UPI’s Free Ride May Be Ending: Govt Eyes New Revenue Model for Digital Payments
What Happened
The Department of Financial Services (DFS) is exploring a tiered incentive system to gradually reduce government financial support for the UPI ecosystem over the next few years. It is also evaluating whether to restore the Merchant Discount Rate (MDR) for certain high-value transactions or large merchants to make the system more financially sustainable. During FY27, the government has allocated ₹2,000 crore, while the industry's estimated operational cost is about ₹20,700 crore, creating a large funding gap.
Key Takeaways
The proposal does not suggest charges on everyday UPI payments immediately. Instead, policymakers are looking at ways to make UPI self-sustaining as transaction volumes surge. A calibrated MDR on large-value transactions and a phased reduction of government subsidies are emerging as the preferred options