Will UPI transactions stay free? Here's what the RBI Governor has to say

RBI Governor Sanjay Malhotra has said someone will eventually have to bear the costs involved in running the NPCI-led instant real-time payment system, Unified Payments Interface (UPI), which is one of India's largest digital payment systems. During the press conference on MPC announcements today, the RBI Governor said that who pays (for UPI) is less important than ensuring sustainability.

On being asked about some banks applying charges on UPI to payment aggregators and certain merchant categories, the RBI Governor said: "Let me clarify. I never said UPI can not remain free forever. The question then was whether MDR would be charged to consumers. I had said there are costs, and these costs have to be paid by someone. Who pays is important but not so important than someone footing the bill. So, it is important for us for the sustainability of the model, that whether collectively or individually someone pays."

He also said that UPI is not free even now, as the government subsidises it. "The real question is who ultimately pays for it. I also mentioned that government policy has helped expand UPI usage, with daily transactions rising from 31 crore to 61 crore in the last two months," added the governor.

RBI Governor's remarks come amid the government's clarification that there is no such recommendation from the GST Council on the levy of GST on UPI transactions. During the current Monsoon session in Parliament when asked if the government is considering a proposal to levy GST on UPI transactions of over ₹200, MoS Finance Pankaj Chaudhary said: "As informed by Department of Revenue, GST rates and exemptions are decided based on recommendations of the GST Council, which is a Constitutional body comprising of members from both the Centre and States/UTs. There is no such recommendation from the GST Council."

UPI has been a blockbuster payments system, which has gained wild popularity in India and across many countries. In July 2025, UPI recorded 19,467.95 million transactions with a total value worth Rs 25,08,498.09 crore, significantly up from 18,395.01 million transactions worth Rs 24,03,930.69 crore in June 2025, demonstrating its indispensability in the digital payments ecosystem in India.

UPI's zero-cost framework has significantly accelerated merchant adoption, especially among SMEs and kirana stores. Industry estimates indicate UPI now supports over 300 million users and around 50 million merchant touchpoints. Kunal Jhunjhunwala, Founder, Airpay Payment Services, tells Fortune India that even nominal merchant charges could potentially act as barriers for adoption, especially in Tier 2 and Tier 3 markets, where price consciousness takes precedence. "For micro-merchants, a transaction fee of even ₹1 would suddenly mean slashing their monthly marginal worth by anything on the order of ₹2,000-₹3,000," said Jhunjhunwala.

Jhunjhunwala vouched for the importance of long-term sustainability in the UPI ecosystem, advocating for safeguarding its affordability and inclusion.

During 2024-25, total digital payments recorded growth of 34.8% and 17.9% in volume and value terms, respectively, in FY25. UPI was a clear winner as it placed India in a leadership position with a share of 48.5% in global real-time payments by volume in FY25, according to the RBI's annual report for FY25.

In the previous year, the Reserve Bank introduced key changes to UPI, like ‘Delegated Payments’, to deepen the reach and usage of digital payments, as it allowed individuals (primary users) to allow another individual (secondary user) to make UPI transactions up to a limit from the primary user’s bank account.

Among digital payment systems in India, UPI has shown clear lead, immensly enhancing financial inclusion especially in Tier 2 and Tier 3 regions. The retail payment system in India, overall, recorded robust growth in transaction volume as well as value in 2024-25, with UPI transactions increasing by 41.7% in terms of volume and 30.3% in terms of value. For comparison, NEFT transactions rose by 32.4% in terms of volume and 13.4% in terms of value. In terms of volume, UPI transactions had the highest share (84%) in total retail payments during 2024-25.

During 2024-25, the number of point of sale (PoS) terminals increased by 24.7% to 1.1 crore. UPI quick response (QR) codes increased by 91.5% to 65.8 crore as on March 31, 2025. Keeping up with its growth plans for UPI, the Reserve Bank aims to take the digital payments platform to 20 countries, with a completion timeline of 2028-29.