UPI at 10: Stop Celebrating, Start Fixing
UPI has had a remarkable run. From ₹21 lakh crore in transactions in 2019-20 to ₹300 lakh crore in 2026. UPI has had more daily transactions than Visa. 84% of India’s retail digital payments now flows through a single system. Merchant payments now dominate volume, which means that entire supply chains and small businesses run on UPI. That’s a genuine achievement, and it deserves recognition. UPI also came at a time when the payments ecosystems with wallets was fragmented and where here was no interoperability.
Ten years later, beyond celebrating the obvious successes, we should look at what lies ahead and the challenges that the system would face. The system that processed 228 billion transactions last year runs almost entirely on government subsidy. Banks and payment providers need roughly ₹10,000 crore annually to maintain and grow UPI’s infrastructure. The government allocated ₹1,500 crore in FY25 and this number has been declining. UPI is financially unsustainable as currently structured. The government has repeatedly stood its ground against allowing the system to charge merchants a fee, called as Merchant Discount Fee, which VISA and Mastercard charge and can be as high as 2% of transaction value. The consequences are already visible. There were six major system outages last year, including one that lasted five hours. Fraud losses, while small as a percentage of total volume, run to over ₹1,000 crore annually and are rising. As AI-powered scams become more sophisticated, both fraud and systemic threats will only get worse. Underfunded infrastructure cannot keep pace.
Then there’s the competition problem. PhonePe and Google Pay together control 83% of UPI transaction volume. This is not necessarily because they’re dramatically better than the competition. It’s because zero MDR makes it impossible for any challenger to build a viable business. You cannot invest in technology, security, or customer acquisition when your revenue model is a government subsidy that keeps shrinking. Perversely, the policy designed to democratise payments has entrenched a duopoly.
NPCI tried to correct the duopoly problem by capping the market share of each player to 30%, which is a deeply flawed policy. That rule is yet to come to effect. I had written against it in Hindustan Times.
The solution is not complicated. Introduce a modest MDR, maybe around 0.3% for large merchants, while keeping it zero for small merchants. Brazil does exactly this with its UPI equivalent, Pix, and it works. Large merchants already pay 2% MDR on card transactions. A fraction of that on UPI will not be seen as an extraordinary burden. This would merely be a market mechanism to fund critical public infrastructure. Of course, entitlement effect will be strong here - people who are used to getting things for free will not be liked when they are charged, but that is a political economy problem that needs to be confronted with sooner or later.
UPI’s first decade was about scale. The second decade needs to be about sustainability, security, and genuine competition.