India’s Unified Payments Interface (UPI) continues its rapid growth, with the government now targeting a staggering one billion transactions per day by 2026. Given current momentum, many analysts believe this ambitious goal is within reach. But while the numbers look promising, a deeper concern is emerging around the platform’s long-term financial sustainability.
As transaction volumes soar, fintech firms and digital payment associations are sounding alarms about the strain on infrastructure and business models. They’re pushing for the return of the Merchant Discount Rate (MDR)—a small fee that was waived in 2019 to encourage adoption. The waiver helped UPI become ubiquitous, but now it’s causing tension between scalability and sustainability.
The government, which had allocated ₹4,500 crore in subsidies in FY24 to support UPI, slashed that to just ₹1,500 crore for FY25. Yet it has continued to resist calls to reinstate MDR, leaving private players to absorb rising operational costs.
Adding to the debate, Reserve Bank of India Governor Sanjay Malhotra recently backed the fintech industry’s concerns, stating that digital payments “should be made financially sustainable,” and clearly asserting that “someone will have to bear the cost.”
The first signs of change are already visible. ICICI Bank has begun imposing processing fees on payment aggregators like PhonePe and Google Pay. This move could set the tone for a gradual shift away from the zero-fee model that helped fuel India’s digital payments revolution.
