cent. The money will be shared among banks, payment applications and other service providers. The government says this will fund infrastructure, cybersecurity, innovation and customer service while keeping UPI free for consumers.

These are valid expenses. But establishing that UPI costs money to operate is not the same as proving that the chosen charge is necessary, proportionate or fairly distributed.

The Indian Express, citing government and industry sources, reported estimates that running UPI costs approximately ₹20,000 crore a year and that MDR could generate about ₹15,000 crore annually. But these are reported estimates, not figures accompanied by a published UPI-specific cost statement or methodology.

A claim of sustainability is not an account

UPI processed 24,162 crore transactions during FY2025-26. In August 2026 alone, it handled approximately 2,450 crore transactions worth nearly ₹29.8 lakh crore. At that scale, expenses for technology infrastructure, bank systems, fraud prevention, dispute resolution and cybersecurity are inevitable.

But where is the UPI-specific financial statement?

NPCI operates UPI alongside RuPay, IMPS, FASTag and other services. According to ICRA, NPCI reported a standalone post-tax surplus of ₹1,552 crore in FY2024-25. This does not prove that UPI itself was profitable. Nor does it establish that UPI was loss-making. NPCI's organisation-wide result cannot answer either question. The public materials reviewed for this article do not provide an audited product-level breakdown for UPI.

The government has also supported the ecosystem with public money. Ministry of Finance figures show ₹6,027 crore in UPI incentives from FY2021-22 to FY2023-24, followed by another ₹1,500 crore approved for FY2024-25. The Indian Express has reported, citing government sources, that the current low-value incentive scheme will end when MDR begins. No separate formal notification confirming that closure was identified in the official sources reviewed for this article.

That history matters. To assess the real funding gap, citizens need to know how the estimated ₹20,000 crore cost was calculated. Does it include only direct processing costs, or also marketing, customer acquisition and investments that benefit other banking products? Does it count expenditure by every participant separately, creating possible overlaps? How much is routine operating expenditure, and how much is expansion or long-term capital investment?

There are further questions. What is the cost per successful transaction? How much do P2P and P2M payments cost respectively? How much is spent on fraud prevention and customer compensation? Does NPCI earn revenue from UPI-related services, and if so, how much? What commercial benefits do banks and apps receive beyond MDR?

The official statements and FAQs reviewed for this article do not provide that level of detail.

A ₹15,000-crore revenue estimate needs a full explanation

Industry officials cited by The Indian Express expect the framework to generate roughly ₹15,000 crore annually. Brokerage estimates reported by the Financial Express project a ₹16,000 crore to ₹20,000 crore revenue pool by FY2028. The same report says banks could receive around 60 per cent of the total, while payment applications and merchant-acquiring companies would also receive shares. These remain projections, not guaranteed collections.

The Ministry of Finance says an amount equivalent to 5 per cent of MDR collections will be contributed to a dedicated fund supporting small merchants. The remainder will be distributed within the payments ecosystem.

That may be justified if it reflects genuine costs. But the rate should follow the evidence, not precede it.

A percentage fee also requires explanation. The official examples show MDR of ₹12 on a ₹3,000 payment and ₹200 on a ₹50,000 payment. Processing a payment of the second value may involve greater risk controls, but it is not self-evident that it costs nearly 17 times as much. If the purpose is cost recovery, the government should explain why an ad valorem charge is more appropriate than a fixed fee or a cost-based tier.

The government has also argued that subsidies cannot guarantee innovation. That may be true. But replacing a subsidy with a transaction-linked revenue stream does not automatically create competition. PhonePe and Google Pay together process almost 80 per cent of UPI transactions, according to The Indian Express. Enforcement of NPCI's 30 per cent volume cap for third-party application providers has been postponed several times, with the current deadline reported as December 2026. The government says MDR could help smaller providers compete, but it should show how the revenue-sharing formula will reduce concentration rather than reinforce it.

Before implementation, the government should publish:

  • an independently audited UPI-specific cost statement;

  • the methodology behind the ₹20,000 crore estimate;

  • costs separated by infrastructure, security, processing, disputes and expansion;

  • existing revenues and public subsidies;

  • the projected collection under each MDR category;

  • the distribution formula among banks, apps and service providers;

  • measurable commitments for infrastructure and consumer protection; and

  • an annual review with the power to reduce or withdraw the charge.

UPI may need a new funding model. That possibility should be assessed on evidence, not rejected simply because citizens prefer a free service. The burden of proof, however, rests with those imposing the charge.

When public money supported the network's expansion and public adoption made it indispensable, “trust us” is not sufficient financial disclosure. If sustainability is the justification, citizens deserve to see the accounts.

Sources

  1. The Indian Express, Centre plans daily tracking to see if merchants charge consumers for UPI fee, 17 September 2026.

  2. Ministry of Finance, UPI continues to remain free for person-to-person transactions and 96% of merchant transactions, 15 September 2026.

  3. Department of Financial Services, Merchant Discount Rate on select UPI person-to-merchant transactions: FAQs, 15 September 2026.

  4. ICRA, National Payments Corporation of India: rating rationale, 24 August 2026.

  5. Ministry of Finance, Cabinet approves incentive scheme for promotion of low-value BHIM-UPI transactions, 19 March 2025.

  6. Financial Express, MDR on UPI could generate revenue of ₹16,000 crore to ₹20,000 crore, 16 September 2026.

  7. Reuters, India's UPI fee shake-up: what changes and why it matters, 16 September 2026.

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