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By:

Archita Gaur

13 June 2026 at 8:55:13 pm

UPI Was Free. What Happens When It Isn’t?

For millions of Indians, paying through UPI has become almost invisible. Scan a QR code, enter a PIN, and the transaction is done usually without anyone asking what it costs to make that payment possible. That near-zero-cost experience has been central to UPI’s rapid adoption. Now, the proposed introduction of charges on certain UPI transactions marks a shift in the economics of India’s digital payments ecosystem. While consumers are not being asked to pay a fee for ordinary UPI payments, the...

UPI Was Free. What Happens When It Isn’t?

For millions of Indians, paying through UPI has become almost invisible. Scan a QR code, enter a PIN, and the transaction is done usually without anyone asking what it costs to make that payment possible. That near-zero-cost experience has been central to UPI’s rapid adoption. Now, the proposed introduction of charges on certain UPI transactions marks a shift in the economics of India’s digital payments ecosystem. While consumers are not being asked to pay a fee for ordinary UPI payments, the changing fee structure raises a larger question: who ultimately pays for the infrastructure behind India’s favourite payment system? The proposed merchant discount rate (MDR) of 0.4 per cent on specified merchant transactions above Rs. 2,000 was originally scheduled to take effect on October 15, 2026. However, reports of a possible postponement to January 2027 have introduced uncertainty about the rollout. Model Reconsidered UPI transactions have operated under a model that prioritised adoption over direct revenue. Unlike card payments, where merchants typically pay an MDR, UPI transactions have largely carried no MDR for merchants. The government has supported the ecosystem through incentives to banks and payment service providers, helping keep digital payments inexpensive and widely accessible. Under the announced framework, a 0.4 per cent MDR would apply to specified person-to-merchant transactions above Rs. 2,000, with exemptions for eligible small merchants and special rates for certain categories. The maximum charge would be capped at Rs. 300 for transactions of Rs. 75,000 and above. Person-to-person transfers would remain free, as would transactions covered by the zero-MDR framework. The government has said that approximately 96 per cent of person-to-merchant transactions would remain unaffected. Yet even a small fee matters when applied to an enormous transaction base. UPI processed 2,366 crore transactions worth Rs. 29.9 lakh crore in July 2026 alone, according to the Finance Ministry. At such scale, a fraction of a percentage point can generate substantial revenue. As UPI moves from being a tool for driving digital adoption to becoming critical financial infrastructure, the question of who should pay for its operation - and how much - is becoming increasingly difficult to avoid.
Keeping UPI transactions free was never simply about making payments cheaper. It was also a policy choice designed to accelerate India’s transition towards a digital payments economy. By removing transaction costs for merchants and consumers, UPI lowered the barriers to adoption, including for small retailers and informal businesses that had traditionally relied on cash. Its convenience, interoperability and low cost helped it move beyond urban, tech-savvy consumers and become part of everyday transactions across the country. UPI also altered the relationship between banks, customers and businesses. Payments that once required cash handling, change, physical visits or card infrastructure could now be completed through a common digital interface. But banks and payment companies still bear the costs of processing transactions, maintaining infrastructure and preventing fraud. They must also manage failed payments, customer complaints, system outages and increasingly sophisticated cyber threats. Meanwhile, merchants have become accustomed to accepting UPI without an explicit transaction fee. The government’s incentive schemes have helped compensate ecosystem participants for some of these costs, particularly in promoting low-value payments. But public subsidies have their own opportunity cost, and their continuation cannot simply be assumed indefinitely. As volumes grow, the question is whether an ecosystem built around free transactions can remain viable without a more durable revenue model. Major Misconceptions The biggest misconception surrounding “paid UPI” is that the cost will necessarily fall directly on consumers. In reality, the economics are more complicated. When a merchant-side charge is introduced, the immediate liability falls on businesses and payment ecosystem participants involved in processing the transaction. But businesses rarely view costs in isolation. Over time, additional expenses can influence pricing, margins and the payment methods they choose to encourage. Consider a merchant receiving Rs. 10,000 through a transaction covered by the proposed 0.4 per cent rate. The MDR would amount to Rs. 40 before applicable taxes or other contractual considerations. That is not an enormous sum in isolation. Across hundreds of transactions, however, the accumulated expense becomes more consequential. Merchants may respond in different ways. Some could absorb the charge as a cost of doing business; others might adjust prices, promote alternative payment methods or encourage customers to use cash for larger purchases. The government has said that charges should not be passed on directly to consumers, but preventing an explicit surcharge is not the same as preventing every indirect effect on prices. There is also a question of how the revenue is distributed. MDR is not a tax collected by the government; it is intended to compensate participants in the payment ecosystem. Banks, payment service providers and technology platforms all have roles in enabling transactions, but their respective contributions and bargaining power differ. A fee intended to support the entire ecosystem could have uneven effects if a disproportionate share accrues to a handful of dominant players. The challenge is therefore is to ensure that the money sustains the infrastructure on which UPI depends, rather than simply rewarding scale and market dominance. For consumers, the immediate impact of the proposed charges may be smaller than the phrase “paid UPI” suggests. Ordinary users are not being asked to pay a fee every time they scan a QR code. Person-to-person transfers and the vast majority of routine merchant transactions are expected to remain unaffected. But if merchants begin factoring payment costs into their margins, consumers could eventually face higher prices or be encouraged to use certain payment methods over others. There is also a broader question of trust. UPI’s appeal rests partly on its simplicity. Consumers have little reason to think about the banks, networks and technology providers behind the interface. Introducing charges into the merchant-side ecosystem could make those invisible arrangements more visible, particularly if customers encounter inconsistent practices across businesses. The distinction between the formal rule and the experience at the counter will matter. If a merchant tells a customer that a larger UPI payment attracts an additional fee, the customer may reasonably assume that UPI itself has become chargeable. Clear communication and effective grievance redressal will therefore be essential. The key question is not whether Indians will suddenly stop using UPI, but whether changes to its cost structure could gradually alter the habits that made it dominant. Convenience is a powerful advantage, but it should not be treated as an unlimited licence to increase costs without explaining who benefits and why. The debate over UPI charges ultimately points to a larger policy dilemma: how can India maintain an affordable digital payment system while ensuring that the ecosystem behind it remains financially sustainable? Keeping transactions free has helped UPI achieve extraordinary scale, but payment infrastructure is not costless. Banks and payment providers must continuously invest in technology, cybersecurity, fraud prevention and network capacity. A system that processes billions of transactions cannot depend indefinitely on the assumption that its operating costs will somehow take care of themselves. At the same time, making digital payments significantly more expensive could undermine one of UPI’s greatest strengths: accessibility. India’s digital payments story has been built not only on technological innovation, but also on the ability of a small merchant and an ordinary consumer to transact without worrying about payment fees. The answer may lie in a carefully calibrated model rather than an absolute choice between free payments and commercial pricing. Any fee structure should be transparent and designed to protect low-value transactions and vulnerable users. Policymakers must also examine whether the costs are being allocated fairly among banks, payment platforms and merchants, and whether public incentives remain necessary for particular segments of the ecosystem. UPI may not remain entirely free for every category of transaction. But its long-term success will depend on preserving the principle that made it transformative, namely that digital payments should be accessible and inexpensive enough to become an ordinary part of economic life. (The writer is an economics postgraduate from Jawaharlal Nehru University with research interests in economic policy, trade and global governance. Views personal.)

