Sustainable Funding Essential for UPI's Future

RBI governor Sanjay Malhotra highlighted the critical need for a sustainable financial model to back the rapid expansion of UPI, ensuring the digital payments infrastructure's long-term viability. "About two years ago the number of transactions per day of UPI were about 31 crore per day. In two years it has doubled — more than 60 crore a day," Malhotra stated, emphasizing the importance of covering operational costs amidst rising volumes.

Government's Role in UPI's Success

Malhotra acknowledged the government's subsidy on UPI transactions as a key driver behind its widespread adoption. "The government has taken a view that it should be available free and the government is subsidizing it. And I would say that it has borne good fruits," he remarked during a fireside chat organized by Financial Express.

Industry Calls for Reinstating MDR

The discussion comes as the industry pushes for the reintroduction of the merchant discount rate (MDR) on UPI payments, especially for high-value transactions or large merchants. Despite the zero-charge regime's success in promoting digital payments, banks and fintechs argue the model is unsustainable due to escalating tech and infrastructure costs.

Public Sentiment Against Transaction Fees

While there's lobbying for a modest MDR on larger transactions, the government maintains its stance against direct charges on users or merchants, labeling UPI a "digital public good." Public opinion strongly opposes any fees, with surveys indicating a potential decline in UPI usage if transaction charges are introduced.