UPI’s Role in India’s Digital Payments and the Debate Over Transaction Fees

By: Harsh Vardhan

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Updated on: 11-Aug-2026 07:00 PM

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Unified Payments Interface (UPI) has become the backbone of digital transactions in India over the past decade. The service is free for users and merchants, making it accessible to everyone from small vendors to large retailers. Recent discussions have raised the possibility of introducing fees for UPI transactions, but the government has so far maintained its free status.

Key Highlights

• UPI processes hundreds of millions of digital transactions daily across India.
• NPCI's operational cost for UPI infrastructure was about Rs 500 crore in 2025.
• Government allocated Rs 2,000 crore in 2026 to subsidize the UPI network.
• Printing and minting physical currency costs the RBI and banks significantly more.
• NPCI reported a revenue surplus of over Rs 1,500 crore in 2024-25.

UPI’s Growth and Operational Costs

UPI was launched by Indian banks in 2016 through the National Payments Corporation of India (NPCI), with support from the Reserve Bank of India (RBI). The system was developed in response to the rapid growth of digital wallets by technology companies. UPI quickly gained popularity due to its simplicity and government backing.

Managing the UPI network involves significant costs, including IT infrastructure, personnel, and cybersecurity. According to IIM Bengaluru researchers Balakrishnan Mahadevan and Srinivasan R, NPCI’s total operational expenses for the 2024-25 financial year were Rs 2,270 crore. However, about 50 percent of this was spent on marketing, and the remaining amount covered multiple payment systems, not just UPI.

An analysis by Zerodha estimated the infrastructure cost of managing UPI at around Rs 500 crore in 2025. The government has subsidized these costs, allocating approximately Rs 2,000 crore in the 2026 budget to support the UPI network.

Cost Savings and Strategic Importance

UPI’s digital transactions reduce the need for physical cash, saving costs for the RBI and banks. In 2018, the RBI spent between Rs 1 and Rs 4 to print each currency note, depending on denomination. Minting coins cost over Re 1 for a one-rupee coin and over Rs 5 for a ten-rupee coin. These costs have likely increased with rising metal prices.

Banks also save on ATM operations. In 2025, the RBI allowed banks to charge up to Rs 23 per ATM transaction after free limits are exhausted, reflecting the cost per transaction. ATM installation, maintenance, and servicing all add to these expenses.

UPI’s benefits extend to banks, NPCI, and the government by reducing cash logistics and tracking costs. In the 2024-25 financial year, NPCI reported a revenue surplus of over Rs 1,500 crore, indicating profitability despite operational expenses.

Public Utility and Policy Considerations

UPI’s status as a public utility provides strategic value for India. It ensures payment sovereignty and reduces dependence on international networks like SWIFT, Visa, and Mastercard. UPI and RuPay enable seamless domestic digital payments even if India is cut off from global gateways.

The government frequently subsidizes various sectors. In 2024, Maharashtra’s budget included Rs 96,000 crore for subsidies and direct cash transfers. Compared to these figures, the cost of keeping UPI free is relatively small. Subsidizing UPI can be viewed as a benefit for the middle class, which often bears the tax burden.

Introducing fees for UPI transactions could shift costs to users and merchants, but the government has so far chosen to absorb these expenses. Maintaining UPI as a free service supports digital adoption and financial inclusion across the country.