Bharat’s Jetson Cities, Light-years Away from Nature

Writer: Chaitanya Giri
Chaitanya Giri
Jan 18, 2025
5 min read

Updated: Jan 20, 2025

Jetson Cities

One thing is for certain: our Bharatiya cities, the big metros and towns, are fast becoming like the ‘Jetson’ cities. For those who are unaware of Jetson cities, these were first shown in the famous Hanna-Barbera cartoon series, the Jetsons, set in the 2100s, where cities are air-tight glass globules tethered to the ground, and the only way to get in and out are the flying cars. Yes, we, the city-dwellers, aspire to tall skyscrapers, spectacular bridges, world-class tunnels, swooshing metro trains, and we are building Jetson-like flying cars. A few HD drone images here and there, during the day and at night and around twilight, and we are content that our cities have become the cynosure of our own eyes. We want our cities to be brightly lit, with neon signs, laser shows, and large billboard videos. We would then fulfil our inner desire to have a city on par with Tokyo, New York, and Shanghai.


Our buildings, designed for the next 30 years, are well air-conditioned, shielding occupants from a soupy dust bowl of brown smog, soot, particulate matter, and fine dust. It is said that most new home buyers invest at least 10% of their property’s price in enhancing the interiors, soundproofing their homes, using air purifiers and conditioners, and disconnecting from the outside world for that much-needed solace. Indeed, large builders promote their projects as close to nature amidst tranquillity. However, there is always another builder eager to get one plot of land ahead of yours to enjoy that nature. To be truthful, access to nature now comes at a premium - even the skies.


