{"id":118867,"date":"2026-08-13T11:02:27","date_gmt":"2026-08-13T05:32:27","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=118867"},"modified":"2026-08-13T11:02:27","modified_gmt":"2026-08-13T05:32:27","slug":"upi-at-10-indias-digital-payments-giant-faces-a-new-cost-sharing-challenge","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/upi-at-10-indias-digital-payments-giant-faces-a-new-cost-sharing-challenge\/","title":{"rendered":"UPI at 10: India&#8217;s Digital Payments Giant Faces a New Cost-Sharing Challenge"},"content":{"rendered":"<h2><b>UPI at 10 Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">UPI has completed 10 years since its launch, now accounting for <\/span><b>86% of all digital transactions<\/b><span style=\"font-weight: 400;\"> in India.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">But explosive growth has piled up costs for the payments ecosystem, reviving the debate on who should pay for it \u2014 with a recent amendment to the <\/span><b>Payments and Settlement Systems Act, 2007<\/b><span style=\"font-weight: 400;\"> now permitting merchant fees on UPI payments.<\/span><\/li>\n<\/ul>\n<h2><b>How UPI Came About<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The RBI&#8217;s <\/span><b>2012 &#8220;vision document&#8221;<\/b><span style=\"font-weight: 400;\"> noted an average Indian made just <\/span><b>six non-cash transactions a year<\/b><span style=\"font-weight: 400;\"> \u2014 a figure unthinkable today.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">UPI was built by the RBI-regulated <strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/national-payments-corporation-of-india\/\" target=\"_blank\">NPCI<\/a><\/strong> and the Indian Banks&#8217; Association, with groundwork starting in 2012-13.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It launched as a pilot in April 2016 and went fully operational that August.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">By 2025-26, India recorded <\/span><b>28,174 crore digital transactions<\/b><span style=\"font-weight: 400;\"> \u2014 86% via UPI, used by over 55 crore people through 703 participating entities.<\/span><\/li>\n<\/ul>\n<h2><b>Early Growth Was Slow<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Even after demonetisation in November 2016, adoption crawled: monthly transaction value stayed under Rs 10,000 crore until December 2017.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It took another year to cross Rs 1 lakh crore a month.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A key barrier was the <\/span><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/what-is-merchant-discount-rate\/\" target=\"_blank\">Merchant Discount Rate<\/a><\/strong><span style=\"font-weight: 400;\"><strong><a href=\"https:\/\/vajiramandravi.com\/current-affairs\/what-is-merchant-discount-rate\/\" target=\"_blank\"> (MDR)<\/a><\/strong> \u2014 the fee merchants paid on digital transactions.<\/span><\/li>\n<\/ul>\n<h2><b>Zero MDR: The Turning Point<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The <\/span><b>Nandan Nilekani-led High-Level Committee<\/b> <b>on Deepening of Digital Payments<\/b><span style=\"font-weight: 400;\"> (2019) recommended scrapping MDR for customers and small merchants, with government subsidy instead.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">From 2020, the government began subsidising UPI\/RuPay transactions up to Rs 2,000, capped at 0.15% of transaction value, shared between banks and payment providers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The COVID-19 pandemic then accelerated adoption sharply, as people avoided cash handling.<\/span><\/li>\n<\/ul>\n<h3><b>Private Investment Fuelled the Boom<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A Bank for International Settlements (BIS) paper noted investment in Indian fintech spiked in 2019 (driven by UPI adoption and big deals like Paytm, PhonePe) and again in 2021 (post-COVID digital payment preference).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Most investment flowed into companies offering payment services and point-of-sale infrastructure.<\/span><\/li>\n<\/ul>\n<h2><b>Banks Have Been Left Behind<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Two US-backed apps \u2014 PhonePe and Google Pay \u2014 together handled 80% of UPI transaction volume and 83% of value in July 2026.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">As per the experts, banks have &#8220;missed the payments bus&#8221; and can&#8217;t match these volumes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">SBI itself handled just 0.1% of UPI volume in July \u2014 ranked fourth among banks, behind Kotak Mahindra Bank (0.6% share).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A regulatory cap limiting any single player to 30% market share has been repeatedly postponed; the current deadline is December 2026.<\/span><\/li>\n<\/ul>\n<h2><b>The Cost Problem<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">UPI transaction growth has been staggering \u2014 up 1,800%, compared to just 17% growth in card transactions since November 2019.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This scale comes with rising costs \u2014 technology, banking infrastructure and compliance \u2014 estimated at around Rs 20,000 crore a year.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Government subsidies for sub-Rs 2,000 transactions don&#8217;t cover this gap.<\/span><\/li>\n<\/ul>\n<h2><b>The Case for Reintroducing MDR<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Industry voices argue zero MDR was right for driving initial adoption, but the next phase needs to create more value per transaction, including data-driven credit access for merchants and consumers.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The industry is pushing for MDR of 0.3-0.6% on transactions above Rs 2,000 for large merchants.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Such transactions form just 4% of person-to-merchant payments but account for 68% of total value \u2014 making them a viable revenue base without hurting small merchants or ordinary users.<\/span><\/li>\n<\/ul>\n<h2><b>The Next Wave of Growth<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The finance ministry has said subsidies alone cannot sustain UPI&#8217;s next growth phase.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Domestically,<\/b><span style=\"font-weight: 400;\"> growth is expected to come from rural and semi-urban areas.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Internationally,<\/b><span style=\"font-weight: 400;\"> NPCI is targeting <\/span><b>greater cross-border presence<\/b><span style=\"font-weight: 400;\"> \u2014 UPI already operates in nine countries (Bhutan, France, Mauritius, Nepal, Singapore, Sri Lanka, UAE, Qatar, Cambodia).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The India-Singapore UPI-PayNow linkage, active for over three years, is seen as a template, since traditional international transfers can cost up to 7% and take days to settle.<\/span><\/li>\n<\/ul>\n<h2><b>Conclusion<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">UPI&#8217;s decade-long journey from a pilot project to handling 86% of India&#8217;s digital transactions is a genuine success story of financial inclusion.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">But sustaining this scale now demands a fairer cost-sharing model \u2014 one that funds future growth without compromising the accessibility that made UPI a global example.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/upi-10-years-mdr-costs-next-phase-growth-10829840\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>UPI at 10 marks a decade of transformation, with UPI handling 86% of India&#8217;s digital transactions while rising costs revive the debate over merchant fees.<\/p>\n","protected":false},"author":18,"featured_media":118877,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,9520,22,59],"class_list":["post-118867","post","type-post","status-publish","format-standard","has-post-thumbnail","category-upsc-mains-current-affairs","tag-mains-articles","tag-upi-at-10","tag-upsc-current-affairs","tag-upsc-mains-current-affairs-tag","no-featured-image-padding"],"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/118867","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=118867"}],"version-history":[{"count":4,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/118867\/revisions"}],"predecessor-version":[{"id":118885,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/118867\/revisions\/118885"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/118877"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=118867"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=118867"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=118867"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}