India Introduces a New Business Model for Its Popular UPI Payment System

The Indian government has introduced a bill aimed at fundamentally changing the financial model of the popular Unified Payments Interface (UPI) digital payments network. The initiative could create a legal basis for reviewing the zero-fee regime in effect in the country since 2020, which prevents merchants from being charged commissions. TechCrunch.com reports on this.

According to the National Payments Corporation of India, the UPI system processed a record 23.66 billion transactions in July this year alone. Their total value reached 29.88 trillion rupees, or approximately $313.4 billion. This unprecedented growth has sharply increased the strain on the system’s infrastructure.

Financial Stability and New Opportunities

India introduced its policy of free payments for merchants in January 2020 to encourage rapid adoption among the public. Since then, however, the system has been funded primarily through government subsidies and incentives. In recent years, the finance ministry, the central bank and private payment companies have been engaged in heated debates over how to fund the rapidly growing network.

Amrish Rau, CEO of fintech company Pine Labs, supported the bill on the social network X, emphasizing that banks and startups need continuous investment to expand the network and ensure security. In his view, charging merchants some commissions while keeping person-to-person transfers free would make the system more sustainable.

Market and Analyst Forecasts

For now, the new bill does not directly mandate merchant payment fees or clearly define which transactions would be covered. These details are expected to be clarified gradually at a later stage. Nevertheless, experts view it as the beginning of an important source of revenue for India’s payments industry.

According to Economic Times, officials are considering limiting any merchant commissions to large merchants rather than applying them to everyone. Jefferies analysts estimate that introducing small fees on high-value UPI transactions could add 50 billion to 100 billion rupees in annual revenue by the 2028 financial year.