RBI Governor clarifies UPI stance: Costs exist but who pays remains unclear

Amid ongoing debate over the monetisation of transactions made over the unified payments interface or UPI, Reserve Bank of India (RBI) Governor Sanjay Malhotra has clarified his earlier comments made to a newspaper that UPI may not stay free forever. Clarifying that he never said UPI may not be free forever, he was quick to add that eventually someone will eventually bear the cost of running the payment system.

The real issue is determining who bears the cost, a decision that rests with the government, he said, speaking at the central bank's monetary policy committee meeting on August 6.

"I never said it cannot remain free forever," Malhotra said, responding to a query on whether merchant discount rate (MDR) or similar charges could be passed on to consumers. MDR is the fee levied by payment processing companies on shops and other businesses accepting credit or debit card payments.

The governor, who had earlier noted that UPI is not truly free, said his intention was to highlight the underlying cost of operating the system, even if users are not charged directly.

“There are costs, and these costs have to be paid by someone. Who pays is important but not as important as the fact that someone is footing the bill,” he said.

Clarifying further, he explained, “My sense is that it is not free even now, and someone is paying for it. The government is subsidising it, but somewhere, the costs are being paid.”

Malhotra emphasised that he never said users will have to pay. Instead, he appeared to align with the government’s position that decisions around pricing and subsidies are for the finance ministry to make.

“The real question is: who pays for it? That is the question,” he said.

His comments come as reports suggest some banks have begun levying charges on UPI payments routed through payment aggregators or involving certain merchant categories, prompting concerns that the no-cost model may be under strain.