According to the National Payments Corporation of India (NPCI), UPI processed 23.66 billion transactions worth ₹29.88 trillion in July 2026 across 741 live banks. However, the absence of visible transaction fees masks significant infrastructure costs. As reported by Business Standard, every UPI transaction requires payment infrastructure to process, authenticate and settle transfers, with the Reserve Bank of India estimating that processing a person-to-merchant UPI transaction with an average value of ₹800 costs around ₹2. The infrastructure supports 491 million people and 65 million merchants in India's digital payments ecosystem. The Reserve Bank of India's 2022 discussion paper on payment charges noted that payment service providers need income to support continued operations and investment in new technologies, systems and processes, with settlement among participant banks taking place on a deferred net basis.
According to data by the Department of Financial Services, the government provided cumulative budgetary support of ₹8,276 crore between FY2021-22 and FY2024-25 under incentive schemes. The first three years covered the Incentive Scheme for Promotion of RuPay Debit Cards and Low-Value BHIM-UPI Transactions, with disbursements of ₹1,389 crore in FY2021-22, ₹2,210 crore in FY2022-23, and ₹3,631 crore in FY2023-24. In March 2025, the Union Cabinet approved the revised Incentive Scheme for Promotion of Low-Value BHIM-UPI Transactions, providing ₹1,046 crore in FY2024-25 with incentives of 0.15% on UPI P2M transactions up to ₹2,000 at small merchants. Under this scheme, only UPI P2M transactions of up to ₹2,000 at small merchants qualified, with the government paying incentives initially to the acquiring bank, which is then shared with other eligible participants including issuer banks, payment service provider banks and third-party app providers.
A parliamentary committee report cited an industry estimate of ₹20,700 crore as the operational cost of the UPI ecosystem, against the government's ₹2,000 crore incentive allocation. The committee said the present incentive covered around 11% of the industry's estimated costs. According to a recent McKinsey Financial Services Practice report titled 'How instant payments are transforming the financial landscape', UPI now processes more than 19 billion transactions every month, accounting for nearly a third of the country's total transaction volume. The report notes that unlike card payments, which generate transaction-linked revenues for financial institutions, instant payments can be harder to monetise directly, with benefits coming from lower costs, better customer relationships, and new service offerings rather than transaction fees. Banks in India have responded by embracing UPI for everyday payments while differentiating themselves through lending, merchant solutions, and premium card offerings, while fintech companies are using their large payment user bases to expand into adjacent businesses including lending, insurance distribution, merchant advertising, and other value-added services.
According to Ajay Srivastava from Global Trade Research Initiative, Google Pay and Walmart-owned PhonePe together process more than 80% of UPI transactions. Srivastava argues that these foreign-controlled platforms derive enormous commercial value from infrastructure funded by India and could pay substantial annual participation fees without burdening ordinary users. He suggests treating UPI as national infrastructure like roads, courts and currency rather than a commercial service, noting that keeping UPI free reportedly costs only ₹2,000-2,500 crore annually compared to government subsidies of ₹2.03 lakh crore for food and ₹1.68 lakh crore for fertilisers. The debate has intensified with the Department of Financial Services examining two options to ease UPI financial costs: restoring merchant discount rate (MDR) for certain high-value transactions or introducing a tiered incentive structure where government support is phased out over years. The findings come as Parliament has passed the Taxation and Other Laws (Amendment) Bill, 2026, which creates an enabling framework for Merchant Discount Rate (MDR) charges on UPI transactions, with the government clarifying that UPI will remain free for consumers and small merchants.
