India’s Unified Payments Interface (UPI) is a technological reimagination of how trust is operationalised at scale. By making real-time payments seamless, universal, and free, UPI has become the nervous system of India’s transactional economy. Whether in an urban mall or a rural mandi, a QR code now signifies more than convenience — it represents a strategic act of digital nation-building. Like electricity or transport, UPI’s infrastructure must remain unequivocally public.
India is now the global leader in digital payments. What we’ve built — fast, interoperable, inclusive — surpasses systems in far wealthier economies. Unlike the US or UK, where private players dominate and public rails lag, India created a population-scale backbone with near-zero latency, no cost to users, and universal accessibility. UPI is not the product of private disruption but of public innovation.
UPI Infrastructure Not for Private Profit
Its success hinged on a deliberate design choice: zero-cost transactions for both consumers and merchants. This was a public policy intervention that unlocked behavioural change. From 0.4 billion annual transactions in 2016 to over 15 billion monthly in 2025, aided by Demonetisation and Covid lockdown like a Chief Digital Officer, UPI scaled by removing friction — psychological, financial, and infrastructural.
Today, the average UPI transaction is around ₹600 — and falling. That signals depth, not dilution. The median Indian now uses UPI for micropayments: ₹20 for chai, ₹80 for sabzi, ₹150 for auto fare. These transactions would never shift to digital rails if even a nominal fee applied. No other country has achieved this granularity in digital adoption. In the US, small merchants often avoid accepting cards due to 1.5–3% MDR fees.
Which is why the current proposal to reintroduce the Merchant Discount Rate — even if limited to merchants above ₹40 lakh turnover — is a serious misstep. While the threshold may seem narrow, the impact is systemic. Merchants just below it may underreport turnover to avoid scrutiny. Larger ones will pass on costs or disincentivise digital payments. Consumers will encounter friction. Cash will creep back. Informality will return. A decade of behavioural progress will begin to unwind.
Zero Fees Matter
Digital adoption in India was never just about tech. It was about trust. UPI succeeded where others failed because it removed ambiguity. It didn’t ask users to do mental math. It told them, clearly and confidently: digital payments are free, instant, and final. Any deviation — however limited or justified — weakens that message and corrodes the trust UPI has institutionalised.
There’s another concern. UPI’s ecosystem is now visibly skewed — over 85% of transactions flow through just three payment brands, two of them foreign-owned. It’s the result of regulatory drift. In 2020, NPCI rightly proposed a 30% cap on market share for third-party apps to preserve neutrality. That cap has been deferred twice — from 2024 to 2026 — and is now reportedly being diluted to 40%. Every delay entrenches incumbents. Once power calcifies, it becomes self-reinforcing.
Reintroducing MDR in such a concentrated market is especially risky. Dominant players can absorb or selectively subsidise fees to capture more share. Innovation doesn’t collapse overnight — it withers slowly as gatekeeping deepens.
The Hidden Risks of Reintroducing MDR
This also forces a deeper question. If UPI was always zero-MDR, what drew so many private players into payments? The answer wasn’t transaction revenue — it was user acquisition. For most platforms, payments weren’t the product. They were the gateway. UPI was the hook to draw consumers into broader ecosystems — for loans, insurance, bookings, ecommerce, or ads. The real monetisation happened elsewhere. To now seek fees for what was always a public-good hook is a bait-and-switch. You can’t use public rails to acquire users and then charge them to stay.
Global comparisons reinforce this risk. The US, despite its tech capital, remains fragmented and inefficient in digital payments. Real-time systems are underused. MDRs are high. Everyday transactions are still cash-heavy. Brazil’s Pix offers a contrast — fast, free or low-cost, and structurally decentralised. No single private player dominates. The lesson is clear: public infrastructure can scale with inclusion, but only if competitive neutrality is enforced from the start.
India has already done the hard work — we built the rails, seeded trust, and scaled digital literacy. Over 60 million small merchants and first-time users have entered the formal economy because UPI removed cost barriers. Financial inclusion is a lived reality, in some parts. UPI is the scaffolding of India’s digital economy.
Need for Regulatory Vigilance
If sustainability is the concern, the answer isn’t to recover costs through user fees. The government already allocates ₹1,500 crore annually to support UPI — a public investment, not a subsidy. The marginal cost of processing digital payments is negligible compared to the macroeconomic benefits of velocity, transparency, and inclusion.
Unlike in the West, where digital ecosystems were shaped by private capital, UPI was a public sector innovation — designed as a public good. From lean startups to tech conglomerates, every player in Indian fintech has scaled on UPI’s shoulders. Instead of reintroducing friction, India should double down on what has worked. Enforce share caps. Level the field for smaller players. Catalyse innovation in underserved markets. Let competition be driven by product excellence and trust — not capital burn and platform privilege.
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