The question of who pays for UPI is back in focus, as industry voices push back on how long it can stay free without a funding model.

India’s Unified Payments Interface has remained free for both users and merchants since January 2020, but that model is now facing fresh scrutiny from the very banks and fintechs that keep it running.

Upasana Taku, Co-Founder and CFO of One Mobikwik Systems, put a number on the gap. She said government subsidies currently cover only around 10 to 11% of what it actually costs to run UPI. Everything else, including servers, uptime, fraud checks and cybersecurity, is being absorbed by banks and fintechs themselves.

Taku pointed to her own company’s numbers as proof. UPI transaction volumes at Mobikwik have grown 50% year on year, yet revenue has not grown at anywhere close to that pace, simply because UPI barely generates any income for payment companies right now.

The government, meanwhile, has been clear that consumers will not be charged for UPI transactions, and most merchant payments will stay free too. On 8 August, the Finance Ministry clarified that any future Merchant Discount Rate, or MDR, would only apply to a small set of large merchants above a certain transaction size, and even then, at a rate lower than what card payments already cost.

That comparison is worth noting. Debit cards already carry an MDR of 0.5% below Rs 2,000 and 0.9% above it, while credit cards can go up to 1.8%. UPI currently charges nothing, despite now being the country’s biggest payments network by volume.

Former SBI chairman Dinesh Khara added some global context, pointing to Brazil and China, where a small MDR of 0.3% to 0.4% has not stopped digital payments from reaching around 90% adoption. Taku referenced the Payments Council of India’s own proposal, which suggests a similarly modest range of 0.3% to 0.5% could work for UPI too.

For now, nothing changes for regular users. UPI stays free. But the industry conversation around how to fund its next phase of growth is clearly far from settled.

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