In August 2026, UPI processed 24.51 billion transactions worth ₹29.82 trillion, highlighting its integral role in India's digital payment landscape1. Despite its widespread adoption, UPI's sustainability is under examination as policies consider differentiated pricing to balance cost recovery with financial inclusion and merchant affordability1. With government subsidies insufficient to cover the ecosystem's operating costs, maintaining UPI as a public good while ensuring financial viability remains a challenge1.
Why UPI Needs a New Pricing Model
UPI's transaction volume has grown nearly 12,000-fold since its inception, from 2 crore transactions in FY 2016-17 to over 24,162 crore in FY 2025-262. This explosive growth has positioned UPI as central to India's digital payments, accounting for about 85% of the total volume by FY 2025-263. However, the current zero-MDR (merchant discount rate) policy has led to significant financial strain on the ecosystem.
Despite government subsidies amounting to ₹8,730 crore between FY 2022 and FY 2025, the industry's annual operating costs are estimated at ₹20,700 crore, leaving a substantial funding gap1. The ecosystem's financial sustainability is further challenged by a ₹9,000 crore shortfall in processing person-to-merchant transactions in FY 2024, where expenses reached ₹12,000 crore against a subsidy of only ₹3,000 crore4.
The introduction of a differentiated pricing model is seen as a potential solution to bridge this gap. Such a model could enable cost recovery while maintaining financial inclusion, especially for the 60 million merchants currently accepting UPI payments, of which 90% are small businesses4.
The Role of Government Subsidies
Government intervention has been critical in supporting UPI's growth. However, the subsidy allocation of ₹2,000 crore for FY 2026-27 falls short of the industry's needs1. This shortfall raises questions about the long-term feasibility of sustaining UPI as a free service for merchants and consumers.
The existing financial model relies heavily on government support, which has not kept pace with the rapid growth of UPI transactions. In FY 2025, UPI processed transactions worth approximately ₹300 trillion, with volumes growing 33% year-on-year4. As transaction volumes surge, the gap between costs and subsidies continues to widen.
To address this, a tiered pricing strategy could be implemented, wherein larger enterprises contribute more towards the operational costs, thereby relieving the financial burden on smaller merchants, who form the majority of UPI's merchant base4.
Despite government subsidies amounting to ₹8,730 crore between FY 2022 and FY 2025, the industry's annual operating costs are estimated at ₹20,700 crore, leaving a substantial funding gap.
Comparing UPI with Global Counterparts
Globally, UPI stands out for its scale and efficiency. It handles around 11 fast-payment transactions per person per month in India, compared to just 0.12 in the U.S.5. The average transaction value on UPI is significantly lower at ~$6, highlighting its accessibility for everyday transactions compared to U.S. systems like RTP and FedNow5.
The cost of operating UPI also contrasts with other systems. NPCI's expenses for UPI operations were around $200 million in 2024, whereas Brazil's PIX system cost only $3-4 million to build and about $10 million annually to run6. This underscores the economic scale and complexity of managing UPI.
Despite these challenges, UPI captured nearly 49% of global real-time payment volume as of 2025, reflecting its dominance and the need for a sustainable financial model7.
The Impact on Merchants and Consumers
Approximately 60 million merchants currently accept UPI payments, with 90% being small merchants with a turnover under ₹20 lakh4. For these merchants, the zero-MDR policy has been a significant incentive to adopt digital payments.
However, as the ecosystem struggles with funding gaps, the introduction of charges could deter small merchants from continuing to use UPI. This could potentially impact financial inclusion efforts, which have been a key success factor for UPI.
To mitigate these effects, any pricing model must be carefully calibrated to ensure that small merchants are not disproportionately affected, while larger enterprises contribute more to the ecosystem's sustainability.
Looking Ahead: Balancing Innovation and Sustainability
As UPI evolves, balancing innovation with sustainability remains a critical challenge. Policymakers must ensure that UPI continues to serve as a digital public good while also achieving financial self-sufficiency.
