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Roads are built with public money, maintained by governments, and are open to everyone. Private businesses use them, profit from them and build industries around them. India’s Unified Payments Interface (UPI) was designed on a similar principle: a public digital infrastructure on which private innovation could thrive. The question today is whether the costs and benefits of that model remain fairly distributed.
UPI is a genuine achievement. According to the National Payments Corporation of India (NPCI), UPI recorded 22.64 billion transactions in March 2026 alone. It has transformed how Indians pay, from street vendors to e-commerce. The infrastructure works, but the question is, who controls it, and who actually pays for it?
The Concentration Problem
India’s sovereign digital payment system is mainly used through two platforms, PhonePe and Google Pay, which together account for over 80% of all consumer-facing UPI transactions.
The market exhibits strong duopolistic characteristics. NPCI introduced a 30% market share cap in November 2020 to restrict any single app from dominating UPI and creating systemic risk. The rationale was that if a dominant app faces a major outage, a significant portion of India’s payment system could be affected by it.
The compliance deadline for the cap has now been extended to December 2026; this is the second time NPCI has extended it. The RBI Governor stated that implementing a cap would be difficult in practice and that forcing dominant platforms to stop onboarding users or restrict transactions could disrupt commercial activity. As a result, the cap remains more of a policy aspiration than an enforceable regulatory tool.
Meanwhile, BHIM accounts for less than 1% of UPI transactions, leaving India’s publicly backed alternative a marginal player.
The Zero MDR Paradox
In 2020, the government made UPI completely free. The policy was put in place with a clear goal: to speed up digital payments and make financial services accessible to more people, without charging extra fees to consumers or small merchants. By that standard, it has been very successful. But a funding model designed to drive adoption may not be enough for a system that now handles trillions of rupees each month. The challenges today are sustainability, competition, and resilience.
And the cost of running UPI did not disappear; it shifted. The Department of Financial Services (DFS), in its written submission to the Parliamentary Standing Committee on Finance, stated that “the absence of MDR makes the UPI ecosystem financially unsustainable.” The DFS confirmed that the government’s support only covers about 11% of the industry’s total costs and just 14% of the MDR revenue the industry loses.
Banks absorb infrastructure and operational costs with no revenue from UPI. Indian fintech startups, unable to sustain themselves on zero revenue, have stopped investing in UPI innovation. Zero MDR has diminished the interest of new players, with firms now treating UPI as a customer acquisition tool for other services within their apps.
This arrangement disproportionately benefits large platforms such as PhonePe and Google Pay, which can cross-subsidise their UPI operations through other revenue streams. They can afford to run UPI at zero revenue indefinitely, but Indian startups cannot. The maintenance costs fall on banks, Indian fintechs, and the taxpayer. In the Union Budget 2026-27, the government allocated ₹2,196 crore to sustain UPI, nearly five times the ₹437 crore allocated the previous year. This shows that public funds are being used to sustain an ecosystem whose largest beneficiaries include private companies.
What Needs to Change and What Doesn’t
The Parliamentary Standing Committee on Finance has proposed a tiered MDR system in which small merchants remain free, while large businesses pay a small fee to make UPI financially sustainable. The Payments Council of India has proposed a 0.3% MDR specifically for merchants with annual turnovers above ₹40 lakh. Any such system must ensure that large merchants are explicitly barred from passing the cost to consumers through surcharges or convenience fees. Otherwise, the cost will simply be passed on to consumers.
The revenue generated through this tiered MDR should not disappear into general government funds. A ring-fenced portion should go directly toward three things: strengthening BHIM and other domestic alternatives to reduce concentration risk and improve competitive choice within the UPI ecosystem; expanding payment infrastructure in underserved areas and improving digital literacy. DFS flagged to the Parliament that rural areas lag sharply in merchant acceptance and connectivity. Sustainable rural growth depends on hardware deployment, last-mile merchant onboarding, and investment in dispute resolution in low-literacy communities.
Roads built with public money should not depend on a handful of private gatekeepers. And those who profit most from them should help pay for their upkeep. Public infrastructure works best when its benefits are widely shared, and its costs are fairly distributed.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.