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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.)

Imran Khan’s Fall from Grace

Writer: Kaswar Klasra
Kaswar Klasra
Aug 27, 2024
4 min read

Updated: Oct 21, 2024

Imran Khan’s Fall from Grace

Imran Khan, once hailed as Pakistan’s most charismatic and resilient leader now finds himself in a position unprecedented for a man of his stature.

The former Prime Minister of Pakistan, once known for his unyielding spirit and fierce determination, now shows signs of strain. Imprisoned and facing numerous charges, Khan appears to be a shadow of the leader who once inspired millions.

Khan’s recent meeting with journalists revealed a man who is a shell of his former self. Once confident and commanding, his body now shows a sense of unease and agitation. Those who met him describe a waning spirit, a stark change for a leader once known for his steadfastness in adversity.

The journalists described Khan as a man who is aware that his political party, Pakistan Tehreek-e-Insaf (PTI), is losing its once-iron grip on the nation’s imagination―a realisation that visibly shook him.

The PTI, once a magnet for massive crowds and inspired loyalty among its supporters, is now struggling. The much-hyped rally scheduled for August 22 in Islamabad, was embarrassingly cancelled due to a lack of public interest. Khan, in a bid to save face, claimed that the rally was called off to avoid potential violence. In a sign of growing desperation, Khan rescheduled the rally for September 8 and directed his party leaders to overcome any obstacles. This defiant stance is typical of Khan’s confrontational style, and his public directives highlight his insecurity about his party’s ability to mobilise support.

While Khan outwardly appears calm and composed, the multiple cases against him and his time in jail have left him isolated and struggling with loneliness. Even in this difficult situation, he remains in the headlines, thanks to his uncanny ability to stay in the public’s eye. Khan recently made headlines by applying for the University of Oxford Chancellorship, a move initially dismissed as a rumor but confirmed by his spokesman, Sayed Zulfikar Bukhari. As an Oxford alumnus, Khan would be the first Asian to take the role. Many see this bid as a strategic play to leverage his international profile against Pakistan’s establishment, a move that has kept him prominently in the media spotlight.

The political landscape in Pakistan is deeply divided. Prime Minister Shahbaz Sharif, in his second term, has failed to address critical issues including unemployment, soaring inflation, and deteriorating law and order. His administration’s inability to deliver on its promises has only deepened the public’s disillusionment, leading to growing nostalgia for Khan’s past leadership.

Shahbaz Sharif’s government is a source of frustration for the Pakistani people and a cause for concern for the country’s military. Historically, the military has shaped Pakistan’s political trajectory, stepping in when civilian governments falter. The military reportedly is growing uneasy about the government’s performance especially Sharif’s inability to stabilize the country and mend relationships with key neighbors, particularly India. Additionally, its deteriorating ties with Afghanistan and Iran have left Pakistan increasingly isolated. Even China, Pakistan’s longstanding ally, has expressed dissatisfaction with the government’s policies, a worrying sign given the importance of the China-Pakistan Economic Corridor (CPEC) to the country’s economic future.

It is within this context of political turmoil and international isolation that Imran Khan remains a potent force. Despite his legal troubles and the challenges facing his party, Khan’s popularity endures. For millions of Pakistanis, his tenure as Prime Minister is seen as a time of relative stability and hope, a stark contrast to the current administration’s ineptitude. This perception has kept Khan’s political base intact, even as his party faces an uphill battle in the coming months.

However, Khan’s ability to navigate the current political landscape is far from guaranteed. The PTI’s diminishing support, coupled with the increasing pressure from the establishment, raises questions about Khan’s long-term strategy. His recent moves, including the application for the Oxford Chancellorship, suggest a leader willing to explore unconventional avenues to maintain his relevance. But whether these tactics will translate into a successful political comeback remains to be seen.

Pakistan’s political future is more uncertain than ever. Imran Khan’s journey from cricketing legend to political maverick has been extraordinary. Still, as he faces the toughest challenge of his career, the question remains: Can he once again defy the odds and reclaim his place at the helm of Pakistani politics, or is this the beginning of the end for a once unstoppable leader?

Khan’s story is a testament to the complexities of power and the unpredictable nature of political life in Pakistan. His rise, driven by charisma, populism, and a genuine desire for change, now faces the realities of personal and political challenges, raising the possibility that his time may be running out.

Imran Khan is a beacon of hope for his supporters, and a polarizing figure for detractors, whose ambitions have often clouded his judgment. As the nation watches, the world is left to wonder: What will Imran Khan’s next move be? And more importantly, what does it mean for the future of Pakistan? The coming months will be critical not only for Imran Khan but for Pakistan as a whole. The decisions made during this period will shape the country’s trajectory for years. Whether Khan emerges victorious or is consigned to the annals of history as a fallen leader, one thing is certain: The story of Imran Khan is far from over.

(The writer is a senior jounalist based in Islamabad. Views personal)

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