The introduction of differentiated pricing could provide a pathway towards sustainability, but it requires careful implementation to avoid undermining financial inclusion. Policymakers must consider the diverse needs of UPI's vast user base, from small merchants to large enterprises.
Ultimately, the success of any new pricing model will depend on its ability to maintain the delicate balance between cost recovery and the continued expansion of digital payments across India.
By the numbers
- ₹29.82 trillion1
- value of transactions processed by UPI in August 2026
- ₹8,730 crore1
- government subsidy for UPI from FY 2022 to FY 2025
- ₹20,700 crore1
- estimated annual operating costs of UPI
- 12,000-fold2
- increase in UPI transaction volume from FY 2016-17 to FY 2025-26
- 85%3
- share of UPI in India's digital payment volume by FY 2025-26
- ₹300 trillion4
- value of UPI transactions in 2025
- 60 million4
- number of merchants accepting UPI payments
- 49%7
- UPI's share of global real-time payment volume in 2025
The lens: Profit Tree
How to break it down
- 1Identify revenue streams from potential differentiated pricing models.
- 2Analyze cost components, including transaction processing and infrastructure maintenance.
- 3Evaluate government subsidies and their impact on financial sustainability.
- 4Assess the impact of pricing changes on merchant adoption and consumer usage.
- 5Consider competitive positioning relative to global payment systems.
What to watch
- Announcements of new pricing models for UPI transactions.
- Changes in government subsidy allocations for the UPI ecosystem.
- Merchant and consumer reactions to any introduced transaction fees.
For MBA aspirants
GD, PI and WAT
GD topic
Is differentiated pricing necessary for UPI's sustainability?
For
- Differentiated pricing can help recover costs and ensure the long-term viability of UPI.
- It can encourage larger enterprises to contribute more, relieving the burden on small merchants.
- A tiered model can maintain financial inclusion by keeping charges low for small transactions.
Against
- Introducing charges could deter small merchants from adopting digital payments.
- It might undermine financial inclusion efforts, a key success factor for UPI.
- The complexity of implementing a fair pricing model could lead to market distortions.
Questions an interviewer could ask
- 1.What are the potential risks and benefits of introducing charges on UPI transactions?
- 2.How can policymakers ensure that UPI remains financially inclusive while being sustainable?
- 3.What lessons can UPI learn from global payment systems like Brazil's PIX?
- WAT prompt
- Discuss the implications of introducing transaction charges on UPI for India's digital economy.
- As a case
- How would you design a pricing model for UPI that balances financial sustainability with inclusion? Consider the impact on different stakeholders and propose a strategy for implementation.
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Questions people ask
- What is UPI and why is it significant?
- UPI, launched by the NPCI in 2016, is a real-time payment system that facilitates inter-bank transactions. It has grown exponentially to become central to India's digital payments, accounting for about 85% of the total digital payment volume by FY 2025-263.
Notes and sources
- 1UPI charges: the economics of a digital public good | Mint · livemint.com
- 2Press Release Page | Press Information Bureau · pib.gov.in
- 3RBI's Shirish Chandra Murmu Highlights Systemic Risks in UPI, Cybersecurity and Digital Payment Fraud at GFF 2026, ETBFSI · bfsi.economictimes.indiatimes.com
- 4Calls for tiered charges on UPI reach Parliament as govt incentives seem insufficient | Mint · livemint.com
- 5FedNow and the Development of U.S. Fast Payments | Richmond Fed · richmondfed.org
- 6TABLE 3: TYPICAL COSTS OF INSTANT PAYMENTS · centerforfinancialinclusion.org
- 7Press Information Bureau
Figures are as published by these sources on or before 14 October 2026. Researched and drafted with AI, checked against the sources above and reviewed by the MECE team before publishing.
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MECE Insights explains one business story a day for MBA students and aspirants: the facts with their sources, the strategy underneath, and how it can come up in a GD, a WAT or an interview.
Filed underEconomyUPI chargesdigital payments Indiafinancial inclusion