UPI Needs a Sustainable Financial Model, Says RBI Governor Malhotra

With daily UPI transactions crossing 60 crore, RBI Governor Sanjay Malhotra has emphasized the urgent need for a sustainable financial model to support and maintain India’s fast-growing digital payments infrastructure.

Key Highlights:

Explosive Growth of UPI

• UPI volumes doubled from 31 crore to 60 crore transactions per day over the last two years.
• The scale of operations now demands a robust funding mechanism to cover rising operational and infrastructure costs.

Need to Reassess Cost Structure

• Malhotra noted: “Costs will have to be paid, someone will have to bear the cost.”
• Currently, the government is subsidizing UPI transactions, enabling the system to remain free for users and merchants.

Industry Demand for MDR Reintroduction

• Merchant Discount Rate (MDR) was reduced to zero on Jan 1, 2020, to promote UPI adoption.
• Banks and fintechs argue this model is unsustainable amid rising technology and compliance costs.
• Industry is lobbying for a modest MDR, especially on high-value transactions or large merchants.

Government’s Position

• The government maintains that UPI is a “digital public good” and must remain free.
• To balance sustainability and adoption, the government has instead chosen to incentivize ecosystem players rather than levy charges on users or merchants.

Public Sentiment Strongly Against Charges

• Surveys indicate that most UPI users would stop or reduce usage if transaction fees are introduced.
• Malhotra acknowledged the success of the subsidy approach, which has significantly boosted digital payments adoption across India.

TOI