Reserve Bank of India (RBI) Governor Sanjay Malhotra has signalled a potential shift in India’s digital payments landscape, warning that the zero-cost regime for Unified Payments Interface (UPI) transactions may not be sustainable in the long term. Speaking at an industry gathering in Mumbai, Malhotra emphasized the need for financial viability across India’s payment systems, stating that the backbone of UPI cannot indefinitely rely on government subsidies.
“Payments and money are a lifeline. We need a universally efficient system,” Malhotra said, pointing to the backend pressure borne by banks, payment providers, and the National Payments Corporation of India (NPCI) amid UPI’s explosive growth. He reiterated that “costs will have to be paid. Someone will have to bear the cost,” stressing the inevitability of a pricing model that reflects infrastructural demand.
Since the government’s December 2019 directive waiving Merchant Discount Rates (MDR) on RuPay debit and BHIM-UPI transactions, stakeholders have repeatedly flagged the model as economically untenable. The MDR—typically levied between 1 to 3 per cent on merchants—provided revenue streams that sustained transaction processing and technology maintenance. Its absence, Malhotra indicated, calls for a reassessment of how digital infrastructure can “bear fruits” without eroding its long-term capabilities.
India’s UPI ecosystem, while globally admired for speed and scale, now faces a tipping point. In June alone, UPI recorded Rs 24.03 lakh crore across 18.39 billion transactions, powering approximately 85 per cent of all digital payments domestically and nearly half of the world’s real-time payment volumes. The figures place UPI ahead of global competitors like Visa, reflecting a paradigm shift in how Indians transact.
However, this ubiquity has come at a cost. UPI’s success, built on accessibility and zero-cost usage, has outpaced the financial returns needed to sustain the infrastructure. Malhotra’s remarks implicitly raise questions about whether future models may include reintroduction of MDR, user-side charges, or alternative financing mechanisms.
With digital transactions now central to India’s economic momentum, the RBI’s signal is likely to prompt industry-wide deliberation. Whether the transition involves direct fees, tiered models, or back-end cost recovery, the underlying message is clear: UPI’s next phase must reconcile scale with sustainability.