Let’s assume the working-age population is occupied in the leisure of our Jetson cities, but how many of their young school and college-going kids have seen the long arm of the Milky Way galaxy from their cities? How many have witnessed a comet zooming by? How many know about endemic plants with medicinal properties? When did they last see a chirping house sparrow? How many know that the nearest sewage drain was once a freshwater stream? When did they last find their suburban beach prettier than the resort beaches of Maldives?


The intent to ask these questions is simple: Bharat is currently at a crossroads. Pundits are enthusiastic about a cultural renaissance on the horizon. Corporate leaders, on the other hand, want us to invest hundreds of hours each week to pay our dues to the growth of the national GDP. But no one asks, if a cultural renaissance is to occur, who will generate the new understandings and insights of nature that arise typically during such a period of human advancement? No one is actually asking, for whom are we building the nation if there is no time for children, or worse, if there is no time or intent to have children. In the process of growing rich, we are about to become old. By 2047, 65% of the population under the age of 35 will grow beyond 35 all at once, and we’d have an enormous population in advanced ages with a tapering young population, a graph that looks like a banyan tree. Unfortunately, that young population will have no access to the knowledge that nature has to offer, neither flora and fauna nor the seas and the skies.


Our urbane lifestyles need tempering. Such tempering can occur only if we ensure the revival of natural sciences during this period of cultural renaissance and nation-building. Let’s not rely solely on the educational system. With Indian Knowledge Systems, constructive changes are underway, and academic curricula are poised to improve for the greater good. However, true knowledge arises only when parents and grandparents introduce children to nature. Genuine understanding also develops from extracurricular activities in schools and colleges that encourage kids to observe, journal, and act on their discoveries. On the positive side, our country’s forest cover is increasing, as announced by the government. However, efforts must be made to ensure that every school or college, whether in Mumbai, Vijayawada, Gorakhpur, Ratlam, Thrissur, Bhuj, Faridabad, Imphal, Manali, Cuttack, or Ajmer, guarantees that their students are well aware of the endemic nature of their surroundings and are regularly observing and recording data on whatever interests them. Let kids observe rivers and understand the volume of water that flows through them. Let children learn about the decline of house sparrows in their cities and what steps should be taken to revive their populations. Let them study the bees in their nearby groves and recognise the vital role these bees play in nature.


Of course, you need to learn AI, robotics, fintech, the next generation of management courses, and all the engineering bells and whistles. However, we must not leave the next generation with inadequate comprehension and skills for understanding nature. We must ensure that nature conservation is not merely lip service or a tool for politicised green activists. This can be achieved if natural sciences are given the respect they deserve at the school, undergraduate, and postgraduate levels.


Indeed, I am a plebeian, and you might feel that you, too, could write a rant about the plight of our urban lives. Urban development and municipal experts have many solutions to propose, but few are willing to take action. However, that is not the issue I wish to highlight. I aim to illustrate a much larger concern—that Indian city dwellers are disoriented and devoid of nature, lacking a guiding star to lead them toward a brighter future. Our cities of Mumbai, Delhi, Bengaluru, Ahmedabad, Kolkata, and Chennai have taken on characteristics reminiscent of Jetson-like cities. We show little regard for the Nagar Devata, Gram Devata, and Van Devata, who have protected the cities, towns, and forests that once surrounded us. We wait for formal governance to clean up our beaches, rivers, and ponds without making sufficient efforts to prevent pollution in the first place.


For those striving to grasp spirituality not through the Puranas and Aadi-Granth but through new-age podcasts, I recommend watching Vinay Varanasi’s podcast on Bhagavan Vishnu’s Dashavatar. If it is clear that Bhagavan Vishnu does not tolerate disregard for Bhudevi or Mother Earth, why do we, the devotees of Bhagavan Vishnu, continue to pollute our Mother Earth—her air, soil, waters, and sounds? Or have we taken Elon Musk's words at face value, assuming our next destination is Mars after destroying Earth, only to ruin Mars later, even worse than its current clinically sterile state? If that is the case, then bear with me when I say this: these Jetson cities stand on precarious pillars of ego, victimhood, apathy, and consumerism, waiting to be toppled either by the true harbingers of order or by false prophets. Therefore, teach the next generations to observe nature, appreciate our coexistence with other species, and venerate the forces of nature. By doing so, we humans will be good, at least for the next thousand years. If not, prepare for a bleak future by the end of this century.


(The author is a Space and Emerging Technology Fellow at the Centre for Security, Strategy and Technology, Observer Research Foundation, Mumbai. Views personal.)

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