Daybreak UPI can be forever or free—not both
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Aug 14, 2025 The Indian government has significantly cut incentives for the UPI payment system, raising questions about its future. While UPI has thrived on a no-fee policy, this move could strain its infrastructure. With record transaction volumes, the podcast explores whether introducing small fees might deter users. It also highlights the urgent need for a sustainable revenue model to maintain the integrity of this digital payment miracle amid growing financial pressures.
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Free Model Fueled Fast Growth
- UPI's explosive growth relied heavily on a government-backed zero-fee model and rapid adoption after demonetisation and the pandemic.
- That free model now strains providers as subsidies are being cut drastically, threatening sustainability.
Low-Value Volume Creates Structural Strain
- UPI sees a high volume of low-value merchant transactions that lower the average ticket and raise per-transaction costs.
- NPCI charges switching fees and wallet top-up fees that pile up across billions of transactions.
Subsidy Cuts Widen The Funding Gap
- The government previously subsidised banks and service providers but cut UPI incentives from 5,500 crore to 1,500 crore for FY25.
- That reduction widens a funding gap which the ecosystem must now address.