RBI Governor Sanjay Malhotra has stirred a fresh debate over India’s most popular digital payment system — Unified Payments Interface (UPI). In a recent statement, he clarified that while users aren’t being charged today, UPI is not free in the real sense. Someone is paying the bill — and that may soon change.
What Did the RBI Governor Say?
Speaking at the Monetary Policy Committee (MPC) meeting on August 6, 2025, Malhotra addressed speculation around charges on UPI. He emphasized that while he never said UPI will definitely become paid, it’s not accurate to claim it’s entirely free.
“I never said it cannot remain free forever. There are costs, and these costs have to be paid by someone,” Malhotra said. He clarified that although users don’t see charges directly, the government is currently subsidizing the system.
Who Is Paying for UPI Right Now?
At present, UPI services are funded by the government through subsidies and incentives offered to banks and payment service providers. According to official estimates, the Indian government allocated over ₹2,000 crore in FY2024 to sustain the zero-cost UPI model.
This funding covers infrastructure, security, and transaction costs for platforms like PhonePe, Google Pay, and Paytm. But the RBI hints that this model may not be sustainable in the long run.
Why Costs Matter Now
With the rapid growth of UPI — over 11 billion monthly transactions and increasing merchant adoption — maintaining infrastructure and fraud protection is becoming expensive. Banks have raised concerns over the Merchant Discount Rate (MDR) being reduced to zero, arguing that they have no incentive to push UPI.
Now, some banks have reportedly started charging businesses for UPI transactions via payment aggregators, especially in sectors like insurance or mutual funds. This trend has reignited fears that the free model may soon be history.
What Is MDR and Why It Matters
MDR (Merchant Discount Rate) is a fee that businesses pay to banks and payment providers for processing digital transactions. For credit and debit cards, MDR is standard. But in 2020, the government abolished MDR on UPI and RuPay transactions to boost digital adoption.
While great for consumers and small businesses, this policy has led to revenue loss for service providers. If MDR is reinstated, businesses may eventually pass on that cost to consumers.
Malhotra’s Clarification: Not About Charging Consumers Yet
Malhotra was clear that the RBI is not proposing user charges — at least not yet. He aligned with the Finance Ministry, stating that decisions on UPI pricing models rest with the government.
“The real question is: who pays for it? That is the question,” he said, emphasizing the need for a long-term policy solution rather than ad hoc measures.
Public Reaction: Concerns and Confusion
The public’s trust in UPI hinges on its simplicity and affordability. Many fear that introducing charges — even on businesses — could disrupt usage, especially in rural areas. Fintech companies also worry that uncertainty over UPI pricing may affect innovation and growth.
However, some analysts argue that a small, transparent charge may help create a more sustainable and secure system in the long run.
What Happens Next?
The RBI’s stance signals that the debate over UPI monetization is far from over. As digital payments become the norm, the government may soon need to review its subsidy policies. Will users eventually pay a small fee? Will MDR return in a new form? These questions are now more relevant than ever.
Key Takeaways
- UPI is not entirely free; the government currently covers costs.
- RBI is not planning to charge users now, but sustainability is a concern.
- Some banks are already charging merchants in specific cases.
- MDR could return — possibly affecting both businesses and consumers.
- Policy decisions will rest with the Finance Ministry, not RBI alone.
Conclusion
The RBI’s comments have brought attention to a vital question — how long can UPI stay “free”? While there’s no immediate shift in policy, the economic realities of maintaining a massive digital infrastructure mean that changes may be inevitable. For now, users can enjoy the no-cost benefit, but policymakers must prepare for a future where digital convenience meets financial sustainability.
